Holiday Shipping 2020: Will Your Parcels be Picked Up and Delivered on Time?

Days after “Black Friday” UPS put holiday shipping restrictions on Nike and Gap and directed drivers to stop Cyber Monday pick-ups at other large retailers that are already exceeding parcel volume forecasts through booming online sales.  

In a year marked by a pandemic-driven shift in consumer buying habits that has driven consecutive quarters of record e-commerce growth, parcel networks have been at or near capacity for months. An unprecedented holiday peak has been on the radar, but as expected, early promotions and efforts to bring parcel volume forward could never be enough.

And in the midst of a monumental peak period, the parcel carriers continue to adjust their strategy to not only drive revenue growth in high demand e-commerce service areas, but also protect volume and achieve competitive advantage as Amazon’s delivery networks continue to evolve. 

Let’s look at some of the latest developments in the parcel shipping environment. They may affect your ability to delight customers this holiday season – and continue serving them well through 2021 and beyond.

E-Commerce Bloats Parcel Volume Beyond Capacity

Demand for the 2020 holiday peak shipping season is forecast to exceed 86 million packages a day – about 7 million packages outside current parcel network capacity. These estimates are validated by the National Retail Federation’s estimate that online shopping increased 44 percent during a five-day stretch that included Black Friday and Cyber Monday. 

Both UPS and FedEx prepared retail shippers for tight holiday shipping capacity, issuing advice for holiday shippers and encouraging clients to “shop earlier than ever with special offers or other incentives.” Yet, before December even dawned, both carriers were enforcing volume agreements and applying peak season charges and accessorial fees that create additional order fulfillment cost for shippers. 

In this environment it is critical that you have real-time understanding of your parcel shipping activity. While volume outside agreed-upon levels or historical averages may result in added cost during other parts of the year (as it did with COVID peak surcharges), packages exceeding a shipper’s determined space simply will not be served – at least until additional capacity becomes available.

Shipping Delays: Expect, Forewarn and Facilitate

Based on the recent trends observed, the average package delay rate during the 2020 holiday season may range between 14 percent and 18 percent. Consumers in densely populated cities can expect delays as high as 25 percent to 30 percent. 

Unless you create an expectation of delayed delivery, this can be a real problem for customer experience. Proactive communication with your customers about anticipated delays is one of the most important steps in preserving holiday shipping experience.  Use your website and email communications to help set expectations. 

That said, as consumers’ expectations on speed evolve, we are seeing an increased willingness to wait for a delivery, especially if it means free shipping. According to BoxPoll, more than half of consumers opting for free shipping (57 percent) considered five-day delivery to be “fast” – that’s up 8 percentage points compared to last year. One-third of respondents in the weekly survey said that seven-day delivery is “acceptable” at minimum.

Retailers are positioned to capitalize when they maintain awareness of shipping characteristics, alternative service models and, of course, their customers’ expectations. A “no-rush” option is a familiar part of the Amazon order process, and now other brands are following suit, even offering incentives for delayed or “slow service.” If a consumer considers five-day service “fast,” are you driving up cost by offering more service then they need?

FedEx Counters Amazon’s E-Commerce and Logistics Buildout

The FedEx acquisition of ShopRunner complements the actions that we have seen FedEx taking to remain relevant in e-commerce as Amazon continues to strengthen its logistics and fulfillment capabilities.  

The move reinforces the FedEx position as the anti-Amazon solution for companies seeking an Amazon alternative. Some of the carrier’s other recent activity following the same strategy includes:

  • Acquisition of GENCO to form the basis of Fulfillment by FedEx
  • Moving to a seven-day-a-week delivery schedule
  • Severing ties with Amazon for delivery to focus on other e-commerce volume
  • Pulling SmartPost deliveries into the Home Delivery network to bolster density and profitability.

With the global parcel market positioned to more than double by 2026, fueled by e-commerce growth and further accelerated by COVID-19, both FedEx and UPS will need to continue adding value to retailers’ unichannel solutions to keep volume when Amazon opens their delivery network to third party shipments. Amazon suspended its delivery service earlier this year due to the pandemic, but it is expected to reopen in the near future.

Of course, the parcel carriers are among an ever-growing contingent of organizations devising new strategies to compete with Amazon. Just in time for the holidays, WalMart is dropping the $35 minimum on free shipping for e-commerce purchases of electronics, toys and clothing made for participants in its WalMart+ membership program. The move – and the program – are both designed to compete with Amazon Prime.

Are You Positioned to Compete?

Can you quickly determine how your parcel shipping volume falls within your capacity agreement with your carriers? Do you know how quickly your customers are getting their orders – and whether you are meeting your delivery commitments? Can you determine which SKUs are making money – and which are not?

Ongoing awareness of evolving trends in the parcel environment – from service disruptions to capacity shortages – is integral to your ability to pivot your small package shipping strategy. 

Understanding how those trends affect your transportation cost and service to end customers requires expert analysis and actionable intelligence. The latest enhancements to our technology platform puts the power of that information at your fingertips with best-in-class visualization of data gathered across your entire supply chain.

Schedule a demonstration today to see how our clients are able to identify business trends, understand the impact of cost and service on working capital, and recognize ongoing performance improvement opportunities.

6 Qualities to Look for in an E-Commerce Logistics Partner

With changing customer demands, new carrier surcharges, COVID, and other challenges taking a bite out of shippers’ bottom lines right now, those companies are best served by logistics partners that bring a high level of value to the table. Even better, they do this while helping shippers overcome their key pain points and achieve their organizational goals.

If your e-commerce logistics provider isn’t living up to expectations in these six areas, it may be time to find one that will.

  1. Technology Systems that Mirror the Carriers’ Own Systems
    This allows the provider to estimate cost impact and predictive modeling to the penny. Every time the carriers make a change, that change should also be made in your provider’s system.
  2. A Strong Team of Subject Matter Experts
    That team should include engineers and analysts that know how to leverage the carriers’ profitability areas to gain better advantages for you (versus what a traditional account rep can manage). Our experts regularly share their insight with the marketplace.

  1. Ongoing Analysis and Strategic “Thinkery”
    Look for a partner that thinks well beyond the “one and done” approach. Today’s business environment requires a partner that focuses on continued delivery optimization and cost mitigation.
  2. A Proactive Auditing Function
    Rather than relying on a reactive mindset (e.g., asking for the same refunds over and over again), your provider should be working with an “identify and repair” mindset to eliminate these potential issues and mitigate ongoing costs.
  3. Advanced Analytics and KPI Tracking
    As e-commerce continues to grow, you need a partner that is constantly innovating and adding functionalities like margin management, SKU-level profitability, KPI tracking, order performance management and high levels of supply chain visibility.   
  4. A Problem-solving Mindset
    When new accessorials or surcharges are released, your logistics provider should be measuring the impacts of those changes on your budget and helping you mitigate those impacts.

Master Your E-Commerce Supply Chain

Possessing these key qualities, we bring our client partners ongoing value as they race to meet demands for delivery speed, service and choice. Supporting your efforts to enhance customer experience, we also implement strategies to control costs so that you can maintain awareness of how each and every product and customer is performing. 

Our Parcel Experts created “You Shipped It, but … Did it Make Money?” to identify some of the emerging challenges that jeopardize your profit. It highlights our approach in the marketplace and gives you a glimpse into the level of analysis that we bring our customers. 

Let’s take a deeper look at the supply chain challenges you are experiencing. Reach out to our supply chain masters today to begin a conversation about your personalized solution.

Don’t Let Peak Surcharges Kill Your E-Commerce Profit

Shippers often don’t expect accessorial changes and peak season surcharges that carriers introduce at different times throughout the year. In most cases, seasonal demand swings and business peaks drive these cost changes. 

This year a global pandemic prompted peak season surcharges. Because these new costs coincided with skyrocketing demand for online shopping, many shippers lacked the visibility required to protect e-commerce profit on every shipment.

An Aug. 7 communication from UPS confirmed that more peak surcharges are coming for the holiday season. 

Here are three ways to keep these surcharges from killing your company’s profitability. They’ll become increasingly important as peak season surcharges could become a new year-round norm.

  1. Carefully Audit Every Carrier Invoice
    Go beyond examining the invoice number and dollar amount. Taking the position, “Okay, last week I shipped $75,000 worth of merchandise. That sounds about right,” isn’t a deep enough dive into your parcel invoices. 

    This high-level analysis doesn’t give you the insights you need to pivot effectively when surcharges are imposed. Get down to the actual package and charge level. This is one of the most important practices in managing peak season surcharges and protecting e-commerce profit.
  2. Share the Cost – Pass It or Promote It
    Don’t assume that these surcharges have to get tacked onto your “costs of doing business.”

    As long as it doesn’t affect your competitive position, pass the surcharge costs along to your customers. By strategically aligning products with marketing promotions, you can also increase order value, optimize shipment density and, ultimately, mitigate bottom-line impact of peak-season costs.

    If you do have to absorb the additional cost, be sure to factor that into the sale, versus waiting for your parcel carrier’s invoice to arrive and taking it right out of your profit for a specific order.   

  1. Team-up with E-Commerce Partners 
    Burdened by carrier surcharges and operating in a challenging business environment, shippers may be tempted to only deal with carriers when they have a gripe, a fee that needs to be refunded, or a surcharge that doesn’t apply (but was charged anyway). 

    These situations generally reach a positive resolution when shippers have win-win relationships with their carriers. This has been a practice for years in the truckload/less-than-truckload sector, where being a “shipper of choice” has become a popular stance for companies that are assessing their total costs of transportation.   

    The same applies in the parcel space, where we rely on accurate, up-to-date, supporting data when working with carriers on behalf of our customers (versus just managing issues in a one-off manner). 

    By serving as a link between shippers and carriers (who would otherwise be forced to work with thousands of different customers on an individual level), we are an extension of your parcel team. 

Master Your Parcel Program

To help you control costs in an ongoing peak season surcharge environment, we created “Manage the Surge: Avoid Surcharge Shocks, Power Performance.” It explores the how and why behind parcel carriers’ cost-recovery tactics. Read it today for the strategies you need to power a parcel program response that offsets these costs and protects your e-commerce profit.

3 Ways to Manage Surcharges

Here are three ways to manage surcharges during parcel carriers’ peak season and it’s impact on our profit margin.

  1. Manage Surcharges: Face Peak Season Head-on.
    Review the terms and conditions of the agreements you have with your carriers. Work with your logistics partner to stay on top of these new charges, and to come up with ways to offset, absorb, or pass them along to your customers. We help customers understand those charges, why they were implemented and how they affect profitability (via good reporting and data analytics). Analysis comes with a roadmap for minimizing the impacts. 

  1. Dissect Charges on Your Carrier Invoices
    Many times, carrier invoices are so lengthy that the charges are lumped together. It’s not unusual to see duplicate charges, for instance, or duplicate tracking numbers being charged multiple times. And with the COVID-19 peak surcharges, the carriers are billing in multiple different ways, including paper invoices, follow-up emails and averages over multiple transactions. 

    Dissecting those charges and ensuring that everything was charged correctly can be time-consuming and onerous. Our audit team constantly reviews the applicability of the charges and the actual rates that were charged to ensure accuracy. 

  1. Use best shipping practices. It can be tempting to take orders and push them out the door without giving much thought to how much it costs to ship those packages. 

    Most companies understand that transportation costs take up a big chunk of their operating budgets. Few take the time to examine the true cost of shipping those goods

    Factor both predictable/annual rate increases and unpredictable carrier surcharges into the equation, and you get a recipe for poor profitability. To avoid this problem, always use best practices centered on the cost of shipping each and every package. 

Master Your Parcel Program

With regular invoice auditing and business intelligence reporting, you can remove most of the uncertainty from the current surcharge environment while also preparing for any new fees that may be coming. 

Deploying additional best practices in your parcel program can supplement your ability to proactively plan for mitigating the cost impact of peak season surcharges. See our infographic for more tips that will help you monitor and manage surcharges.

To help you control costs in an ongoing peak season surcharge environment, we created Manage the Surge: Avoid Surcharge Shocks, Power Performance. It explores the how and why behind parcel carriers’ cost-recovery tactics. Read it today for the strategies you need to power a parcel program response that offsets these costs and protects your profit.

Carrier Surcharges: What’s the Real Impact?

Now we know more peak surcharges are on the way for the traditional holiday season. Between the major carriers, the UPS plan is quite a bit different than the FedEx strategy for applying new costs.

FedEx has set peak surcharges to begin as they plan to pull back the COVID surcharges, in essence, keeping the charges in place through the Christmas season. The biggest difference between the FedEx and the UPS charges is the SmartPost charge. It appears all SmartPost customers will have the charge, while the UPS and Home Delivery surcharges will be used for larger customers.

In particular, it appears the FedEx SmartPost charge looks to jump 100% for one week in December and then drop back to $1 the remainder of the season. This type of complexity between carriers and service impacts makes it difficult to manage cost.

Unlike global changes that impact all shippers (i.e., the modification in dimensional weight definitions introduced in 2015 and again in 2018), surcharges affect companies differently.

For example: 

  • An e-commerce apparel company sending most of its orders to residential addresses likely felt the brunt of COVID-related surcharges. 
  • A large B2B company delivering primarily to commercial addresses, on the other hand, was likely shielded from the brunt of these impacts, unless they were moving larger packages. 

The good news is that even though individual companies can’t control parcel carriers’ surcharges, they can minimize the budgetary impact with accurate shipping data, experienced logistics partners, and quick responses to carrier announcements.

What are Carrier Surcharges Costing You?

One 30-cent surcharge on a residential parcel shipment may seem innocuous. Multiply that fee across thousands of parcel shipments, and it’s clear just how burdensome this unexpected fee can be to a company’s bottom line. 

Furthermore, spend management becomes more complicated when carrier surcharges are based on average volume benchmarks, especially when they become retroactive to all shipments once thresholds are crossed.

Consider this: 

If a retailer averages 200,000 weekly packages shipped through UPS Ground Residential or SurePost in February, what’s the cost impact of a 30-cent surcharge when that volume increases to 250,000 weekly packages?

*After average threshold is exceeded, surcharge applies to all packages shipped.

  • If a distributor averages 50,000 weekly packages shipped residential through FedEx Ground, what’s the cost impact of a 30-cent surcharge when that weekly volume increases by 75,000 packages?

*FedEx surcharge volume threshold was higher at 40,000, and included the stipulation that weekly volume had to be 120% higher than the February weekly average.

Factor in any additional fees for oversized packages, and a shipper operating on tight margins can quickly find itself losing money on every order. And without a plan for dealing with unexpected surcharges, SKU profitability moves out of reach quickly. 

Adding to the complexity, carriers can make changes in how or when surcharges are applied – at any time. We saw this with the reduction in dimensions and weight for when carriers applied additional handling surcharges.

Although not a specifically a surcharge, shippers saw a significant change with the migration of the DIM factor from 194 to 139, which increases the billable weight for many packages.

Manage Carrier Surcharges to Avoid Budget Shock

Both the predictable and unexpected carrier surcharges are likely here to stay.

As you plan your transportation spend for the remainder of 2020 and into 2021, be sure to factor in the reality of carrier surcharges. It doesn’t take a global pandemic to create peak season pressure on carriers’ profitability and spur added fees on your parcel shipments. 

While none of us has a crystal ball — nor can we control the steps carriers take to shore up their own operations during peaks and difficult periods — preparing in advance, understanding the impetus behind the charges, and taking the proactive steps can improve your ability to control costs in the current and future parcel freight environments.

To help you improve your ability to plan for and respond to carrier surcharges, we created “Manage the Surge: Avoid Surcharge Shocks, Power Performance.” It explores the how and why behind parcel carriers’ cost-recovery tactics. Read it today for the strategies you need to power a parcel program response that offsets these costs and protects your profit.

Peak Season Surcharges: 4 Things to Know

Less predictable, peak surcharges are creating additional complexity for parcel pricing, especially as UPS announces its holiday peak season surcharges. These new charges come in addition to similar costs in place the past few months.

For example, a parcel carrier may announce a general rate increase of 4.9%, but this is an average taken across all services, weight breaks, and zones. In reality, many rate increases are above 6% when applied to a shipper’s actual volume. 

Predictable by nature, these annual increases are usually baked into the “cost of doing business” for shippers, many of which understand that the GRI impact on their transportation rates is at least an increase of about 5% annually. 

Now, carriers are introducing accessorial surcharges at different times throughout the year in response to seasonal demand swings and business peaks. These unexpected peak season surcharges can be difficult to manage, especially during a global pandemic when dynamic shifts are occurring across the marketplace. 

Here are four things all shippers should know about peak season surcharges in 2020.

  1. Peak Season Surcharges Becoming Routine It pays to stay on top of these variations and respond accordingly. Companies that take proactive measures to offset pending surcharges are often best positioned to maintain profitability, protect their bottom lines, and keep their customers happy (and coming back for more).

    Alongside existing peak surcharges implemented earlier in 2020, UPS announced it will increase surcharges for the holiday season. Starting Nov. 15, surcharges on Ground, SurePost and domestic Air services will increase to between $1 and $4 per package, depending on the shippers’ parcel volume. At a minimum, that triples the increases implemented May 31. 
  2. Parcel Carriers Felt the COVID-19 Impact During the traditional holiday season, UPS and FedEx often start hiring up to six months ahead of time. They also require larger shippers to provide volume estimates to support capacity planning. Staffed and trained, the carriers position everyone for success during the busiest time of the year. 

    These proactive moves weren’t possible during the global pandemic, and that’s precisely why the surcharges surfaced quickly in 2020.
  3. Residential Deliveries Bear the Brunt of COVID Surcharges Surcharges surfaced quickly in 2020, with higher costs on residential deliveries and large package shipments to homes and businesses quickly consuming the carriers’ margins. In response, UPS and FedEx implemented peak surcharges for U.S. domestic residential shipments and large/oversize packages due to the increased demand. UPS implemented the new charges on May 31, and FedEx quickly followed on June 8. 

    Not all shippers were caught in this particular surcharge web. Some charges solely affected large shippers with significant increases in residential deliveries compared to their average pre-pandemic weekly volume from Feb. 2 and Feb. 29, 2020.
  4. Advance Peak Season Surcharge Planning Isn’t Easy Budget planning for surcharges isn’t easy in an environment where these increases can arise unexpectedly. No one was prepared for the massive impacts of COVID-19, for example, so shippers had little (or no) time to prepare in advance for the surcharges. 

    The good news is that even though individual companies can’t control parcel carriers’ surcharges, they can minimize the budgetary impact with accurate shipping data, experienced logistics partners, and quick responses to carrier announcements. 

Avoid Peak Season Surcharge Shock

As you plan your transportation spend for the remainder of 2020 and into 2021, be sure to factor in the reality of “unexpected” carrier surcharges. It doesn’t take a global pandemic to create peak season pressure on carriers’ profitability and spur added fees on your parcel shipments. At the same time, in the wake of COVID-19, expect significant changes in the last-mile delivery environment, especially in terms of pricing complexity.

Individually, a 30-cent surcharge on a residential parcel shipment may seem innocuous. Multiply that fee across thousands of packages, and it’s clear just how burdensome this unexpected fee can be to a company’s bottom line. 

Remember the proverb: forewarned is forearmed. Prior knowledge of a potential issue will always give you a tactical advantage.

To help you avoid surcharge surprises, we created “Manage the Surge: Avoid Surcharge Shocks, Power Performance.” It explores the how and why behind parcel carriers’ cost-recovery tactics. Read it today for the strategies you need to power a parcel program response that offsets these costs and protects your profit.

Improve E-Commerce Experience Without Sacrificing Profitability

With Amazon commanding 47% of U.S. e-commerce sales and on track to grow its online sales by 20.4% to $282.52 billion, pursuing this formidable opponent makes sense to a lot of companies. Unfortunately, many of them are sacrificing profits in their attempt to compete, with transportation and fulfillment costs consuming a large part of their budgets.

Opportunity or Liability?

In many cases, the risks of racing Amazon have literally turned into liabilities, effectively slowing progress and forcing companies to rethink everything from their online order interfaces, shopping cart conversions, and final-mile/same-day order fulfillment management.

The brick and mortar world has really ramped up its game, but Amazon has conditioned us, as end consumers, that those efforts just are not good enough.

4 Practices to Protect Profitability

The good news is that there are steps that companies can take to improve e-commerce strategies without sacrificing profitability. Here are four that your company can start using today: 

  1. Develop an above-par order fulfillment strategy. Amazon built its order fulfillment strategy around offering choices to its customers. In doing so, it made the online shopping experience all about the customer and his/her decisions. The e-tailer provides high levels of supply chain visibility as shipments move from Point A to Point B, maintains good inventory control, and understands its cost to serve. One good metric to use, when judging the efficiency of your order fulfillment processes, is the “Perfect Order,” or one that is on time, complete, intact, and includes the right shipping paperwork. In an environment where order fulfillment can comprise over 60% of the typical warehouse’s total direct labor, even small gains in this area can lead to profitability improvements
  1. Now, deliver on that strategy (on every order). Not only does shipping have to be free and fast, but if it includes a hovercraft and a promise to get a package to your doorstep within an hour, then all the better. We’re at a point where anything less simply doesn’t meet customer expectations. There’s little (if any) room for error on this step. Retailers that want to convert digital consumers know that competing on price and customer experience just isn’t enough anymore; they have to also be able to compete on speed and choice. Handled improperly, same-day delivery can be a logistical nightmare and major risk for retailers. It’s also a necessary evil for them, and something that they all have to be able to do for at least some of their customers. Making that happen requires locations and/or warehouses positioned close to those buyers; a modification of existing fulfillment procedures; a smart, profitable BOPIS strategy; and ensuring that the right product is in the right place and at precisely the right minute.

  1. Focus on continuous monitoring and improvement. Companies can no longer wait until quarterly review meetings to uncover a problem that happened a month ago. Smart companies use daily scorecards to gather, compare and disseminate meaningful, actionable intelligence (e.g., what products were shipped? How quickly were orders fulfilled? Did we pick all of our orders yesterday? If no, how can we make that up today?). By taking an introspective look at their e-commerce operations and developing metrics based on those results, retailers can adapt faster in a world that demands speed, accuracy and delivery on promises. 
  2. Make the right transportation choices. If your company can’t access data that provides strategy around carrier contract alignment and then facilitates choosing the most economical transportation mode, it’s probably losing money. And, if it’s channeling all of its resources into getting same-day and next-day shipments out the door as quickly as possible − without worrying about whether or not those are the best and most economical decisions − it’s losing even more money. These are huge risks in an era where companies are being forced to go head-to-head with Amazon and Walmart, both of which offer same-day and one-day delivery to 72% and 75% of the total U.S. population, respectively. Retailers should be using technology (i.e., transportation management systems or TMS) to select not only the most economical mode, but also one that meets customers’ delivery expectations. Leveraging transactional audit across all modes, provides companies consolidated, visibility to know the rate they paid, identify service gaps, and improve their ability to make good transportation decisions going forward.

Following these guidelines, companies can effectively improve the e-commerce experience without sacrificing profitability − all while satisfying a lot of happy, repeat customers.

Ready to learn more ways retailers can improve e-commerce performance to satisfy customer demands for service and choice? Download Transportation Insight’s e-commerce guide.