A tumultuous year for the parcel-delivery business has been taken to another level as parcel shippers find themselves competing with the most precious of cargoes for peak holiday season air and surface capacity.
To the amazement of many, the first of what are expected to be several vaccines to crush the novel coronavirus has been approved by federal regulators and shipped out before the end of 2020. The timing of these extraordinary developments has an unintended consequence in that it coincides with the last full week of holiday shopping and shipping. Shippers struggling to meet their yuletide service commitments in the face of ultra-tight supply now face an additional challenge because FedEx Corp. (NYSE: FDX) and UPS Inc., (NYSE:UPS), the lead players in the daunting logistics effort, are likely to reposition equipment to deliver vaccines that might otherwise have been used for e-commerce hauls.
Late Friday, the Food and Drug Administration granted an emergency use application by U.S. drug giant Pfizer Inc. (NYSE:PFE) and its German partner BioNTech SE. By Sunday, motor carriers hit the road from Pfizer’s manufacturing and storage facilities in Michigan and Wisconsin bound for distribution centers in Louisville, Kentucky, Memphis, Tennessee, and Reno, Nevada. The same day, the first freighter jet went airborne with vaccine shipments aboard. On Monday morning, the first Americans were being inoculated. Pfizer is expected to make 2.9 million doses available during the first week and is holding about 300,000 doses in reserve in the event of any logistics disruptions.
FedEx and UPS have told retailers and merchants that Tuesday is the deadline for accepting packages for the companies’ basic ground deliveries and still be confident the goods will arrive on or before Christmas Eve. Any parcels tendered after that would be shipped via the companies’ expedited-delivery services, and would carry shipping charges.
Retailers which have advised their customers for months to order holiday items as early as possible have notified consumers that Monday would be the likely cut-off to hit the carriers’ deadline.
The vaccine distribution, which many thought would not occur until early 2021, has tightened the bind around a supply chain already coping with surging e-commerce demand that has forced carriers to temporarily halt pickups at major retailers because they had already hit their near-term volume limits. Almost every industry expert expects some degree of service disruption. “There are no available resources to allocate” to simultaneously satisfy all peak-season and vaccine distribution demand, said Matt Arnold, an analyst for investment firm Edward D. Jones & Co.
Satish Jindel, CEO of shipping consultancy ShipMatrix, said the vaccine distribution will consume some of the express network capacity that would have been available for holiday gifts. Yet many retailers will not hit the Tuesday deadline, pushing more parcels into express networks that will be occupied by vaccine shipments, Jindel said.
The dual strain on capacity will “make it more challenging for FedEx and UPS to handle such spikes in the coming days,” Jindel said in a Monday email. He advised consumers to place orders for express delivery no later than Friday, even though the carriers’ published deadlines are a bit more relaxed than that.
John Haber, CEO of consultancy Spend Management Experts, agreed that massive volumes will begin to migrate into the carriers’ air networks, putting the pressure on air capacity already in super-high demand as the pre-Christmas days tick down. FedEx and UPS “may pull it off without a lot of issues, but it certainly impacts holiday deliveries,” Haber said. Neither FedEx nor UPS responded to requests for comment. FedEx discloses its fiscal 2021 second-quarter results on Dec. 17, at which time there may be some discussion about the topic during the subsequent analysts’ call.
Jerry Hempstead, who runs a consultancy that bears his name, said that more transactions “get upgraded to the next service level” with each passing day. Ground deliveries get upgraded to — in UPS’ case — three-day deliveries, three-day deliveries migrate to two days, while two-day deliveries migrate to next-day delivery, he said.
If there is a factor working in the carriers’ favor, it’s that the increasing relevance of the “Buy Online and Pick up in Store” (BOPIS) model allows them to consolidate deliveries at a central point rather than deliver to individual addresses. This could save the carriers, and consumers, valuable time.
Another tailwind may be the carriers’ solid delivery performance so far this peak, at least based on ShipMatrix data. From Nov. 22 to Dec. 5, the two-week period that included Black Friday and CyberWeek, FedEx’s on-time performance was 94.9%, UPS’ was 96.3%, and the U.S. Postal Service’s was 92.8%, ShipMatrix said. Those results exceeded the carriers’ performance during the same period in 2019, the firm’s data showed.
