December 30, 2013

Would a "Christmas surcharge" prevent another holiday shipping headache?

Higher shipping costs may be the only way to discipline chaotic market, consultant says

By Mark B. Solomon

Unless the fatalists are right and Armageddon arrives before next Thanksgiving, there will be another holiday season in 2014. No doubt consumers who purchased gifts online for home delivery this year are hoping it will be better than the one they just survived. And there is hope: Satish Jindel, a prominent transportation consultant, thinks he's found a way for the yuletide supply chain to avoid a repeat of the much-publicized delivery problems currently bedeviling UPS Inc. and, to a lesser extent, rival FedEx Corp.

Introducing the "Christmas surcharge."

Jindel, founder and president of Pittsburgh-based SJ Consulting, said the delivery firms should tell their big customers to expect a stiff surcharge for any packages that are tendered after a pre-set December deadline and that exceed the shippers' normal average daily volume. For example, if a customer tenders, on average, 5,000 packages a day to UPS throughout the year, all packages above that daily amount that are tendered after a specific cut-off date would be subject to the surcharge, Jindel explained.

Another possible approach would be for retailers to drop their "free shipping" guarantees for a specific interval during the holidays, in much the same way airlines impose "blackout dates" prohibiting passengers from using their frequent flier benefits during periods of peak travel, Jindel said.

Jindel said both ideas are his alone and have not been proposed to the carriers. He said that only the specter of higher shipping costs can restore order to a delivery climate that has become increasingly chaotic due to the rapid growth of e-commerce and the "negligent" attitude of retailers who promise customers their holiday packages will be delivered for free and on-time even if the merchandise is ordered as late as Dec. 22 or 23.

With the surcharge "stick" in place, retailers would be more prudent in the promises they make, customers would be more disciplined in their buying decisions, and carriers would be compensated for investing tens, if not hundreds of millions, of dollars in equipment, infrastructure, and staffing for what amounts to less than 10 percent of their year, Jindel said. In that scenario, the carriers could be rightly held accountable for late or missed deliveries because they are being richly compensated for their pre-holiday services, he said.

Jindel called the attacks on UPS a "monumental overreaction to a trivial problem." He reserved virtually all of his scorn for the retailers, who he said behaved recklessly by overpromising to its customer base and have now shifted the blame toward the carriers. They, not the carriers, should be held accountable for any delivery mishaps, he said.

Generally, refunds of shipping charges are waived on tardy or missed ground deliveries made after Thanksgiving. However, that doesn't apply to packages tendered to move via express delivery, which is usually handled by airfreight. What is not known outside of the parcel industry is that most big shippers waive their right to seek refunds from the carriers throughout the year in return for deeper discounts off their contract rates, according to Jindel.

As for Atlanta-based UPS, its primary air hub in Louisville, Ky., is clean of pre-Christmas packages and the company is now focused on dealing with the expected spike in post-holiday returns, according to Susan L. Rosenberg, a company spokeswoman. UPS will be performing a "deep dive of assessment" into what went awry this week and will be having discussions with customers about it, she added.

UPS has no specific data on how many packages were delayed, Rosenberg said. She added that the company had as much airlift as it had projected it would need, and that the volumes moving through its pipeline last Sunday and Monday exceeded its capacity to transport some of the packages in time to reach their destinations by Christmas Eve.

Ironically, it wasn't UPS that delivered the greatest number of packages on Dec. 24, according to SJ Consulting's data. The U.S. Postal Service delivered 31 million packages, followed by UPS with 26 million and FedEx with 13 million, the company said.

About the Author

Mark B. Solomon
Executive Editor - News
Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.

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