Dive Brief:

• FedEx Ground will suspend Sunday home deliveries in some U.S. markets beginning the week of Aug. 15 after the operations posed "various challenges for certain service providers," according to a memo the company sent to contractors Thursday.
• Sunday delivery coverage will now reach close to 80% of the U.S. population, versus the nearly 95% it had been servicing, according to a statement from FedEx confirming the suspensions. The affected markets weren't identified, but the memo said they are primarily lower-population areas where the suspension "has a lesser impact on shippers."
• Spencer Patton, founder and president of one of FedEx's largest Ground contractors, pushed the company to reassess the viability of Sunday delivery in a letter sent to company management Thursday. Sunday deliveries have erased more than one-third of contractors' profit margins in less than a year, according to Patton, who leads Patton Logistics.

Dive Insight:

Year-round Sunday residential delivery has been an offering FedEx has touted over rival UPS since its launch in 2020; UPS offers Sunday delivery via its SurePost service, which uses the Postal Service for final-mile delivery.

FedEx had accelerated the rollout of Sunday coverage to accommodate for the pandemic-fueled e-commerce boom, but maintaining it has been a large undertaking. Both FedEx and its more than 6,000 delivery contractors have had to add needed staff, and it’s been a challenge to obtain the volume needed on sparsely populated delivery routes in order for the service to make financial sense.

"Sundays wreak havoc on FedEx Ground’s ability to accurately forecast the next day’s volume: the technological infrastructure and package volume projection algorithms are woefully inept," Patton wrote. "FedEx Ground has been unable to solve these forecast errors for two years now. Without accurate forecasts, (contractors) struggle to align their costs to match the actual packages that are made available for delivery each day."

The Sunday delivery suspension will allow "FedEx Ground to increase efficiencies while maintaining a competitive advantage in weekend coverage," FedEx's statement said. Package volume previously sorted for Sunday delivery will be moved to Saturday and Monday. But higher-volume "Peak Service Days" could still include Sunday delivery "to the extent needed by the market," per the memo.

Improving operational efficiency has been top of mind for FedEx as it works to boost profit margins. In June, the delivery giant unveiled its "Network 2.0" plan, in which it will eliminate more than 10% of overall pickup and delivery routes to reduce overlap between its three operating companies, Express, Ground and Freight. FedEx expects the plan to produce a $2 billion annual financial benefit by fiscal year 2027.