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FedEx Pilots Autonomous Trucks as Labor Crunch Chomps Bottom Line

FedEx Corp. kicked off a collaboration with Aurora–an autonomous technology developer–and PACCAR, a medium-and heavy-duty vehicle manufacturers, to test Aurora’s autonomous driving technology in PACCAR state-of-the-art autonomous vehicle platform-equipped trucks within FedEx linehaul trucking operations.

The three industry leaders will work together to accelerate the development and scaled deployment of autonomous driving technology. This commercial application of Aurora’s Driver technology is the latest addition to the FedEx portfolio of autonomous and robotics solutions, as the company continues to experience record delivery volumes.

On Tuesday, FedEx reported first quarter revenue increased 14 percent to $22 billion, with net income declining 11.2 percent to $1.11 billion. FedEx said results were negatively affected by an estimated $450 million year over year increase in costs due to a constrained labor market which impacted labor availability, resulting in network inefficiencies, higher wage rates and increased purchased transportation expenses. This was partially offset by higher package and freight yields, increased international export express shipments and a favorable net fuel impact.

In addition, while commercial ground and U.S. domestic express package volume increased year over year, continued supply chain disruptions have slowed U.S. domestic parcel demand compared to the company’s earlier forecast.

“The FedEx teams continue to diligently deliver for our customers under unique and challenging circumstances,” said Raj Subramaniam, FedEx Corp. president and chief operating officer. “The current labor environment is driving inefficiencies in the operation of our networks and significantly impacting our financial results. For the peak season ahead, service remains our focus and we are making investments in resources and capacity to meet our customer’s needs.”

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On a conference call with analysts, Subramaniam said across the FedEx Ground network, more than 600,000 packages a day are being rerouted due to labor shortages at distribution centers and warehouses. The company “anticipate the cost pressures from network inefficiencies…to persist through peak as we navigate the labor market” and impacts of new Covid spikes, he added.

“Overcoming these staffing and retention challenges is our utmost priority as they not only affect our cost structures and operational efficiency but also having a negative impact on service levels,” Subramaniam said. “As such, we’re taking bold action across the enterprise to hire and invest in our frontline team members as we prepare for the peak season ahead. These actions include targeted pay premiums, particularly for weekend shifts, increased tuition reimbursement, sponsorship of a national hiring day on September 23 as we seek to hire 90,000 additional positions ahead of peak.”

The company noted that the exponential growth of e-commerce has accelerated the demand for reliable, efficient transportation and logistics solutions throughout all stages of the supply chain. The delivery company believes that continued innovation and automation will improve safety, efficiency and productivity for the company’s more than 560,000 team members.

“Based on these actions, combined with our expectations for improving labor conditions, we do anticipate gradual improvement in our operational efficiency as we turn into the new calendar year,” Subramaniam said. “During the first quarter, the team continued to execute on our strategy even amid the challenging operating environment. As e-commerce drives higher demand, we continue to strategically invest in our network to boost daily package volume capacity, increase efficiencies and further enhance the speed and service capabilities of our networks.”

Discussing the new collaboration, Rebecca Yeung, the company’s vice president of advanced technology and innovation, said it “will work toward enhancing the logistics industry through safer, more efficient transportation of goods.”

Earlier this year, Aurora and PACCAR announced a strategic partnership to build and deploy autonomous trucks at scale. This latest collaboration will incorporate the FedEx’s logistics expertise to help accelerate the deployment. The three companies will leverage their collective expertise in transportation to advance autonomous technology in linehaul operations.

“As leaders in our respective fields, we have critical and unique perspectives on how to develop and deploy safe, self-driving truck solutions for this industry,” Sterling Anderson, chief product officer at Aurora, said. “This collaboration allows for the creation of a cohesive and integrated product and service. We believe there is no other credible way to deliver this complex and valuable technology at scale.”

The pilot began Wednesday and will run along FedEx Dallas-Houston parcel lanes, completing the nearly 500-mile round trip route multiple times each week. The trucks will operate autonomously, with a backup driver for additional safety.