PROBLEMS
“The spread of Covid-19 in the US has triggered such an increase in e-commerce since March that shipping volumes have consistently been at Christmas peak or Cyber Monday levels every day. Now we’re headed into a peak on top of a peak. We expect there will be limits to capacity on certain days this season.” – Brie Carere, Chief Marketing Officer, FedEx
We think that Brie Carere’s “expect” and “certain days” are a modest understatement (which itself is a modest understatement). For months already, shippers, especially high-volume shippers, have been experiencing capacity issues with FedEx and UPS, as well as with regional carriers and even the USPS.
It seems a given, then, that as we move through peak shopping and shipping season, the capacity issues will increase and shippers will struggle to meet delivery promises to customers and expense promises to the CFO.
So what’s to be done?
Let’s first take a more detailed look at the problems, and then we’ll look at a solution.
An NBC headline of October 20 announced: “FedEx, UPS face ‘shipageddon’ with potential shortfall of 7 million packages a day over holiday season.” The USPS hasn’t (yet) announced capacity issues, but it is seeing longer time in transit (see below) for packages.
As Brie Carere noted, capacity has been at peak levels since Covid-19 started shutting down the world, so this peak season is like jumping from Denali to Everest.
The three major carriers aren’t the only ones stretched at the seams. Almost all regional carriers aren’t accepting new volume until January. Even though some, like Lasership, are building new facilities to add capacity, consumer demand is also increasing and likely to continue increasing, so the best we can expect is a stalemate or very slight relief.
Takeaway: Shippers need to accept that carrier capacity is going to be maxed out until March 2021 at the earliest, and there will likely be only a small alleviation of the problem throughout the whole of next year.
Like a lake feeding a series of waterfalls, the core problem of capacity feeds a number of other seriouss issues for shippers.
Full trucks lead to delayed deliveries.
This problem has become so entrenched that on September 25 the USPS added an FAQ to its website to explain why packages and other mail could be delayed and provide tools and options for consumers.
FedEx and UPS suspended their on-time service guarantees on April 1 and haven’t reinstated them — nor announced when they might do so.
For shippers, this leads to the headache of dissatisfied customers and, worst case scenario, revenue loss in tandem with higher shipping costs due to surcharges and premiums paid just to get shipments onto a truck.
Shippers who have been enjoying greatly increased sales have suddenly found themselves with cancelled FedEx and/or UPS agreements on the basis of “breach of contract” for exceeding allowed capacity for peak.
The two carriers had already imposed volume or capacity constraints on some shippers prior to Covid-19. In the short and probably medium term a greater number of shippers, particularly high-volume shippers (see below), can expect to be faced with quotas.
This leaves shippers in the position of scrambling to get shipments to their waiting customers and likely paying a premium to do so.
Shipper customers of both carriers have been experiencing trailers left at docks — which again puts them in the position of scrambling and paying premiums to deliver the goods, literally.
With both UPS and FedEx we’re seeing a preference for small or medium-size shippers over high-volume shippers, for two likely reasons. First, smaller shippers are more profitable, and second, they don’t place as great a strain on the carriers’ capacity.
Now is the time to take to heart the adage “Don’t put all your eggs in one basket.”
Whenever possible, shippers need to utilize omnichannel fulfillment to minimize time in the carriers’ networks. It’s particularly crucial to have a carrier mix for the last mile.
Here are five ways to expand the options available to you for getting packages to customers on time and on budget.
A lot of smart shippers are creating a national delivery network by utilizing carefully selected and coordinated regional carriers, or a combination of regional and national carriers.
Historically, this option has been most viable for businesses that spend over $10 million in net transportation, in order to have the ability to leverage multiple carriers to have a real impact on rates.
However, for smaller volume shippers, it’s worth inquiring. Bear in mind though, that as noted above, most regional carriers aren’t accepting new volume for the rest of this year. Put this on your January 2, 2021, plan, or start the conversation now to start building a relationship.
Customers love to have options. If they’re leaving the house anyway to pick up groceries, they can swing by your store to pick up their purchase made online, without having to pay for shipping nor wait for their purchase to be delivered — and deal with the uncertainty swirling around small parcel delivery right now. For the retailer it also drives traffic to the store.
(This white paper by RIS offers a thoughtful discussion of in-store pickup and how it is merely the entry point to a full omnichannel strategy.)
This fills a middle ground between traditional fulfilment and in-store pickup. The rationale is that it can greatly shorten the distance to the customer and thus reduce both delivery time and cost. It also gives retailers greater flexibility of carrier options — this would be a great place to use crowdsourced delivery (see #5 below), for instance.
The latest trend in ecommerce fulfillment, born from Covid-19 lockdowns, a dark store is an existing store that is not open to the public and is being utilized instead as a warehouse. Some advantages: shortened distance to customer, reduced propensity for damage, and the store can stay in business. A downside is potentially higher pickup charges.
This one is a bit of a wildcard, but some shippers, notably large-volume retailers, are experimenting with adding crowdsourcing to their last-mile delivery options. This is a flexible, variable-cost solution that allows companies to outsource their deliveries to a large “always on” network of available drivers through a technology platform.
One downside to consider carefully: if a lockdown is imposed, your driver network will instantly evaporate.
The days of shippers being able to rely on their relationship with a single carrier are over for the foreseeable future. It is crucial for shippers to give themselves options that are already established and won’t cost a premium.
Introducing choice and flexibility into their supply chain needs to be a priority for all shippers, because the “new normal” is now simply The Normal.