As of Aug 1, there are 146 days until Christmas. Are you ready?
Planning for the parcel peak season is well underway for many shippers and carriers. The planning typically begins at the start of the year as shippers work with carriers to share updated forecasts of capacity requirements throughout the year to ensure parcels are delivered on time during the season.
This collaboration helps carriers plan capacity needs, temporary seasonal labor requirements, third-party transportation purchases, and more down to the zip code level.
However, if shippers under or overestimate their forecasted capacity requirements, they could incur a penalty from carriers.
Over the past couple of years, forecasting of any kind was probably thrown out the window by most shippers. Consumers couldn’t get enough of buying goods since the pandemic occurred in 2020, and shippers struggled to keep enough inventory on hand once pre-pandemic inventories were depleted.
This year, everything seems to have changed again. Consumers continue to spend but not at the same rate as in 2021 and not on the items they couldn’t get enough of last year – furniture, appliances, exercise equipment, loungewear, etc. As a result, many retailers are sitting on excess inventory.
What holiday demand will look like is in flux, AIT CEO Vaughn Moore told the Financial Times, noting that two of his large retail clients have downgraded their sales forecasts ahead of the peak annual shopping period. “The problem is, as we go into the holiday season, they’ve got the wrong stock in the warehouse,” Moore said.
FedEx and UPS expect mixed volumes
Some carriers such as FedEx appear to be expecting more subdued volumes.
“We anticipate consumers will keep spending, and their spending will continue tilting towards services from goods. We expect more consumers to return to stores. With this backdrop, we expect pressure on B2C volumes,” Executive Vice President, Chief Customer Officer of FedEx, and Co-President and Co-CEO of FedEx Services, Brie Carere, told analysts on the company’s earnings call in June.
Meanwhile, UPS expects volumes to be up compared to the first half of this year. “We anticipate volume growth rates will improve slightly in the second half of the year compared to the first half, and we expect revenue per piece to continue to increase year-over-year, but at a slower rate than in the front half of the year,” UPS CFO, Brian Newman told analysts during the company’s earnings call earlier this week.
A bit of housekeeping has been underway for the past couple of years at both FedEx and UPS as they manage their business towards financial goals versus volume goals. As such, both companies have noted declines in volumes as both focus on more profitable volumes versus an all-out volume grab.
(Quarters reflect the fiscal year ending May 31)
According to UPS’ Newman, “average daily volume in the US was down 4% or 823,000 packages per day versus the second quarter of last year. More than half of the decrease was due to actions we took with a few of our largest customers to optimize air and ground volume we bring into our network. And the majority of the volume reduction from these customers was residential. We expected to fill this gap with other enterprise volumes, but macro conditions made that challenging.”
Amazon was among the larger customers UPS took action with to decrease volumes. Currently, Amazon is UPS’ largest customer.
Macro conditions may become more challenging when the parcel peak season arrives in October. How FedEx’s and UPS’s revenue management focus holds up will be telling.
Last-Mile diversification
Combined, FedEx and UPS still make up the largest share of the US parcel market.
However, since the 2020 holiday season, retailers have diversified their last-mile carrier mix beyond FedEx and UPS to ensure capacity availability.
The USPS is undergoing a massive transformation to compete against FedEx and UPS. Amazon is delivering not only its parcels but is likely quietly delivering other parcels as a third-party provider in select locations in the US, depending on capacity availability.
But regional small parcel carriers have become the real winners from FedEx and UPS’ revenue management strategies.
Two such carriers, OnTrac and LaserShip, merged in 2021 to take on FedEx and UPS in hopes of becoming a leading third-party nationwide last-mile carrier.
OnTrac and LaserShip is getting closer to that goal. This past week, they announced a transcontinental service delivering packages between their respective West Coast and East Coast coverage areas. The offering allows the merged company to reach 74% of the US population across 30 states and Washington DC, according to a blog post announcing the launch. The service’s transit times range from three to five days.
New startups and technology solutions have emerged for retailers and other shippers to diversify further. But perhaps the best last-mile option remains the store itself.
Buy Online, Pick Up in Store (BOPIS) will likely be the winner in this year’s parcel peak season. Retailers with store-front will push this option and curbside pickups to offset high shipping costs. A Digital 360 2021 survey found that 45% of consumers opt for BOPIS because they do not want to pay for shipping.
For retailers, a 2021 RIS report found that shoppers’ average BOPIS order increased by one to two items during pickup. Moreover, 24% of retailers report that customers’ average order size increased by five items or more.
Inventory hangovers will probably last beyond the parcel peak season and likely into 2023. Depending on consumers’ appetites for bargain shopping, it’s likely that the parcel peak season, October – December, will be muted at best.
- Cathy
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I wear a number of hats these days. Catch my weekly column on air cargo, freight forwarding, and the express markets, and the occasional podcast on Air Cargo World. I’m also helping out the Reverse Logistics Association as a research manager and at JOC I help out as a research analyst and write a weekly LinkedIn article, Freight Forward, summarizing JOC articles and providing an outlook for the week ahead.
In September I’ll be participating in a panel discussion on returns at the CSCMP Edge conference in Nashville and I’ll be moderating a panel session on the middle and last miles at JOC’s Inland Distribution conference in Chicago.
Speaking of JOC….be sure to catch Substack columns from Eric Johnson, Ari Ashe, and Bill Cassidy - all three are fantastic!