Dive Brief:

• Package delivery demand during the 2021 peak season is projected to exceed capacity by about 5 million pieces per day, UPS CEO Carol Tomé said during the company's Q2 earnings call, as UPS and its competitors ramp up for another holiday shipping surge.
• UPS is adding capacity ahead of peak season, including 2 million square feet of additional sorting space and more cargo aircraft, CFO Brian Newman said.
• "Our peak planning is well under way," Tomé said. "We are lining up the aircraft we need to lease to manage the volume, we're lining up all the rental equipment that we need to have in place to handle the volume and, of course, the people side."

Dive Insight:

Parcel carriers such as UPS and FedEx expect another busy peak season after the COVID-19 pandemic accelerated the growth of e-commerce. Last year, the demand spike and limited capacity created a challenging peak environment for shippers. ShipMatrix President Satish Jindel projected daily delivery capacity would be short 7.2 million parcels ahead of the 2020 peak season.

In 2021, there's more time to prepare for the elevated holiday demand. Tomé said UPS is sitting down with about 300 of its customers who make up its peak volume surge to understand what each of their demand projections are for the holidays. The company has also announced surcharge increases ahead of peak, which are targeted toward high-volume shippers and those experiencing demand spikes.

Many shippers are moving up their typical peak-season shipping timelines to get ahead of the demand surge, and some like online styling service Stitch Fix are diversifying their mix of parcel carriers to avoid volume caps.

UPS is taking a "better, not bigger" approach under Tomé, focusing on higher-margin and small business shipments rather than taking in as much volume as possible. Small- and medium-sized businesses in the U.S. made up more than 27% of the company's total revenue in Q2, up from about 20% the year-before quarter, Tomé said.

Meanwhile, UPS' average daily volume for U.S. domestic packages fell 3% year over year. The decline was due to SurePost volume falling by about 1.3 million packages per day, Newman said. SurePost is the UPS service that hands off shipments to the U.S. Postal Service for last-mile delivery.

Tomé added that volume comparisons to the year before are difficult due to how much e-commerce volume grew in the early stages of the pandemic. She said the company expected the drop in SurePost volume as many UPS customers reopened their brick-and-mortar stores.

Volume grew in other segments of UPS' business, however. Saturday Ground delivery volume grew 13% year over year as the company continued expanding its weekend coverage, "an example of better, not bigger, as we are expanding our service with very little capital spending," Tomé said. The company is still on pace to cover about 90% of the U.S. population on Saturday by October.

"These improvements benefits all of our customers, large and small, by enabling faster time in transit and expanding capacity," Tomé said.