UPS drives up retailers' delivery costs

Dive Brief:

United Parcel Service is instituting new charges that apply when retailers don’t ship the number or size of packages they said they would, The Wall Street Journal reports. The policy would be implemented on a case-by-case basis, UPS CEO David Abney told the Journal in an interview.
The new policy isn’t so much a punishment as an element of new and ongoing negotiations with larger retailers aimed at smoothing the shipper’s deliveries, especially at peak times, in an era of increased e-commerce sales and deliveries, according to the report.
Some 50 retailers contribute to major increases in delivers at peak times, such as over the winter holidays, Fred Smith, founder/CEO of rival shipper FedEx, has told the Journal in the past.

Dive Insight:

E-commerce has wreaked havoc on the operations of shippers like UPS. Just last week, the company reported a $39 million (2.1%) year-over-year decrease in operating profit, drawing concern from investors on rising costs.

"There has been a fundamental shift in how our market has been created for small package," UPS CFO Richard Peretz said to investors Thursday. "Our market is expanding, but the way people are receiving merchandise is different. And we're preparing this company and our network to make adjustments for that."

This past holiday season, delivery companies like UPS once again struggled to keep up with the record numbers of online orders, forcing them to stretch delivery times on some routes, suspend on-time delivery guarantees and refunds in some cases, and hold back promises on delivery times in other instances. UPS, in particular, reportedly brought hundreds of workers from its headquarters and other corporate offices to assist with operations at hubs facing the greatest difficulty.

On-time delivery rates were slightly down from Thanksgiving through December compared to other times of the year for both UPS and FedEx, according an analysis of millions of packages by software developer ShipMatrix cited by the Journal in December. 2016 Cyber Monday sales reached a record $3.45 billion, well past a forecast for $3.36 billion and a 12.1% increase over the year-ago period, according to an Adobe Digital Insights report. Online shopping accounted for $36.5 billion in online revenue by the end of November, with 26 out of 27 days in November generating $1 billion each day.

To help ease the e-commerce strain, UPS is re-negotiating its terms with retailers to get a better handle on what to expect. The new policy should help the company bring its rates in line with its costs, Abney told the Journal.