FedEx's new service delivers online orders hours after they're placed - and it shows that Amazon Prime isn't special anymore

FedexMike Segar/Reuters

  • Most online orders are placed after 4 p.m.
  • FedEx's months-old Extra Hours service delivers goods ordered online as late as 2 a.m. for next-day local delivery and two-day shipping to any address in the continental US.
  • The service shows that Amazon Prime's two-day shipping promise is no longer unique.

Online orders placed after sundown typically can't arrive the next day in most metro areas - even if you pay extra for speedy delivery. That's in contrast to the fact that most people online shop between the hours of 6 p.m. and midnight.

FedEx is adapting to consumers' night owl shopping habits with Extra Hours. The months-old service pushes the evening order cutoff times by five to eight hours. Online orders placed as late as 2 a.m. can deliver the next day in certain metro areas, or within two days to addresses in the continental US.

Read more: Amazon just expanded their fleet to 50 aircraft - and it shows that FedEx and UPS are starting to lose one of their biggest customers

Kevin Sterling, managing director of Seaport Global Securities, told Business Insider that FedEx Extra Hours allows traditional retailers to compete with Amazon Prime's two-day shipping pledge.

"Retailers love it," Sterling said. "They used Extra Hours during peak season, and they were able to sell it as, 'Hey, look, we're better than Amazon Prime.'"

FedexYuri Gripas/Reuters

As part of Extra Hours, FedEx will "sweep" a retailer's local big box store for the product a customer ordered. Then, FedEx Ground will pick up that product from the local store and deliver it to the customer's house the next day.

Before Extra Hours, FedEx might instead pick up an online order from the retailer's regional distribution center before bringing the order to a local facility. Through bypassing the process of going to a retailer's distribution center, Sterling said Extra Hours shaves two or three days from the shipping process.

But a traditional retailer's pre-existing network of big box stores around the country mimics a crucial element of Amazon's e-commerce strategy - its spread of more than 75 massive fulfillment centers. That positions traditional retailers to be able to compete with Amazon Prime's shipping times.

"By providing later pickup times and utilizing next-day local delivery, retailers can fulfill and deliver online purchases to their shoppers faster than their competition," a FedEx spokesperson told Business Insider.

Best Buy and AutoZone were the first to pilot Extra Hours during the summer of 2017. FedEx launched the service before the holiday season of 2018, Sterling said. FedEx didn't share what other retailers were using Extra Hours.

Read more: Amazon posing a threat to FedEx is a 'fantastical' idea, CEO said - but the reality is much more complicated

Amazon does use FedEx delivery services, and the CEO of the Memphis, Tenn.-based shipping behemoth recently said he considers Amazon nothing more than a customer.

Meanwhile, Extra Hours is uniquely fit for big-box retailers. The FedEx spokesperson said Extra Hours is fit for retailers with "with an expanded market presence (e.g. multiple locations) that would benefit from late pickups with next-day local delivery."

Amazon Prime is losing its luster

In Dec. 2015, non-Amazon retailers delivered goods eight days after they were purchased. Amazon was much faster at just 5.92 days of average click-to-door speed.

But Amazon's competitors are quickly closing the gap. As of March 2018, Amazon delivered orders 3.07 days after they were purchased, compared to an average click-to-door speed of 4.52 days at other retailers.

Logistics companies like FedEx are facilitating not only faster deliveries at traditional retailers but cheaper ones too, as Business Insider's Dennis Green reported. Walmart offers millions of products for free two-day shipping, and eBay is also expanding its spread of free shipping products.
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