Eye on peak season 2014

UPS has focused on better forecasting, increasing capacity, enhanced visibility and more complete communications with clients.    On the day after Christmas, UPS officials went to work, striving to solve the riddle that was peak season 2013. Eager not to replicate the complications felt during the past holiday season — when increased demand mixed with poor weather conditions to force delays throughout the integrator’s system, causing customers to wait days for their packages — UPS has been ramping up capacity and working on a strategy for 2014’s peak season since late last year.
   During 2013’s holiday season, UPS said it “exceeded expectations by surpassing 29 million packages on five days, with peak volume exceeding 31 million on Dec. 23.” During that time period, 10 days surpassed previous volume records. For UPS officials, it was clear something significant had to change. 
   When preparing for the 2014 peak season, UPS focused on better forecasting, increasing capacity, enhanced visibility and more complete communications with clients, according to Mark Wallace, the integrator’s vice president of industrial engineering.
   For the first time in its history, UPS will be going full bore during the day after Thanksgiving. Usually, Black Friday has been reserved for air-only operations, but now all UPS operations will be going in order to meet enhanced e-commerce demand. This adds another full day of operations for 2014 compared to 2013; the difference in the 2014 calendar also will allow UPS to operate for one more day during its peak season, when compared to last year.
   “We’ll be evaluating it this year, obviously,” Wallace said of the new operating day. “We’ll save costs in the following week during cyber week because it levels out our volume.” 
   Wallace explained that allowing Black Friday ground volume to be delivered on Friday instead of waiting until Monday will allow UPS to become a much more efficient operation. UPS is taking on this additional expense — paying workers overtime for Black Friday — because working during that day will help UPS stay ahead of the holiday rush, Wallace said.  
   “We have never worked that day; this is a big deal,” he said. “In the past, when you look at the trends, it really didn’t dictate [the need to work on Black Friday]. It’s always been a holiday for us. But this year, it’s not.”
    UPS is also making a $500 million investment to bring additional capacity for handling this peak season and beyond. This investment includes a 10 percent increase in package-car capacity and an increase in domestic sort capacity by 5 percent. Part of this investment includes a 400,000-square-foot area hub in the Dallas area. UPS is also creating 50 additional hub sorts during the holiday, expanding the reliance on regional air hubs and implementing new sort technology, including better network management, at its facilities. For example, at its UPS Worldport hub in Louisville, Ky., UPS will operate four sorts on Dec. 20 and 21 to meet the increased demand; it will also add 900 trailer staging positions to the facility.
   Wallace emphasized the increase in capacity is not simply targeted at 2014’s peak season. The additions will allow UPS to handle demand challenges into the future, he said. 
   This expansion in capacity is all being driven by e-commerce, a retail segment that reached $236 billion in sales during 2013, according to the Commerce Department. During that year, Cyber Monday, which is the biggest shopping day of the year, grew by 20.6 percent, year over year, according to the IBM US Online Retail Holiday Shopping Retail Report 2013. 
   Located just down the road from the UPS Worldport facility, Gilt is one of those shippers that will depend on increased UPS capacity to meet increased e-commerce demand. Chris Halkyard, the company’s chief supply chain officer and general manager of distribution services, said Gilt has had multiple conversations with UPS in the run up to the holiday season to make sure the issues from 2013 are alleviated. He was quick to note, however, “all small package companies struggled last holiday” because of the popularity of e-commerce with consumers.  
   “E-commerce is such a growing industry, and there are growing pains with figuring out demand and what the consumer wants,” he said. 
   As far as Gilt’s association with UPS, Halkyard allowed that the integrator is fully prepared for the holiday season.
   “It is our expectation that they’re going to get more planes, they’re going to get more trucks. We’re not going to have those issues anymore, because we are planning for significant scale this year over last year.”
   This will be the last holiday season for UPS before dimensional-weight pricing goes into effect. The switch from actual-weight pricing will occur in January; UPS officials say this will be a more accurate representation of the integrator’s costs. 
   “It’s going to be a challenge for everybody because it’s going to increase costs, but what we are seeing and we’re working very closely with our customers on is over packaging,” Alan Gershenhorn, executive vice president and chief commercial officer for UPS, said. 
   He noted that having customers scale down their packaging will save money in the end. 
   “It’s going to incent customers to get their cube right, and that’s going to be a win-win. They’re going to save money, and we’re going to save money. And I think the consumer’s going to be a lot happier,” he said. 
   In the midst of the ramp up to the holidays and the switch to dimensional-weight pricing, UPS is facing a safety challenge perception. Brian Gaudet, a spokesman for the Independent Pilots Association, said the group recently surveyed pilots at the behest of the National Transportation Safety Board, which is investigating a crash in Alabama. He said only 10 percent of the pilots surveyed think UPS properly manages pilot fatigue and risk. He also found 93 percent of pilots say flying with a fellow pilot who seems fatigued is “not uncommon,” and 96 percent of pilots have flown fatigued; these pilots don’t call in to UPS sighting fatigue, he explained, because 88 percent of pilots are afraid UPS will hold it against them.
   “The underlying problem is that UPS’s safety culture is fundamentally flawed,” Gaudet said in the statement. “UPS should partner with its pilot employees, not fight them. A punitive safety culture has no place in safety critical industries such as UPS’s global flight operations.”

This column was published in the October 2014 issue of American Shipper.