Parcel operators in the USA are working at top speed to deliver all the seasonal parcels currently filling their networks in time for Christmas – but FedEx and UPS are already planning ahead for next year with revised peak surcharges.
All leading carriers are trying to cope with record volumes generated by strong e-commerce growth resulting from COVID-19 pandemic restrictions but also face operational challenges, such as the severe winter storms which battered the US North-East last week.
According to service performance data from ShipMatrix (and published by UPS), the US Postal Service is clearly lagging behind with only 87.5% on-time deliveries in the week of December 6-12, down from 92.8% in the November 22 – December 5 period (which included Black Friday and Cyber Monday).
FedEx operated at 93.9% in the week of December 6-12, down from 94.9% in the previous fortnight, while UPS achieved a 96.1% performance, slightly behind the earlier 96.3% figure, according to the data research company’s figures.
‘Temporary delays’ at USPS
USPS is apparently struggling to cope with ‘historic’ volumes at a time when more than 14,000 employees are quarantined due to potential COVID-19 exposure. The agency already appealed to Americans on December 14 to send holiday gifts and cards “as soon as possible”. The last posting date for Priority Mail parcels was on December 19, while Priority Mail Express items are being accepted up to today (December 23).
“We thank our customers for their continued support, and we are committed to making sure gifts and cards are delivered on time to celebrate the holidays,” said Kristin Seaver, Chief Retail and Delivery Officer. “We continue to flex our network including making sure the right equipment is available to sort, process and deliver a historic volume of mail and packages this holiday season,” she stressed.
USPS explained that this year a ‘historic record’ of holiday volume compounded by a temporary employee shortage due to the COVID-19 surge, and capacity challenges with airlifts and trucking for moving this historic volume of mail “are leading to temporary delays”, leaving “these challenges” being felt by shippers across the board.
Among diverse measures, the Postal Service has expanded delivery times, including on Sundays in more cities, while mail carriers will also deliver packages for an additional fee on Christmas Day in select locations.
UPS ‘leads the industry’
In contrast, UPS again emphasised last week that it “continues to deliver on customer expectations” and that its network is running smoothly through the first two weeks of December.
“UPS is running one of the most successful peak holiday shipping seasons ever,” said CEO Carol Tomé. “With great discipline and precision, we are delivering industry-leading on-time delivery performance – all part of our focus on ensuring we maintain a reliable delivery network that all of our customers can depend on.”
FedEx investments ‘pay off’
For its part, FedEx has predicted a 22% volume increase for the current peak season. This will likely be led by small package delivery unit FedEx Ground, which increased volumes by 29% in the September – November quarter, and supported by the FedEx Express US domestic package business where volumes grew by nearly 18% last quarter.
Commenting on peak season operations, the company’s marketing chief, Brie Carere, told analysts on last week’s quarterly results call: “We have worked very closely with our customers to get the shop early, ship early message out to consumers, and we’ve been incredibly pleased with their response.
“While available capacity across the entire industry has been severely constrained, we have worked with our customers to develop innovative solutions to meet their capacity needs this peak. The proactive steps we took to prepare for the growth of e-commerce, including the expansion of FedEx Ground 7-day a week U.S. residential delivery, investments in automated facilities and our retail convenience networks have certainly paid off.”
Peak surcharges continue into 2021
Meanwhile, FedEx and UPS are extending but also adjusting their diverse ‘peak’ surcharges as of mid-January 2021. UPS will reduce its residential delivery surcharge and a similar surcharge for SurePost deliveries (made by USPS) by similar amounts to just $0.30 from the current peak levels of $1 to $3 per item.
In contrast, FedEx will scrap its residential fee entirely but only reduce its SmartPost surcharge (for deliveries through USPS) to $0.75 from $1 at present. Experts believe FedEx aims to drive more B2C volumes into its own network through this pricing move, which follows its commercial strategy of reducing use of USPS for final-mile deliveries to increase its own consumer parcel delivery volumes.
The company told customers in a surcharge update notice: “The impact of the virus continues to generate a surge in volume, and we are experiencing extremely high demand for capacity and increased operating costs across our network this holiday peak season. We anticipate volume to continue to surge into the new year.”
On this topic, Carere told analysts: “I believe peak surcharges for the holiday season are the new normal for our industry. In FY21 Q2, FedEx had a total U.S. domestic residential package volume of 67% versus 57% a year ago. With the increase of residential packages in our networks, we’ve been very focused on effective yield and product mix. In FY21 Q2, we have increased SmartPost yield by more than 20% year-over-year and overall U.S. domestic residential yields by 10% year-over-year. “
She added: “Paramount to our revenue quality strategy is the growth of our small and medium segment. As such, we continue to protect the majority of our small and medium customers from the SmartPost change and temporary surcharges. We are taking market share in the small and medium segment, and it is our strongest growing volume segment year-over-year.”
