Last March and April, parcel express carriers got a temporary reprieve. Volumes declined as the pandemic closed businesses, consumers sheltered in place, and those who could started working from home. Traditional business-to-business supply chain channels in which parcel shipments flowed from suppliers to retailers dried up. Canceled sailings sank ship calls into U.S. ports, driving double-digit declines in imports.
Yet consumers still had pantries to fill and refrigerators to stock, toilet paper and other essential goods to buy, prescriptions to refill, and back yards to be spruced up—not to mention a variety of home-improvement projects on their to-do lists.
And with that, consumers went online with a vengeance. Parcel carriers had barely caught their breath when May, June, and July saw e-commerce explode, residential parcel deliveries ramp up to record levels, network capacity quickly become constrained, and an early, pandemic-induced peak season emerge through the summer and into the fall.
“It is the best [market for parcel carriers] I have seen in 30 years,” observes Satish Jindel, president of Pittsburgh, Pennsylvania-based ShipMatrix Inc., a subsidiary of Jindel’s SJ Consulting Group that helps shippers leverage shipping technology and data to reduce parcel-shipping costs and improve service. “It’s firing on all cylinders. [Parcel carriers] can tell the customer ‘Take it or leave it. … I just don’t have the capacity to handle [more volume].’”
The pandemic-induced e-commerce surge “has pushed carrier capacity to the brink,” says Meg Duncan, director of strategic sourcing for third-party logistics service provider (3PL) Koch Logistics, based in Minneapolis. “And it’s not letting up.” She notes that one of her parcel carriers was hiring 500 drivers a week in the Los Angeles market just to keep up. “In certain markets, [parcel carriers] are just under water. It’s kind of like the Wild West.”
Duncan’s company provides businesses with logistics planning and transportation management services supporting store operations, such as buildouts and remodels. When the pandemic hit, a lot of that work was put on hold. As businesses brought projects back online, the timing coincided with the surge in consumer e-commerce activity. The result was an almost immediate capacity crisis in the parcel and even traditional freight markets.
RISING DEMAND PUSHES UP COSTS
And it’s all exacerbated by Amazon’s continued emphasis on free shipping to Prime customers. “Freight is not free,” observes Duncan, who adds that consumers should find a balance between online ordering and keeping local businesses a viable choice. “Once we get through this, do people go back to their traditional shopping patterns with local stores?” she asks. “If not, what does that mean for freight and shipping [capacity]?”
Amazon certainly is not standing still and is taking matters more and more into its own hands to ensure it has sufficient delivery capacity to prevent delays. It’s been reported that the company is initially establishing some 1,000 new, smaller delivery hubs in cities across the nation, designed to cut the last-mile “stem time” (the time that elapses from when a driver leaves the terminal until the driver makes the first delivery) by placing hubs closer to suburban delivery points. Those hubs could grow to as many as 1,500. The strategy also provides more support infrastructure for Amazon’s continued push into same-day delivery for Prime customers.
One fact is unequivocal: Parcel shipping costs are going up. UPS, FedEx, and the U.S. Postal Service all have announced rate increases and early-season, pandemic-induced surcharges—which took effect during the summer ahead of the traditional peak season. In some cases, additional surcharges for large-volume shippers have been imposed as well. And some markets have become so capacity constrained that the major parcel carriers are not taking new business or accepting additional volume that’s outside of capacity contractually promised to a shipper.
It’s a convergence of surging pandemic-induced e-commerce ordering coupled with traditional peak season volumes, collectively driving a “super peak” of parcel volume and costs. And still to come is the impact of already-announced Jan. 1 rate increases.
BRACING FOR THE “SUPER PEAK”
The industry is navigating through unprecedented times, notes Ryan Kelly, vice president of global e-commerce marketing for FedEx. “The growth we expected … over the next several years” has happened in a matter of months, he says of the surge in e-commerce–driven parcels. “We’ve been seeing peak-level volumes since March, and we expect that to continue” through the peak holiday season. “It will be unlike any peak we have seen in our company’s history,” he says.
Among the initiatives Kelly says FedEx has implemented to help manage the surge and maintain service consistency has been continued investment in technology at multiple levels, going to seven-day-a-week residential deliveries, building out and optimizing capacity in FedEx Ground’s network and field operations, and having FedEx Ground do last-mile day-definite delivery of certain residential FedEx Express packages.
It’s a time when shippers are challenged as never before to plan effectively, negotiate smartly, secure capacity in advance, and do all they can to mitigate an ever-increasing shipping-cost hit to the bottom line—while making sure goods get delivered.
“My advice to shippers is to leverage a 3PL that can position your products in multiple markets and ensure your inventory is accessible from multiple ship points,” recommends Ryan Singerline, senior director of customer logistics for Miami-based Ryder. Singerline adds that, with e-commerce fulfillment centers in Pennsylvania, Texas, and California, Ryder has “the ability to reach 99% of the U.S. within two days.”
MOVING TARGET
At the same time, it’s becoming clear that the market itself is in flux. A survey done by UPS subsidiary Ware2Go helps to illustrate the evolving market. The study, which was conducted among 250 merchants in August, found that 77% had changed their selling strategies in response to Covid-19, with 35% launching an online store for the first time. That shift to direct-to-consumer e-commerce channels also had repercussions for respondents’ order fulfillment operations, leading many to expand their delivery options, the study showed. Among the findings:
- 25% changed their mix and started selling new products
- 22% opened a new sales channel
- 56% saw an increase in new customers over the past six months
- 56% began offering no-contact delivery
- 34% added two-day shipping guarantees.
“The current situation requires merchants to prepare for a holiday season where historical trends are not as relevant,” Steve Denton, Ware2Go’s chief executive officer, said in a statement announcing the survey results. “Today’s market … requires merchants to leverage a flexible supply chain as a strategic asset for commerce.”
Josh Dinneen is senior vice president at Vienna, Virginia-based LaserShip, which provides primarily e-commerce residential parcel delivery services, operating a network of 60 service locations and four hubs covering 20 states across the Eastern Seaboard and through the Midwest. He notes that an interesting finding from a LaserShip survey of 1,000 consumers was the rapid uptake of e-commerce among baby boomers, nearly half (47%) of whom plan to continue their online buying after the pandemic. Dinneen cites that as a clear indication that the move from “offline to online channels certainly will stay. It’s sustainable,” he says.
Dinneen cautions, however, that “the holiday season will be tough … nothing like we have ever seen before.” He believes the current capacity constraints in the parcel market are enduring and will take 12 months to flush out.
Some shippers, he says, didn’t anticipate the capacity crunch and are now scrambling for capacity at any cost. “I had a good-sized brick-and-mortar retailer contact me [recently],” he recalls. “He asked if we had capacity for November and December. Unfortunately, my response was ‘Sorry, we do not.’ He then asked, ‘Was there any amount of money that would change that—tell me what I have to pay.’ He was dead serious.” Dinneen has been telling new customers that they can reserve now, but LaserShip will not be able to bring them on board until January.
BEYOND PARCEL CARRIERS
The capacity crunch is driving retailers to explore alternatives to traditional parcel carriers. Some retailers are more aggressively promoting their BOPIS (buy online/pick up in store) services as a kind of self-serve delivery. That’s an option for consumers who live or work in close proximity to a brick-and-mortar store, where the order is filled locally and staged for pickup. Retailers are encouraging this by offering discounts on future purchases.
It’s also been a boon to “crowdsourced” delivery firms—those who sign up people part-time to make parcel deliveries. One of the more established players in this field is same-day delivery provider Roadie, based in Atlanta. Roadie’s “on the way” model taps drivers already on the road in their personal vehicles and diverts them to a nearby store for pickup. The drivers typically deliver orders within hours.
Roadie’s use by retailers has surged with the pandemic. From February through April, Roadie’s large retail customers saw increases in weekly same-day deliveries ranging from 151% to 1,456%. In that same period, the number of new store locations launching Roadie’s same-day service went up by anywhere from 110% to 365%. One client, Tractor Supply Co., in 30 days went from piloting Roadie at 400 stores to a full nationwide rollout across the home-improvement retailer’s entire network of 1,863 stores.
“The environment just gets more and more unusual,” notes Marc Gorlin, chief executive officer of Roadie, which counts among its customers The Home Depot, Advance Auto Parts, Nothing Bundt Cakes, and Delta Airlines. “As demand rises, parcel networks have to tack on surcharges and price hikes to prioritize demand. It’s a story that plays out every peak season, and the pandemic brought it on early this year.”
As long as shippers look to large parcel carriers’ fixed-asset solution, it’s a scenario that inevitably will repeat itself, he believes. Roadie’s “on-the-way” driver fleet, by contrast, “flexes dynamically based on the needs of the customer. By tapping into resources already on the road, we embrace a just-in-time delivery model that has the same or better reliability and speed than fixed-asset networks,” Gorlin explains.
The strategies that enabled businesses to stay above water during the pandemic “are going to strengthen and position them for success” through 2020 and into the new year, he believes. “Consumers are a long way from returning to their previous shopping habits, if they ever do,” Gorlin concludes. “Once you know how easy it is to get something delivered, why risk the store?”
