As peak season swings into full gear, the consensus among industry players for how shippers—and consumers expecting cheap, on-time deliveries—will fare in a struggling parcel express market can be summed up in one succinct phrase:
“It’s going to be gnarly.”
That prediction, as well as other more colorful versions along the same theme, is the consensus of shippers, carriers, and various industry analysts. All expect a record year—and record challenges—for parcel express carriers.
Logistics and warehouse managers are seeing their carefully crafted just-in-time supply chains and parcel shipping strategies snarled by a host of factors, many of which are beyond their direct control. And the volumes keep on coming. By one FedEx estimate, the industry benchmark of 100 million parcel packages per day, once expected in 2026, is already here. In its last quarterly report, UPS cited a 13% increase in average daily volume to some 20 million packages per day. Most of that increase came from e-commerce shipments and rising residential deliveries.
The continuing surge in e-commerce is a testament to how deeply, quickly—and permanently—consumer buying habits have changed, points out Dick Metzler, chief executive officer of Austin, Texas-based Lone Star Overnight (LSO), a regional parcel carrier serving Texas, Oklahoma, and parts of Arkansas. “I think Covid went on long enough to convince even the most ardent mall junkie that e-commerce and home delivery is a better way to spend your money and your time,” he says.
“It’s going to be more than the usual Black Friday mess,” says Rock Magnan, president of Silicon Valley-based RK Logistics Group, which handles e-commerce orders for clients shipping digital sound systems, home appliances, and other consumer goods, of the upcoming holiday season. Shippers and their 3PLs (third-party logistics service providers) will need to be more creative, agile, and flexible than ever before. “Plans and solutions needed to be in place a month ago” to have some relative assurance of parcel capacity, he notes.
One alternative strategy that avoids the parcel carrier for last mile, Magnan notes, is store-door pickup. In this instance, manufacturers are forward-stocking more products at retailers like The Home Depot, Walmart, Kohl’s, or Lowes. When a consumer orders a product online, instead of it going into the parcel carrier’s network for delivery, the buyer is given the option to pick it up at their local store. “So, if you are ordering your DeWalt miter saw for Christmas, you pick it up yourself locally,” he says. “That avoids potential service delays and costs from already-strapped parcel networks.”
One executive who can speak to the need for advance planning is John Janson, senior director of global logistics at Issaquah, Washington-based SanMar, a producer of logoed apparel, caps, and other merchandise. Janson directs an operation with 10 national distribution centers and over 5 million square feet of warehouse space—and tenders hundreds of thousands of parcel shipments annually.
“We started to plan for peak season months ago,” he notes. “If you haven’t already done [your planning] and secured capacity, you’re too late.”
He shares a comment made by a UPS executive at the recent CSCMP (Council of Supply Chain Management Professionals) conference, where the executive projected that during the height of this peak season, there will be 4.5 million packages per day that the parcel express industry will not have capacity to handle. “If you extrapolate that out, that is 100 million packages [that won’t get picked up] over the entire peak season,” Janson notes.
That projected capacity crunch aligns with what he’s hearing from regional parcel carriers, who are advising customers they’re not taking on any new business until 2022. “That’s a real sign of the pressure that’s on in the residential delivery world,” he notes.
Janson, who works with UPS as his primary carrier, has long championed the concept of being a “shipper of choice,” collaborating with carriers to make his freight as efficient as possible for them to handle. In tight times, that strategy pays off, he says. “We focus on being a good steward of their assets and their employees. If you have high pickup and delivery density, and [the parcel carrier] does not have to touch your product a ton, that makes you an attractive customer.”
In the meantime, parcel carriers are working hard to step up to the challenge. FedEx, in its earnings call for the fiscal 2021 fourth quarter, said it “expects to substantially increase capacity for this peak by investing in FedEx Ground’s infrastructure,” adding 16 new automated facilities and implementing nearly 100 expansion projects at existing facilities. FedEx’s average daily volume grew across all of its customer segments, with U.S. small and medium-sized clients leading the way with 32% year-over-year growth.
Brie Carere, FedEx’s executive vice president, chief marketing and communications officer, described the U.S. domestic parcel market as “flourishing.” From a pricing perspective, Carere said, FedEx “continue[s] to evaluate changes that we need to make based on demand and capacity,” adding that “we believe that peak surcharges are kind of the new normal and that we have to align our pricing to our costs.”
Josh Dinneen, chief commercial officer for Vienna, Virginia-based regional parcel carrier LaserShip, notes that his company also has invested in expansion, last May adding service into Tennessee, Arkansas, and Mississippi, as well as five additional cities in the current network. That extended LaserShip’s service territory into 22 U.S. states and the District of Columbia, reaching as far west as Arkansas, south into Florida, and into New England.
Shippers started coming to him as early as March wanting to plan for peak season. “This is the first year I ever received a peak forecast in March. That’s never happened,” he notes.
Among the biggest challenges for carriers, says Dinneen, is hiring. “Everyone is battling the labor issue. It’s been tough this year with stimulus payments and Amazon offering higher wages. Everyone from restaurants to retail has struggled,” he says.
To help mitigate the need for more workers, LaserShip has invested heavily in automation, notably at its largest sort center in South Brunswick, New Jersey. That has not displaced any labor, but it has reduced the need for new hiring, according to Dinneen. Going into peak, LaserShip operated sort centers in Nashville, Tennessee; Columbus, Ohio; Charlotte, North Carolina; Orlando, Florida; and South Brunswick.
As peak season progresses and capacity tightens, Dinneen is redoubling communications with shippers to confirm capacity needs. “We have to know from our side if you are going to use [your capacity commitment],” he says. “If you can’t use it, you’re going to lose it.”
Like Dinneen, Jason Shaw, senior director of transportation procurement for Ryder System Inc., emphasizes the importance of keeping lines of communication open. “The most productive step [shippers can take] is providing transparency with [their] parcel provider portfolio, with rolling forecasts and soliciting input on where they expect bottlenecks,” he says. “Having flexibility … for providers to pick up product in off-peak hours or weekends is becoming increasingly valuable. Shippers should also evaluate their packaging to determine if it creates manual handling issues through a carrier’s network.”
Still, the big elephant in the room remains the nearly 100 containerships at anchor at ports on the U.S. West, Gulf, and East coasts. The equivalent of some 7 million parcels per day are sitting on the ocean, representing “back-ordered items and [goods for] inventory replenishment,” notes Scott Lord, president of parcel services for 3PL AFS Logistics, adding that inventory-to-sales ratios remain at historic lows.
Lord says that AFS’s $4 billion of freight spend under management helps it gain insights into trends and the true impact of parcel pricing policies and surcharges, what is changing in the market, and how that impacts shippers. “It can be difficult to understand what you are actually paying [in rates and fees] to FedEx and UPS, and we help them unpack that,” he says.
As carrier volumes shift from fewer business-to-business shipments to more (and more costly) business-to-consumer home deliveries, Lord suggests that shippers maintain an open dialogue with carriers, which can be the key to resolving problems when freight isn’t picked up or delivered according to service commitments. Relationships do matter, he says.
In his experience, companies that do the best managing peak season have invested strategically in enabling technologies, such as dynamic rate shopping, multicarrier parcel management, and visibility platforms, notes Bart De Muynck, vice president, supply chain research at Gartner Inc. “Those companies have the tools to collaborate with other shippers, share available capacity, and ship or cross-dock together. These digital platforms can drive efficiencies and better optimization of parcel volumes, which helps both the shipper and carrier,” he notes.
The next area where technology will help influence shipper behavior: understanding the impact of shipping decisions on sustainability. He foresees a time in the near future where consumers can choose shipping options based on carbon impact.
“That is where technology really can help drive consumer behavior [to benefit sustainability] and deprogram the Amazon mindset that we can have it tomorrow and for free,” De Muynck emphasizes. “That only increases the cost of transportation and makes the sustainability situation worse.”