January 14, 2016

UPS gets handle on holidays by tweaking network, standing fast against e-tailer demands, onslaught

After two years of misfires, company brings Christmas into alignment.

By Mark B. Solomon

If the 2015 peak-season parcel-delivery saga is ever chronicled, the overarching narrative could be how the nation's largest transportation company accomplished more by handling less.

After two years of trial and error, UPS Inc. appears to have gotten this past year's holiday porridge close to just right. It tweaked its vast domestic network to effectively add an extra day of delivery cushion. Perhaps more important, given the growing amount of sway e-tailers have come to hold over their delivery providers, UPS declined to accept an undetermined—but no doubt large—number of packages during the last week of the shipping cycle, refusing to accommodate last-minute shipping demands that would stress its network.

According to Satish Jindel, head of SJ Consulting Group Inc., UPS effectively created an additional day of delivery time for packages shipped on Dec. 21 and scheduled to be delivered either by air in two days or on the ground in three. This meant packages moving in three-day service had to be tendered by Dec. 18 to arrive by Christmas Eve, Jindel explained. For two-day deliveries, the additional day meant that Dec. 21 was the cutoff for parcels arriving by Christmas Eve, Jindel said. Separately, UPS chose not to accept overnight deliveries on Christmas week from customers who, for the most part, did not use its overnight service during the same week in 2014, Jindel said. UPS' goal was to avoid overloading its network with unplanned volume on Dec. 23 and 24, Jindel said.

Many shippers turned away by UPS headed to rival FedEx Corp., which accommodated most of the volume. In a turnabout from the 2013 peak, when UPS took enormous criticism for late deliveries of an avalanche of last-minute packages that it was unprepared for, it was FedEx that bore the brunt of the social media backlash as it struggled with the additional last-minute volumes.

Susan L. Rosenberg, a UPS spokeswoman, said the company "engaged with more customers this year than before for updated forecasts to develop detailed operating plans, and we were disciplined to adhere to (those) plans." Rosenberg said the company "would balance accepting volume with maintaining UPS network integrity," adding that it would take business "where we could without putting service commitments at risk."

Though there were service hiccups in 2015—UPS' during the "Cyber Monday" online ordering hysteria and FedEx's around mid-December—both companies performed adequately through the cycle, according to industry data. Adjusted for issues like weather that are out of the carriers' control, UPS had a 96.10-percent on-time delivery rate, while FedEx clocked in at a 94.56-percent on-time delivery rate, according to consultancy Shipware LLC. Those were improvements over 2013 and 2014 results, according to the firm.

FedEx and the U.S. Postal Service, which reported the best on-time performance according to SJ data, issued statements praising their organizations' performance but offering little else in the way of analysis.

For UPS, last month's outcome was a far cry from two years ago, when its air network, gummed up by the parcel avalanche, was saddled with late deliveries of millions of holiday packages. It was attacked in the popular press and skewered on social media. Amazon, one of UPS' largest customers, made its dissatisfaction clear by saying soon after the holidays that it would re-evaluate its delivery options in the wake of the problems. Though industry experts said UPS' operations were hamstrung by bad weather and unrealistic delivery commitments by e-merchants so close to Christmas, the episode hurt UPS' image and put planning for the 2014 peak a top priority.

UPS in 2014 invested heavily in fleet, infrastructure, and manpower, only to discover that the peak volumes did not live up to expectations. Customers praised the quality and reliability of UPS' service. However, investors and analysts were taken aback by the high costs relative to the disappointing volumes.

USPS' stellar delivery performance stemmed in large part from its handling of massive amounts of last-mile deliveries for Amazon, a heavy user of the Post Office's "Parcel Select" service, where packages are inducted by large-volume users deep into the postal pipeline for short—and normally uneventful—trips, mostly to residences. About 70 percent of Amazon's holiday shipments moved through Parcel Select, 62 percent directly from Amazon and 8 percent from UPS' "Surepost" service, where UPS pushes packages into USPS' system for last-mile delivery, according to SJ data.

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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