UPS and FedEx Don’t Allow Santa to Keep His Promises
UPS and FedEx didn’t stick to their service levels this holiday season, even though they had unprecedented package volume and decades of experience handling volume spikes. How did this failure happen, and what does it mean for the delivery industry?
Historically, UPS and FedEx have had a fairly predictable mix of residential and business deliveries. The rapid growth of e-commerce, however, is driving more and more residential volume. As the mix shifts, the volume “spike” associated with the holidays gets worse every year. In 2013, the numbers were dramatic: not only did the percentage of residential deliveries hit an all-time high, but overall volume was also up, as consumers did more of their buying online.
As the local delivery industry moves forward, this phenomenon will be the new normal. For UPS and FedEx, there is a huge cost to handling volume spikes. Why? Carriers need larger facilities, more aircraft, and more drivers during a spike, logistics that they don’t need during the rest of the year. As spikes grow more overwhelming, this underutilized capacity will become more costly to maintain. Based on the new normal, and the widespread failure over the holidays, here are a few predictions for what’s ahead:Expect to see UPS and FedEx roll back delivery promise times next year in order to avoid failures and reduce infrastructure investment;
1. Expect Amazon to continue investing in its network of local carriers as an alternative to UPS and FedEx and an outlet for spikes. And expect other retailers to follow suit faster than they have in the past: they learned the hard way with Prime that they can’t sit back for too long;
2. Amazon will roll out its own fleet in dense areas both to reduce dependency on UPS and in support of same-day delivery. The Amazon Fresh vehicles (https://fresh.amazon.com/) are a clear sign that the company wants to create a closed network that’s a competitive advantage; and,
3. UPS and FedEx will need to innovate further on delivery options, including Sunday, same-day, and scheduled delivery, to meet growing customer expectations and alleviate volume spikes.