News

FedEx, UPS ride hottest run in years toward record holiday rush

FedEx, UPS ride hottest run in years toward record holiday rush
Business
Riding high from record package deliveries amid the coronavirus pandemic , United Parcel Service Inc. and FedEx Corp. are moving on to their next challenge: proving they can boost profit in the approaching holiday onslaught.

FedEx followed UPS and the U.S. Postal Service this week by setting aggressive peak-season fees, flexing increased pricing power with retailers ahead of what’s expected to be an unprecedented year-end surge of packages. The couriers also will vie with Amazon.com Inc. to hire hundreds of thousands of seasonal drivers as the e-commerce giant ramps up its distribution network.

The holiday rush sets up a final exam of sorts for UPS and FedEx, which are finally winning over Wall Street after plowing billions of dollars into automated sorting centres, air freighters and routing software. With their seasonal price increases, they’re seeking to prove they can extract more profit from the flood of residential deliveries while keeping customers satisfied. That also means dodging the risk of a logjam, which is already stoking anxiety at big shippers.

“We are going to hit a capacity crunch this peak season and there is no silver-bullet solution for it,” said Glenn Gooding, president of iDrive Logistics, a consulting firm that helps shippers lower delivery costs. “There’s just not enough available capacity to handle the influx.”

The pandemic already has pushed more retail sales online and spurred soaring delivery demand at UPS and FedEx. That’s helped propel the companies to a share gain of 37 per cent apiece this year through Wednesday, placing them in the top 10 of a Standard & Poor’s index of U.S. industrial companies. The broader gauge slipped 6.1 per cent.

“The parcel sector has become investable for the first time in several years,” said Allison Landry, an analyst at Credit Suisse Group AG.

UPS fell less than one per cent to $159.85 (U.S.) at 11:31 a.m. in New York, with FedEx posting a comparable decline.

Quarterly delivery volumes have climbed about 20 per cent from a year earlier for UPS and FedEx, and 50 per cent for the post office. In the holiday season, total package volume is set to jump as much as 70 per cent from last year, said Mike Lambert, chief operating officer at Green Mountain Technology, a consulting firm for shippers.

For UPS and FedEx, home shipments are costlier than those to businesses, where each location tends to receive more packages and the distance between stops is usually shorter. The flood of residential deliveries and the extra cost to protect workers from COVID-19 have pressured profit margins at both companies, and it’s unclear if the extra holiday fees will stem that erosion.

What is clear is that shippers are chafing under the couriers’ new-found pricing power. Meanwhile, on-time delivery has deteriorated since the pandemic hit and both major couriers suspended service guarantees in March. In July, the percentage of on-time deliveries dropped to the low 90s from high 90s before the virus, according to SJ Consulting Inc.

In response to the surcharges, retailers will likely encourage consumers to purchase earlier than usual. Stores may promote curbside pickup of online orders and use crowdsourcing companies for home delivery, said Jess Dankert, vice president of supply chain for the Retail Industry Leaders Association, a trade group. Walmart Inc. and Ace Hardware Corp. are handling deliveries from stores themselves.

Retailers are also looking to alternatives such as regional package carriers, but many can’t keep up with demand.

DHL, a unit of Deutsche Post AG that uses the post office for final delivery, stopped accepting new customers on Aug. 1 — two months before the normal cut-off for peak season.

The peak-season packages handled by DHL could double from last year, said Lee Spratt, who runs the company’s e-commerce operation in the Americas. DHL has a waiting list of about 500 customers for when peak season is over.

“We’ve seen a lot of large retailers that have sole-sourced contracts and that is going to change,” Spratt said. “You’ll see a lot of customers working much harder on more diverse delivery strategies as we go forward.”

Stores could make deliveries more efficient by consolidating orders rather than trying to compete with Amazon on next-day and two-day deliveries, said Satish Jindel, founder of SJ Consulting. Consumers are more concerned with packages arriving on time than with the speed of delivery, he said.

The price increases won’t stop with the holiday surcharges announced this month, Jindel said. UPS and FedEx have raised rates about 5 per cent annually for the last several years and will probably boost prices at least 7 per cent next year, he said.

Meanwhile, they will face intensified competition from Amazon. Heading into the holidays, the online giant will have expanded its space for sorting and delivering packages by 50 per cent from a year earlier.

Loading...Loading...Loading...Loading...Loading...

Loading...

While Amazon will still depend on UPS and the post office to help deliver packages, the retailer will eventually compete more with UPS and FedEx to pick up third-party residential and business packages, Jindel said.

For now, however, the big couriers are throwing their weight around. With demand spilling over, even smaller parcel carriers such as Austin, Texas-based Lone Star Overnight are thinking about adding extra holiday fees.

“Shippers are looking at this and are in sticker shock,” Dick Metzler, chief executive officer of LSO, said of the surcharges at UPS and FedEx. “I’ve got more demand than capacity.”
Read more on Toronto Star
News Topics :
Similar Articles :
World
Reuters Amazon Inc AMZN.O is temporarily blocking third party sellers from using FedEx Corp’s FDX.N ground delivery network to handle Prime shipments as it strives to...
Business
FedEx Corp. is adding extra fees on shipments during the holidays, joining United Parcel Service Inc. and the U.S. Postal Service in implementing surcharges to offset costs and control shipping...
World
FILE PHOTO The company logo for United Parcel Service UPS , is displayed on a screen at the New York Stock Exchange NYSE in New York, U.S., October 22, 2019. REUTERS/Brendan...
World
Reuters Amazon Inc AMZN.O is temporarily blocking third party sellers from using FedEx Corp’s FDX.N ground delivery network to handle Prime shipments as it strives to...
Business
United Parcel Service Inc is on track to return a record number of packages this holiday shipping season, a sign that e commerce purchases surged to new heights over the past...