The Friday Report: May 31st, 2019

FedEx Ground to Debut New 7 Day a Week Residential Delivery Service

In an effort to keep pace with Amazon Prime’s one day delivery service, FedEx recently announced that FedEx Ground will begin seven day a week residential delivery service for most of the United States by January 2020.  During the holiday peak season, FedEx already delivers seven days a week.

Major investments in technology, automation and capacity were required to be made by FedEx Ground over the past 20 years to reach this heightened level of service.  The investments were critical to enabling FedEx to extend their growth and capacity for service, increasing market share for 19 of the last 20 years, By 2026, the average daily volume of small parcel deliveries is expected to double. 

Additionally, the company is increasing large package capabilities and integrating business that has traditionally gone to the United States Postal Service for daily residential deliveries, FedEx SmartPost into its FedEx Ground standard operations.  According to the popular shipping carrier, almost 2 million FedEx SmartPost packages will be more frequently integrated into its FedEx Ground operations.  The packages will be handled by the same service providers which handle residential FedEx Ground deliveries.

According to industry experts, it will be more expensive for competitor UPS to follow suit.  FedEx uses contractors for deliveries of ground packages and does not have to pay a premium for Sunday deliveries.  UPS has labor contracts and would have to pay a premium to its drivers for Sunday delivery service.

New U.S. Threat of Mexican Tariffs Sends Stocks Downward

In the midst of a worsening trade war with China, investors reacted sharply to President Trump’s surprise threat of the imposition of tariffs on Mexico.  The Dow tumbled 250 points and the S&P and Nasdaq dropped 1%.  One industry analyst explained that the U.S. trade policy may indicate a period of uncertainty and instability in the global trading system.

Politicians and business experts voiced concern about the imposition of a 5% tariff on all Mexican imports starting on June 10th as it is specifically linked to the issue of immigration.  The tariff would be imposed until such time as the illegal immigration across the southern border of the U.S. border ceased.  A White House statement indicated that tariffs would be increased if the illegal immigration persisted.

Industrial Real Estate Construction Boom Fueled by U.S. E-Commerce

A recent report by Avison Young indicates that a “massive industrial space explosion” is being fueled by e-commerce and last mile logistics.  According to the report, 272 million square feed of construction has been completed across 46 markets during the past twelve months.  Another 274 million square feet of industrial space is in the pipeline.  Developers are challenged to satisfy the demand for modern facility space in close proximity to transportation networks and large population areas.

Avison Young researchers anticipate that the dramatic new increase in supply may result in an increase in vacancy rates and a slower absorption rate in selected markets, however this is only expected to be a temporary condition.  Significant rent increases are anticipated on warehousing space near the ports.