UPS Inc. yesterday unveiled a series of sweeping operational measures designed to avoid a repeat of the delivery problems that plagued it during last year's peak holiday shipping season. The moves should also position the company for the rapid and secular changes occurring in shipping habits and their impact on its business.
For the first time in UPS' 107-year history, it will operate a full U.S. air and ground pickup, delivery, and sorting network on the day after Thanksgiving, which this year falls on Nov. 28. In the past, the Atlanta-based transportation and logistics giant has only operated its domestic air-delivery network on that day.
By deploying its full network capabilities on Nov. 28, UPS will gain an additional operating day during what will be, like last year, a relatively compressed peak season. It will also help UPS maintain a more balanced operation throughout the peak period because it will not forfeit a full pickup and delivery schedule, Mark Wallace, vice president of engineering for U.S. domestic operations, told reporters yesterday in Louisville, Ky., the site of UPS' main global air hub known as "Worldport."
UPS this peak season will have 19 delivery days and 18 pickup days (it does not make pickups on Christmas Eve). There were 17 delivery days in 2013. One additional day this year will come by virtue of the calendar. Operating its full network on the day after Thanksgiving will create the second additional day, Wallace said.
UPS will add about 6,000 of its familiar brown package-delivery cars to its fleet over the peak season, a move Wallace said will boost its package-car capabilities by 10 percent over last year. At Worldport, UPS will add 900 staging positions for the trailers that bring letters and packages to the 5-million-square-foot facility for sorting and that then deliver sorted pieces to their final destinations. The trailer expansion will bring the number of trailer-staging positions at Worldport up to 1,500. It also signals a major change in the 32-year-old Worldport's utilization from being almost exclusively an air hub to being a facility with greater multimodal capabilities, Wallace said. The expanded package-car and trailer-staging operations will remain in place after peak season, Wallace added.
UPS has also built what it calls "mobile distribution center (DC) villages" that will function across its U.S. network, starting with the peak period, Wallace said. The facilities, which the executive described as "pop-up" DCs, will be hauled by train to selected sites, assembled, and placed in operation. The centers come in different sizes, with their dimensions distinguished by the number of truck dock doors. A prototype of the largest size, which consists of 90 doors, was used in Queens, N.Y., during last year's peak year; it has since been moved to Richmond, Calif., near Oakland, where it sits today. In the years ahead, UPS plans to reposition these mobile centers to provide additional capacity as e-commerce demand warrants, Wallace said.
In the Dallas-Fort Worth metroplex, an increasingly important part of UPS' network, the company will open a 400,000-square-foot hub and packaging center facility at Fort Worth's Alliance Airport complex. This facility, set to open by the start of peak season, will be capable of processing 20,000 packages per hour and accommodating 152 package cars. If the complex opens on time, it will have been built in less than a year. Wallace says that it is unprecedented for UPS to construct a fully operational hub from scratch in such a short period of time. In addition, UPS will open a package pickup and delivery facility with 150 package car positions and 24 dock doors in McKinney, a north Dallas suburb.
UPS is also making other investments in anticipation of peak season, according to Wallace. The company plans to significantly increase the number of aircraft available to it during peak season, Wallace said, although he would not further elaborate. UPS' contract carriers that see a lot of action during peak will be equipped with more IT visibility tools than ever before, he said. By the start of the peak season, twice as many company drivers as last year will possess the company's "On-Road Integrated Optimization and Navigation" (ORION) driver navigation software designed to direct drivers along the most efficient delivery route, Wallace said. The software evaluates more than 200,000 alternate ways a driver can operate a route and is slated to be available to all U.S. drivers by 2017.
Wallace emphasized that the multiple steps are designed for "peak season and beyond." In UPS' case, the post-peak world will be one increasingly dominated by e-commerce. Today, business-to-consumer (B2C) shipments, the vast majority of which come from online orders, comprise 40 to 45 percent of UPS' traffic mix. The surge in B2C traffic has come faster and stronger than the company anticipated, forcing it to re-adjust its business. It also shifts UPS' emphasis from the business-to-business (B2B) segment—its bread and butter—to lower-yielding B2C traffic.
AVOIDING ANOTHER HOLIDAY DELIVERY DISASTER
The moves will also be a culmination of a year of intense planning—and a $500 million investment—following the much-publicized delivery snafus that occurred during last year's peak season. At that time, a deluge of e-commerce shipments, many of which came from online orders placed as late as Dec. 21 and 22, unexpectedly hit UPS' network, causing millions of holiday packages to be delivered after Christmas.
A number of parcel delivery experts cast the blame for the late shipments on merchants that overpromised on delivery commitments and blindsided UPS with unanticipated volumes. However, the problems gave UPS a reputational black eye, and led company executives to vow that such a situation would never happen again.
UPS' image was not helped by comments from e-tailing giant Amazon.com soon after the holidays that it would re-evaluate its delivery options in the wake of the problems. Throughout 2014, Amazon has expanded the Sunday delivery network it operates in concert with the U.S. Postal Service (USPS). Amazon is also considering building its own delivery network comprising independent truck operators dedicated to Amazon, regional parcel carriers, and USPS. Under the concept, UPS and FedEx Corp. would play only marginal role in the new Amazon network.
In January, UPS sent a letter to key customers apologizing for the mishaps, explaining why they occurred, and assuring them there would be no repeat. During the year, UPS has met regularly with high-level customers to prepare for the upcoming cycle. The customer meetings, many of which have been conducted weekly, have focused on improving forecasting methods, which were found lacking last year as a result of the unforeseen explosion in e-commerce. The goal, according to Wallace, is for UPS and its customers to be in sync when determining volume commitments so UPS can size its network capabilities to predetermined traffic flows.
Wallace said industrial engineering executives have been meeting regularly with large customers since the beginning of 2014; never before in its history have UPS' engineers been so deeply and regularly involved with customers from such an early stage in the process, he said.
Wallace said a combination of factors—inclement weather in parts of the country as well as capacity and forecasting shortcomings—led to the problems last year. "There wasn't one area you could point to," he said.
This year's peak will be the first major test for David L. Abney as UPS' new CEO. The impact of this season's performance will be amplified for Abney, who had been UPS' chief operating officer and was arguably better at his job than anyone in transportation and logistics. Abney assumed his new post Sept. 1.
Of all the uncertainties surrounding this year's peak, one clear message emerges: E-commerce will dominate holiday shopping and shipping. According to consultancy Forrester Research, nearly three-quarters of all annualized e-commerce now occurs during the holiday season.