Dive Brief:

• FedEx announced last week it is expanding its relationship with robotics company Berkshire Gray as it aims to handle small parcels more efficiently.
• Under the new agreement, FedEx plans to deploy the company's Robotic Product Sortation and Identification (RPSi) system in more facilities, gain the benefits of a company-wide purchasing agreement and have the option to invest in the robotics company.
• The company already has Berkshire Grey’s RPSi system installed at eight FedEx Ground sortation facilities in New York, Nevada and Ohio. Additional deployments will occur within a year, according to the release.

Dive Insight:

FedEx's expanded relationship with Berkshire Grey will help its efforts to more efficiently handle the flood of small parcels brought on by the e-commerce boom, according to a FedEx executive.

Conventional sortation systems aren't able to easily handle poly bags, or plastic packaging for small shipments, that have become more prevalent as e-commerce volume has increased, Rebecca Yeung, corporate vice president of operations science and advanced technology at FedEx, told Supply Chain Dive. More cost-effective methods to handle online shopping orders are critical, as they tend to be less profitable than other shipments for the carrier.

"If you look at a large sortation system, they can very easily handle those brown boxes," Yeung said. "When it comes to very small items, it does need a level of unique, specific design."

That's where the RPSi system comes into play. It can sort thousands of small packages daily into bulk containers that are bound for other hubs or sortation facilities in FedEx's network, Jessica Moran, senior vice president and general manager at Berkshire Grey, said.

FedEx's RPSi purchases have helped it become one of Berkshire Grey’s “anchor customers,” along with Walmart, Target and another unnamed Fortune 100 retailer, President Steve Johnson said on a May earnings call. The first RPSi installation came in Queens, New York in 2021.

RPSi systems are one of several automation investments FedEx is making to minimize manual inputs and accelerate throughput at its facilities. FedEx's facility criteria for installing an RPSi system boils down to having the space necessary for it and location in a market that frequently encounters small packages.

"You combine the space with the need, that's a key selection criteria," Yeung said.

FedEx and Berkshire Grey also plan to execute a master system purchase agreement this year. Instead of a FedEx company negotiating an agreement with Berkshire Grey for just itself, the master agreement covers all FedEx companies, which will streamline and expedite the procurement process, Moran said.

The logistics giant has carved a path to become more than just a Berkshire Grey customer. Through a warrant agreement, it can acquire 25 million shares in Berkshire Grey — more than 10% of its shares outstanding as of August 2022 — at an exercise price of $1.67 a share. At that price, 25 million shares would be worth around $42 million.

The shares vest incrementally, fully vesting if FedEx spends at least $200 million in robotic automation goods and services from Berkshire Grey by 2025. The warrant also provides upside for FedEx is Berkshire Grey is performing well, Yeung said, noting that Berkshire Grey's stock price closed Friday higher than the $1.67 outlined in the agreement.

"Instead of just a procurement-vendor relationship, it becomes a more strategic kind of relationship," Yeung said.