Delays Hurt Holiday Shipping

This story appears in the Jan. 6 print edition of Transport Topics.

The outcry from consumers over late delivery of Christmas gifts — due to a combination of bad weather and a surge in online orders — will force package carriers and retailers to consider changes such as surcharges during peak periods.

Each of the major package carriers — UPS Inc., FedEx Corp. and the U.S. Postal Service — reported higher-than-expected volume during the holiday shopping season, which was six days shorter than last year because Thanksgiving fell later.

While overall retail sales rose a modest 3.5%, online purchases increased more than 10% to $42.75 billion, according to ComScore Inc.

UPS said the volume of last-minute air packages exceeded its capacity to process them, and the company has offered refunds to some customers whose packages did not arrive by Dec. 24. UPS said it cleared its backlog by the night of Dec. 27.

Merchants including Amazon, Kohl’s and Wal-Mart, offered refunds or gift cards, and they are expected to put pressure on parcel-delivery firms to boost capacity or seek alternatives to prevent delays, officials said.

“I see retailers working to ensure that delivery promises can be met,” said Casey Chroust, managing partner of Retail Strategic Ventures in Washington, D.C. “The consumer doesn’t care if it’s UPS or FedEx [making deliveries]. They are holding retailers responsible.”

John Sheehy, owner of Sheehy Mail Contractors Inc., said the increase in package volume caught the trucking industry, which provides contract hauling for package carriers, “off guard.”

“We had geared up for what we thought would be volume that was close to 2012 or even less. It was appreciably more,” Sheehy said.

“We’re looking at all aspects this year and talking with our shippers as part of the process following every peak season,” UPS spokeswoman Peggy Gardner said in an interview with Bloomberg News.

Gardner declined to discuss the number of shipments that missed the scheduled delivery day. Company officials contacted by Transport Topics also declined to provide additional information.

Satish Jindel, president of SJ Consulting Group, which tracks parcel movements, estimated between 3% and 4% of packages handled by UPS in the final week before Christmas were delivered late.

He suggested that was about an equal percentage as last year, with the higher overall volume resulting in “hundreds of thousands” of affected packages out of an estimated 355 million handled by UPS during the holiday season.

A spokesman for FedEx said the company moved more than 22 million shipments Dec. 16, making it the busiest day in company history.

“We provided outstanding service levels throughout the holiday week, with a few isolated service issues,” the spokesman said. “We worked directly with those customers on a case-by-case basis, and any service issues are now resolved.”

UPS and FedEx rank No. 1 and No. 2, respectively, on the TT100 list of the largest for-hire carriers in the United States and Canada.

The main responsibility for late deliveries of Christmas gift parcels “lies squarely on the shoulders of online retailers,” industry consultant Jindel said.

Many shippers offered delivery guarantees even though ground delivery service is normally not guaranteed during the peak holiday season, and guarantees on express shipments often are waived in exchange for lower rates. Some retailers also were late tendering parcels to carriers, Jindel noted.

Parcel carriers should charge more to move packages during peak shipping times, much like airlines and ocean carriers do as they approach capacity limits, Jindel said.

“If online retailers want to promote sales with discounts during the week prior to Christmas, they should bare the higher cost from such a surge in volume,” Jindel said.

Amazon spokeswoman Mary Osako told Bloomberg that the company is reviewing the performance of delivery companies. While Amazon relies on parcel carriers to deliver virtually everything it sells, the company does operate its own vehicles in Seattle, San Francisco and Los Angeles to deliver groceries. Those also could be used to carry general merchandise.

Amazon founder Jeff Bezos has also talked about the potential for drones to deliver small packages.

The U.S. Postal Service said it had projected a 12% increase in package volume this holiday season, but actual volume rose 19% compared with the same period a year ago.

“We stayed ahead of volume and weather by closely monitoring mail volume and adjusting our network and delivery schedule accordingly,” spokeswoman Sue Brennan said.

The Postal Service delivered packages on three Sundays prior to Christmas in high-volume markets and delivered more than 75,000 packages on Christmas Day.

To meet growing volumes, industry analysts said they expect to see increased investment in freight-hauling capacity by parcel carriers and further refinements in online shopping services by retailers.

Benjamin Hartford, an analyst for Robert W. Baird & Co., said he estimates UPS will spend $50 million to $100 million on refunds, rebates and higher operating costs in the final three months of the year, but that damage to the company’s service reputation to be “short-lived.”

“We expect a strong response to the disruptions, including customer reimbursements, a strong marketing campaign, changes to peak pricing mechanisms and continued investment in [e-commerce] ground capabilities,” he wrote in a note to investors.

Eric Morley, a former executive at Best Buy Co. who now has his own logistics consulting business in St. Paul, Minn., said the delivery problems this year could lead some last-minute shoppers to go to physical rather than virtual stores or use a ship-to-store option, where customers pick up merchandise ordered online.

“We’ve all gotten used to guaranteed shipping because there’s rarely a failure,” he said. “I think what we saw is a glitch that was blown out of proportion.”

Supply chain expert Jim Tompkins, president of Tompkins International in Raleigh, N.C., said he expects retailers and carriers to do a better job of preparing for contingencies, such as bad weather.

Two major winter storms not only slowed deliveries, they kept people at home where they shopped online, and that contributed to a surge in package volume late in the season, he said.

Tompkins said the storms “sparked the beginning of the final delivery problems for transportation providers, and they were never truly able to recover.”

Associate News Editor Jonathan S. Reiskin contributed to this report.