From SCDigest's On-Target E-Magazine
- Oct, 13, 2014 -
Supply Chain News: UPS Asking Retailers to Scale Back Last Minute Christmas Shipping Guarantees - They aren't Much Listening
Retailers Prefer Revenue over Delivery Buffers, as UPS and FedEx Hope Their Forecasts are Accurate on the Up and Downside
SCDigest Editorial Staff
Last year, UPS and to a much lesser extent FedEx suffered black eyes and some real costs when a last minute surge of on-line orders, plus some weather issues in Texas for UPS, caused a last minute delivery meltdown that left millions of gifts sitting in terminals or trucks instead of being delivered before Christmas as guaranteed not only by the retailers but by their agreements with the express carriers.
Amazon.com in fact fired off a nasty letter to affected customers calling out the "failure" on the part of its delivery suppliers, offering those consumers Amazon gift cards in an expensive move to mitigate the anger.
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| Of course that approach could lead retailers to boost their forecasts on the upside, especially if there is no penalty from being wrong in those projections. |
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What Do You Say?
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Of course the reality was a lot more complicated than just saying UPS or FedEx failed. In UPS' case, the bottleneck appears to have been the number of aircraft it had in service, which was not enough to meet the last minute volume spike.
UPS had been forecasting an 8% average rise in its daily shipping volumes during the holidays versus 2012. However, ecommerce sales in the last weekend before Christmas jumped by 37% from the year before, according to data from IBM Digital Analytics. On Monday Dec. 23, growth in online orders spiked by 63%, according to Mercent Corp.
That volume growth issue was exacerbated by the mix between air and ground shipments. Many emerchants offered last minute shipping deals that required air service, or they were behind in their own order fulfillment processes and had to switch to higher cost air shipping to meet promised delivery dates.
At UPS' massive Worldport hub in Louisville, workers were putting in 100-hour weeks to sort packages, and were working feverishly in the last days before Christmas to move boxes for placement on to planes. But there weren't enough planes to handle the volumes. Despite adding 23 extra chartered aircraft for this Christmas season to its normal operating fleet of more than 237 company-owned planes and 293 daily charters, on Christmas Eve, the volume of air packages in its system had simply exceeded its capacity.
Contributing to the problems, retailers such as Toys "R" Us Inc. and Dick's Sporting Goods told customers they could place on-line orders as late as 11 p.m. on Monday, Dec. 23 and receive goods by the end of day on Tuesday. That is a full 24 hours later than the deadlines they had in 2012 - a placing enormous pressure on and ultimately overwhelming UPS and FedEx.
UPS Asks Retailers for Some Relief on Commitments - Is Largely Rejected
As we've reported previously, UPS is already investing big money to avoid another holiday fiasco this year, saying it was planning to hire almost 100,000 season workers this year, up from 55,000 in 2013, and investing tens of millions of dollars in new aircraft, trucks and upgrading routing software.
But a Wall Stret Journal story last week said that UPS and FedEx are working the retailers hard too. UPS has been asking retailers to not have any commitments for delivery before Christmas for orders placed on Dec. 23 - but that appears to be having limited effect.
Nordstrom, for example, is pushing up the cutoff time for such orders to noon from 3 pm, but that still leaves previous little for orders to be picked, packed, shipped and delivered. Macy's is sticking with its deadline from last year, also at noon, but it expanding greatly the number of stores where on-line orders can be picked up. Most other retailers are making few if any changes to their marketing plans.
Both UPS and FedEx say they have been collaborating with retailers on their forecasts - with UPS telling shippers it likely will not be able to deliver before Christmas any last minute orders that exceed that forecast.
(Transportation Management Article Continued Below)
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But of course that approach could lead retailers to boost their forecasts on the upside, especially if there is no penalty from being wrong in those projections.
