LOS ANGELES (Reuters) - FedEx Corp said it plans to hire about 700 flexible, part-time Express drivers in 160 U.S. residential and rural markets as customer-turned-competitor Amazon.com Inc puts pressure on established delivery firms.

FILE PHOTO: A FedEx delivery worker carries a package for a delivery in Wilmette, Illinois, October 27, 2015. REUTERS/Jim Young/File Photo

FedEx, like global rival United Parcel Service Inc, is investing billions of dollars to cope with the boom in low-margin residential deliveries, which account for just over half of total package volume versus 20 percent in 2000.

Taking small numbers of packages the “last mile” to shoppers’ doorsteps and far-flung homes is more costly than delivering scads of envelopes and packages to office buildings - the latter of which has been the Memphis-based company’s bread and butter.

A typical residential delivery costs FedEx and UPS $1.60 more than a commercial delivery. They have surcharges to help cover the extra expense, but retailers are pushing back as they work to lower the cost of ever-faster - and still free - shipping, said Satish Jindel, founder of ShipMatrix.

The lower-cost, part-time drivers will use company vehicles, receive no benefits, work no more than four weekly shifts, and be paid $17.10 per hour in most markets - including Paducah, Kentucky; Roswell, New Mexico; and Jacksonville, Florida. Pay was highest, $19.66 per hour, in Kodiak, Alaska, according to a Reuters review of help wanted ads targeting 139 small to midsize cities in 31 states.

FedEx declined to give details on pay for the new employees or existing Express drivers.

FedEx and UPS traditionally have offered some of the industry’s most desirable jobs.

FedEx Express employs more than 40,000 U.S. couriers. One person familiar with the hiring push said Express’ non-union drivers make about $24 per hour and receive full benefits. Glassdoor.com put the average hourly pay at $18-$32.

UPS’ unionized drivers make $20.50-$37.45, and the average total compensation for UPS small package drivers is $145,000 a year, a spokesman said.

FedEx said the part-time job category creates a group of flexible employees to supplement its existing workforce.

“This will allow us to handle fluctuations in volume by day of the week or hour of the day,” FedEx said in an email.

Some experts called the effort a response to Amazon, which uses an army of on-demand “Flex” delivery drivers who make $18-25 per hour, get no benefits, and use their own cars to drop off packages. Those low-cost gig workers help open up Amazon’s delivery markets. They also handle overflow and re-deliveries from the independent van owners that Amazon hires for daily routes.

“It sounds to me like they’re moving toward the gig economy,” John Haber, chief executive of consultancy Spend Management Experts, said of FedEx Express.

The project comes as Don Colleran - who was appointed CEO of FedEx Express in March - works to turn around the division now grappling with higher-than-expected costs related to integrating its European TNT Express business, a cooling global economy, and margin-squeezing e-commerce growth.

Haber and other consultants said the new part-time drivers could support FedEx Express’ “Extra Hours” service that allows retailers like Walmart Inc to fulfill online orders into the evening for next-day local delivery.

“They’ve got a ton of Walmart business. If these drivers are rural, this fits the Walmart model,” Haber said.

Others said the move takes FedEx in the wrong direction.

“They should be downsizing the Express network, not expanding it,” said Jindel, who is advocating for FedEx to merge Express with its more efficient North American Ground operation that outsources delivery to a network of independent providers.

“Why don’t they use their Ground contractors to deliver (those packages) for them?” said Jindel, who helped found Roadway Package System (RPS), which was rebranded as FedEx Ground in 2000 - two years after FedEx bought its parent company.

Meanwhile, FedEx Ground is working to ring out more residential profits by shifting the delivery of nearly 2 million SmartPost packages from and the U.S. Postal Service mail carriers to its own drivers. That should lower costs by increasing the number of parcels dropped at every stop.

Atlanta-based UPS operates one network in the United States and is more profitable than FedEx - even though residential deliveries make up 47% of its volume versus 25% at FedEx, according to ShipMatrix.

Shares in UPS slipped 0.4% in afternoon trading, while FedEx was down 1.3%.

UPS is not likely to replicate FedEx Express’ strategy any time soon.

“We do not use part-time drivers outside of the period specified in our contract with the Teamsters, which includes periods around the peak holiday season,” UPS spokesman Glenn Zaccara said.