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Parcel delivery’s phantom peak-mageddon

AskWaves: Santa’s parcel reindeer delivered with few hitches

It wasn't a miracle, just planning (Photo: Jim Allen/FreightWaves)

The port congestion, rail bottlenecks and soaring costs that bedeviled many U.S. supply chains during 2021 didn’t become headline news until the fall. With the holiday shopping season looming, the mainstream media couldn’t get enough of stories linking supply chain problems with the potential for stockouts and late or missed deliveries.

By the end of the year, the non-trade press folks had quietly left the scene with few, if any, horror stories to report. That’s because the holiday delivery nightmare that many had predicted never materialized.

During the near month-long cycle from Nov. 28 to Christmas Eve, UPS Inc. (NYSE: UPS) delivered 96.9% of parcels within its stated delivery commitments, according to data published on Thursday by consultancy ShipMatrix Inc. The U.S. Postal Service hit its delivery target 96.5% of the time, a more than 300-basis-point improvement over 2020 levels, ShipMatrix said. FedEx Corp. (NYSE: FDX) lagged at 88.2%, down from 95.1% in the 2020 peak, according to the data. For the last six months, FedEx has been hampered by staffing shortages at its FedEx Ground unit that has disrupted its network and compromised its delivery reliability.

To be sure, there were key tailwinds that contributed to the successful outcome. Millions of Americans got vaccinated in 2021 and more shopped in stores than during the 2020 peak. This allowed more deliveries to be made to central locations and fewer to individual residences, which could have easily led to delivery delays. 

Government data on adjusted nonstore retail sales, which captures most online activity, rose just 4.2% in October from the 2020 period and 11.6% in November year-over-year, according to Jason Miller, an associate professor of logistics at Michigan State University’s Eli Broad College of Business. Those gains were narrower than what was reported in 2020 over 2019, and even in 2019 from 2018, and 2018 from 2017, Miller said. 

A knock-on effect from the slowing pace of online sales was that delivery firms didn’t need to scale up peak-season hiring in 2021 like they did in 2020, and that companies were able to hire enough labor to do the job, he said.

In addition, inclement weather, which can paralyze delivery networks, was a relative nonissue during the 2021 peak. Though parts of the country experienced tough conditions, markets where carriers have major distribution nodes came through mostly unscathed.

Effective planning

However, the good yule tidings were mostly the product of early and extensive planning, and of collaboration among shippers, retailers, carriers and consumers. The fresh memories of the unprecedented 2020 peak season forced stakeholders to prepare for 2021 in ways they never have before. Delivery networks expanded dramatically. UPS expanded its Saturday ground delivery service in the fall to 90% of the U.S. population, a move that played a major role in improving the carrier’s package processing fluidity. The Postal Service added more than 13 million square feet of space, 112 million package sorting machines, and 40,000 seasonal employees.

UPS ramped up an initiative to educate its customers on how best to plan for peak, and to set expectations for what they could expect from the company, said Glenn Zaccara, a company spokesman. The initiative included a “call to action” to convince customers to push up sales promotions to drive early season consumer buying, Zaccara said. 

To reinforce its message, UPS conducted a U.S. consumer survey in late October, which found that 95% of respondents said they would get a head start on holiday shopping if sales and promotions were launched earlier in the season. About one-quarter of respondents planned to finish their shopping before Black Friday, the day after Thanksgiving when the traditional holiday cycle kicks off, compared to 17% in 2020. Approximately 60% of respondents said they planned to finish their shopping two weeks before Christmas, up from 52% in 2020.

The survey data “helped us to collaborate with our business customers and demonstrate not only the need to promote earlier in the season, but also the consumers’ willingness to buy into early promotions,” Zaccara said.

UPS and FedEx also set clear capacity parameters for customers early in the year, unlike 2020 when shippers found late in the game that there was little, if any, room at the delivery inn. While customers weren’t thrilled with capacity limits, they at least had time to develop contingency plans, said John Haber, head of the parcel unit of consultancy Transportation Insight LLC. Shippers will need to incorporate the reality of capacity limitations into future peak season planning because UPS and FedEx “are not budging” on the policy, Haber said.

The 2021 season is likely to usher in a permanent shift in the way the parcel-delivery system approaches the holidays. Even though the current demand spike will level off once the pandemic ends, e-commerce orders and delivery volumes are expected to remain elevated for years to come as consumer behavior undergoes profound changes. Consumers will become conditioned to order earlier than ever before, and Christmas promotions in October will become more commonplace, experts said. Seven-day-a-week deliveries will also become the rule, said Josh Dunham, CEO of Reveel Group, a consultancy.

Early order and delivery cycles will smooth out scheduling lumps, reduce carrier network bottlenecks, and help manufacturers and retailers avoid the dreaded peak-season surcharges that, in the past, have been utilized by the carriers to offset their costs of coping with gummed-up delivery networks, experts said.

The pandemic will have a lasting effect on the peak-season process, virtually all of it positive, said Dunham. “We’ve had changes that we’re not going back on,” he said.

Mark Solomon

Formerly the Executive Editor at DC Velocity, Mark Solomon joined FreightWaves as Managing Editor of Freight Markets. Solomon began his journalistic career in 1982 at Traffic World magazine, ran his own public relations firm (Media Based Solutions) from 1994 to 2008, and has been at DC Velocity since then. Over the course of his career, Solomon has covered nearly the whole gamut of the transportation and logistics industry, including trucking, railroads, maritime, 3PLs, and regulatory issues. Solomon witnessed and narrated the rise of Amazon and XPO Logistics and the shift of the U.S. Postal Service from a mail-focused service to parcel, as well as the exponential, e-commerce-driven growth of warehouse square footage and omnichannel fulfillment.