By Paul Ziobro
United Parcel Service Inc. imposed shipping restrictions on some
large retailers such as Gap Inc. and Nike Inc. this week, an early
sign that the pandemic-fueled online shopping season is stretching
delivery networks to their limits.
The delivery giant on Cyber Monday notified drivers across the
U.S. to stop picking up packages at six retailers, including L.L.
Bean Inc., Hot Topic Inc., Newegg Inc. and Macy's Inc., according
to an internal message viewed by The Wall Street Journal and
confirmed by UPS workers in different regions. "No exceptions," the
message said.
The move comes during a holiday season when retailers are
increasingly dependent on delivery companies to move online orders,
as store traffic has plummeted during the coronavirus pandemic -- a
dynamic that has shifted power significantly. UPS and rival FedEx
Corp. have raised prices and promised to hold merchants to volume
agreements.
The temporary limits, which some drivers say they haven't seen
during previous holiday seasons, are a sign that UPS is metering
the flow of packages into its network to preserve its performance
during one of the busiest shipping weeks of the year. The National
Retail Federation estimated that online shopping jumped 44% over a
recent five-day stretch that included Black Friday and Cyber
Monday.
A UPS spokesman, without commenting on any customer-specific
directive, said the company will pick up packages from customers
whose demand exceeds allocated space once more capacity becomes
available. Shipping levels tend to jump the week after
Thanksgiving, then slip a bit until another big increase in the
week before Christmas.
Some shipping consultants said they expected such limits would
be imposed temporarily if retailers exceeded their allowance for
packages. Earlier this year, delivery companies were overwhelmed as
extra trailers full of parcels arrived at some facilities and
waited to be unloaded due to the unexpected surge in e-commerce and
employee absences due to the coronavirus.
FedEx and UPS both prepared their customers for tight capacity
for this holiday season, as consumers, fearful of venturing out to
stores due to the virus, are stocking up on household essentials
from online merchants at the same time the holiday shopping season
kicks off.
The combination is expected to create a surplus of as many as
seven million daily packages between Thanksgiving and Christmas,
according to ShipMatrix Inc., a software provider that analyzes
shipping data. FedEx's big retail customers include Walmart Inc.
while UPS counts Amazon.com Inc. among its biggest shippers.
Some retailers, meanwhile, continue to push for more orders.
Walmart plans to offer free shipping on all online orders for
members of its paid Walmart+ service. By removing a threshold of
$35 for free shipping, the program will be similar to Amazon
Prime.
A UPS spokesman said the company is working closely with its
largest shippers to steer volume to locations with available
capacity and making sure that large customers know how much room is
available.
"It is critical that UPS and its customers execute the plans
built through our collaboration," a spokesman said. He said UPS
also wants to maintain the network for other customers, including
small- and medium-size businesses and for medical shipments,
including Covid-19 vaccine distribution.
The limits imposed by UPS are a change from past holiday seasons
when the carrier had wiggle room to take on extra shipments, often
at higher rates, from customers due to the addition of sorting
capacity.
But FedEx and UPS for months have been processing packages at
levels more common during the Christmas season and were preparing
to layer another surge of orders on top of that. They have
responded with restrictions on capacity and surcharges to offset
higher costs from hiring tens of thousands of workers and renting
extra equipment.
Data collected by analysts at Citi showed UPS's average on-time
performance during the week of Thanksgiving was 90.6% compared with
97.6% for FedEx. "We are sensitive to the potential for anomalies
in our data and believe it's too early to suggest UPS's network is
stressed," analyst Christian Wetherbee said in a research
report.
The UPS spokesman declined to comment on the data, but said that
so far the company is pleased with how its network has performed in
handling record volume.
Some of the shippers whose pickups were restricted said there
have been some delays due to the high number of online orders but
that they were managing them well.
"We are happy with the performance of our parcel delivery
network following the higher cyber week demand," a Gap spokeswoman
said. "Knowing the unique constraints the industry is facing this
peak season, we worked with our carriers early on to collectively
build a strategic plan of execution."
An L.L. Bean spokeswoman said that while there have been delays
for pickups at a few of its stores, UPS is "actively picking up
packages from our warehouse facility and our retail locations
daily."
Nike, Macy's and the other chains had no immediate comment.
FedEx said it has worked with its largest shippers to plan out
daily volume. It has asked shippers to spread out promotions,
including in October and November, and to also process orders for
pickup during the weekend to limit the spikes. "We continue to work
closely with our customers to manage their volume and help ensure
we provide the best possible service," a FedEx spokeswoman
said.
On Wednesday, FedEx said it had agreed to buy online-shopping
platform ShopRunner Inc. to bolster its e-commerce capabilities.
ShopRunner charges a yearly membership fee of $79 for two-day
shipping from more than 100 retailers. Terms weren't disclosed.
Delaying pickups and metering capacity is one way to prevent
delivery problems later in the peak season. "They are being very
disciplined in what they pick up, and that is what they need to
prevent a collapse," ShipMatrix President Satish Jindel said.
Some retailers are warning customers to shop early and expect
longer delivery times this holiday season.
Abercrombie & Fitch Co. tells online shoppers to place their
orders by Dec. 4 if they want items to arrive by Christmas using
its standard shipping option. A spokeswoman said the early deadline
is "to encourage early shopping given current challenges
surrounding parcel capacity and associated delays" and the chain
will reassess the date.
Write to Paul Ziobro at Paul.Ziobro@wsj.com
(END) Dow Jones Newswires
December 02, 2020 13:11 ET (18:11 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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