Will coordination between e-commerce retailers and carriers ensure on-time deliveries this Holiday season?

An article in the Wall Street Journal (October 1, 2014) titled “UPS, FedEx Want Retailers to Get Real on Holiday Shipping” describes pleas by the carriers FedEx and UPS to ecommerce retailers to stagger their promotions, avoid promising free overnight shipping, move sales to earlier in December and provide volume projections.  This is is response to the close to 2 million packages that did not arrive on time last year. But competition among retailers is bound to push deals until the very last minute on December 23, with volumes forecasted to increase by 14% this year.  Will threats to stop pickups once capacity limits are reached by carriers be sufficient to manage this year’s package volume surge ? Can customers be enticed to order early with appropriately chosen discounts rather than wait until the end ? Can “marketing and logistics be expected to work closely” this Christmas to enable it be a profitable holiday in addition to be a high package volume event ?

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27 Responses to Will coordination between e-commerce retailers and carriers ensure on-time deliveries this Holiday season?

  1. Christine Rasquinha says:

    Within the retail space, there is a very long chain of individuals involved in the downstream e-commerce process including the customer. Customers’ demand must be forecasted and it is affected by promotions, but it is also affected by need. Often, customers realize that they are still in need of certain products before Christmas day. This uncertainty will lead to one opportunity for late demand. Additionally, another chain member, the retailer, is also trying to sell all its winter stock or year stock. By significantly lowering the prices during a time of last minute gifts and high impulse buying according to retail training services, companies can significantly affect sales. As a result, neither group has a strong motivation to buy/sell early. With both the buyers and suppliers having high power during the holidays, it is unlikely that the carriers will be able to stop pickups. They will need to make accommodations to retain this business revenue.

  2. Nikhil says:

    The retailers will always be in the customer acquisition mode till the time only one or two big players survive.So every holiday season will experience the rush and chaos in terms of delivery.The strength of the business lies in actually sailing through these seasonal uncertainties and the customer sticks to the most reliable retailer.No single player of the supply chain can bear the heat alone it’s the coordination among different parties which actually makes a delivery happen. The marketing team should work in close coordination with 3PLs and the projections should be clearly communicated. At the same time, the retailers should take steps to mitigate the excessive pressure on 3PLs.
    One of the ways can be to actually offer good discounts if the customer agrees to get the delivery after the peak period.As there is a substantially large proportion of consumers who actually purchase items not for the gift purpose but for their own use.They do the shopping during the holiday season because of discounts and they will not mind long lead time if they get some more discount.This is what retailers can offer.
    At the same time, the 3PLs can lower the profit margins on deliveries before the holiday season which encourages the retailer to pass on good discounts before the season even starts.This will actually be traded off with the penalty the 3PLs pay for the breach of SLAs.

    Key is to make efforts towards distributing demand uniformly through promotions and communicate the predictions efficiently up and down the supply chain.

  3. Manita Dagar says:

    The holiday rush cannot be avoided, but better forecasting of expected sales volumes can help alleviate the problem of late deliveries to some extent. Retailers can work with their logistics partner to increase the capacities during the holiday seasons. Rather than not picking up packages beyond the capacity, the carriers can think of increasing their capacities during holiday season by hiring temporary staff and renting more resources and can pass on that cost to the retailers. If the retailers are offering last minute deals during holiday season, they should be strategic about the offset between revenue from increased sales volumes to cost of delivering the packages. Also, the customers should be made aware while placing the orders to expect delayed deliveries if they are ordering products under holiday promotions or any last minute deals. Promising free overnight deliveries is setting unrealistic expectations and might lead to customer dissatisfaction, in turn loss of business for all parties involved.

  4. Murilo Siqueira says:

    For me, the key here is chain integration. Carriers should advise Retailers in advance that they won’t be able to deliver at the same speed during such surges as in Christmas and Thanksgiving. And if Retailers still want the same service, they would be charged more, or even exponential, in order to accommodate peaks in demand that were predictable.
    The Retailer by himself can perform some sales actions in order to keep demand “flatter” during the period, encouraging customers to buy in advance and save more, with confidence of receiving on time for the celebrations.
    Proposing an agreement on sales/profit revenue during those peaks, would also motivate the entire chain to perform at its best, by encouraging players to help each other and succeed as one.

  5. Saravana says:

    It is not uncommon during festival season, sales goes upwards. Sales trend is predictable but the magnitude of spike is difficult to predict as it is influenced by several factors such as purchasing power, competition, trend, stability in economy etc. Companies will try to maximize their revenues by offering discounts, promotions etc. Hence, it is not viable for courier companies such as Fedex, UPS to directly control the orders taken by retailers during festival season. But, they can charge a premium for orders taken during peak days (week before Christmas) and orders exceeding a particular threshold for each retailer based on retailer’s order history. This way, retailers are motivated to offer discounts early in December to maximize their profits.
    Marketing of e-commerce retailers and courier companies can advertise to customers of higher shipping charges for orders placed during peak days (week before Christmas). By doing so, customers will be motivated to book orders early rather to wait till end of festival season for better deals. Coordination between retailers and customers is the key to make the season pleasant for all stakeholders in the supply chain. This process of distributing demand throughout December may not be completely successful due to several other factors such as customer’s pay day, Christmas season gifts, holiday plans, customer’s priority etc. Hence, companies such as Fedex, UPS shall pull off resources (manpower, vehicle fleet etc) during off-peak days and ensure complete availability of resources during peak days. By efficient resource planning, these companies shall respond to spikes during peak days in an effective manner.

  6. Muhammed Karadayi says:

    The last minute promotions to sell leftover products, always creates problems when forecasting demand and coordinating the supply chain with third party logistics (3PLs). But, the delayed deliveries can be reduced on peak seasons with good coordination within supply chain management.

    I don’t think threats from carriers to stop pickups once capacity limits are reached will be sufficient to prevent the surge. Carriers should act more robustly to solve the problem. I agree with Nikhil’s suggestion that lowering the profit margins on deliveries before the holiday season can entice retailers to start discounts earlier. But, UPS and FedEx may not be willing to offer this solution. Because, they will have more negotiating power in holiday season and they will use it for their interests. Instead of lowering the profit margins before holiday season, UPS and FedEx can increase the profit margins on excessive delivery requests on holiday season to entice the retailers to make promotions earlier. Additionally, 3PLs can tell to the retailers that who make the promotions earlier will have the priority for excessive delivery requests on holiday seasons.

    If marketing and logistics work together in good coordination, they can analyze ways to evenly distribute customer demands over the holiday season to prevent the surge because of last minute promotions.

  7. Bryan Gissal says:

    In the absence of any financial incentive for the retailers, the retailers would never seriously consider staggering holiday promotions or rolling back their deadlines for guaranteed delivery by Christmas. Coordination via revenue sharing agreements between shipper and retailer may provide more of an incentive to coordinate deliveries in time for the holidays. Perhaps the technologies that are being explored to solve the “last mile” problem can also take care of the “last minute” problem. For instance, the free pickup option Wal-Mart is currently offering takes care of the last mile problem, but also the last minute problem; their warehouse-to-store shipping bypasses the UPS/FedEx/USPS networks. Without a coordinated supply chain, the retailers will always be at the mercy of the shippers, who are very consolidated and wield extraordinary power. Hence the ability of the logistics suppliers like UPS to draw up package delivery quotas and hold retailers accountable to them. Maybe the time is right for a market entrant who promises instant delivery up until Christmas to extract as much surplus as they can from the “last-minute” online shoppers who are not as price sensitive, and are a different market segment from the holiday discount shoppers who order well in advance of the holidays to get the best deals.

  8. David Page says:

    First, the package carriers should not threaten to stop pickups after they’ve reached capacity. Instead, they should focus on increasing their capacity during the holiday season as needed. Additionally, I don’t believe it feasible to shift consumer holiday shopping earlier with discounts unless these discounts are quite significant. There were simply always be people who procrastinate during the holidays. FedEx and UPS should either increase their capacities or charge customers more for shipping to disincentivize larger volumes of smaller packages.

    • Biswajit Das says:

      Rightly said..Its tough to shift consumer holiday shopping earlier with discounts as most people do shopping because they are supposed to do during the festive seasons.However increasing the capacity is a also tough call to be taken as it’s a capital intensive process and that too for short duration.There are certain segment of people who don’t require things urgently and would be happy to avail extra discounts in return of late delivery.In today’s competitive market,threats to stop pickups once capacity limits are reached by carriers will not be sufficient to manage volume surge as competitors are always there to increase their market share.

  9. Fatih Baris says:

    It should be quite complicated to project the surge in sales during the peak seasons for e-commerce companies. However, a detailed study of the sales at holidays season in the 5-10 years can at least provide a figure for the shipping companies. Using this data and forecast, despite too many variables and uncertainties, shipping companies can take extra measures by either increasing their workforce capacity or charging more and bring the late deliveries down to a reasonable level.

  10. Amitesh Mishra says:

    Threats of any kind will not solve anyone’s problem. The year of 2013 showed what lost sales meant to retailers and they would not budge away from offering last minute sales every year. If we look at the 4Cs, capacity and coordination seem to the major causes for concern here. Starting with capacity, 2 million packages did not arrive on time in 2013 and with an expected 14% increase in sales, there is no guarantee that efforts by multiple carriers in expanding their loading spots or increasing their hiring of seasonal workers would do the trick. What might help is pushing a percentage of sales earlier on by providing customers with bigger discounts or cheaper or free shipping before mid-December. This would not move a major chunk away from ordering late as David rightly pointed out that there will always be people who would procrastinate during holidays and order late but it might move some traffic away. Other thing that could be done is retailers offering pickups from their local stores(in case of brick and mortar retailers) or setup a local locker system (similar to Amazon at PMU) and utilize that. This might enable some customers to go out and get their packages any time they want and it might reduce some traffic off the carriers as well.
    Coordination – Both the retailers and carriers would have to improve their forecasting techniques and information flow among them. This would enable carriers to optimize their supply chain considering their capacity to the best possible solution. It would require marketing and logistics departments to work very closely with the information flow between them taking huge precedence.
    Conditions such as bad weather can still ruin any efficient supply chain and hence it becomes even more important to coordinate as quickly as possible and as accurately as possible.

  11. Vinay Gundam says:

    Due to the limited capacity of carrier services and increasing number of shipments during black Friday and Christmas holiday season, it is logical for logistics companies to charge extra. The idea of advance promotional sales before the holiday season may work only if online retailers can promise that the price of products will be higher near the holidays. One way to solve this problem is to encourage customers to show an intent of purchasing a product before the peak period and online retailers can use that information to provide price choices just like the airline prices. Customers who don’t care about discounts and promotions can pay a premium and who want to save can plan ahead. Basic economic theory suggests that when resources are scarce someone is always willing to pay more. This way the logistics companies can reduce peak load and retailers can benefit from variable pricing.

    Adding capacity can also be a possible solution. Big retailers like Amazon are taking alternate routes such as adding their own delivering capacity, crowd-sourced delivery and increasing number of pickup points in neighborhoods. But excess capacity needs significant investments and ultimately customers will end up paying more. Considering extremely narrow window of these high volume sales, companies may be better off not investing in traditional delivery methods but invest in evolving technologies like drones.

  12. Shashank Chinnolla says:

    Holiday season is a time that everyone looks forward to … almost everyone. It is a time when the cash bells rings and a lot of gifts are purchased. It is this time that the supply chain network and its efficiency is tested to the peak. This strain on the supply chain can be eased by looking at a few alternatives (in addition to the ones mentioned in the article):
    1. Having a small inventory of the high selling items at different points in the supply chain effectively increasing the timely delivery but increasing the total supply chain cost.
    2. Partnering with Uber/Lyft to see that deliveries can be made as part of the ride by the cabs
    3. As the last mile delivery is the one that has the highest $/mile cost, customers can be encouraged to pick up the goods from a local warehouse or pickup store and probably also offer credit for the same.
    4. Having a pre holiday season sale, to distribute the demand over a period of time seeing to it that no sales are lost by the end of the season.
    The above strategies would considerably decrease the delay in timely deliveries and also seeing to it that the customer is delivered what was promised.

  13. Sarinah says:

    Threats to stop pickups once capacity limits are reached to manage volume surge may not be a good idea in terms of building a supply chain to be responsive. Both retailers and carriers can coordinate in order to increase storage capacity in the warehouse and shorten lead times for incoming deliveries. According to an online article by Relex Solutions, to manage the “Christmas Supply Chain”, running out of stock is okay depending on the date. Around December 23rd or 24th, last day shoppers would simply look for an alternative and would buy something rather than nothing. By running out, this prevents having to deal with excess after Christmas which are sold at low margins.

    • Akanksha Soneja says:

      Indeed.
      Additionally, threats to stop pickups once capacity limits are reached may prove to be detrimental for business in long term as well by impacting the relationship. The retailer will have to search for other options and may not get the level of service and carrier will also end up losing business.
      Also, the items which go waste once the holiday season is over (incase of festivals) will either be have to retained till next year, increasing inventory holding cost or go to waste(unused investment).

  14. Aneesh B Rao says:

    With higher level of discounts provided by the retailers/e-commerce website, it is very common for sales to surge during the festive season. This naturally pushes the pressure on the logistics partner to provide a timely delivery as promised. The capacity of the logistics partner is overlooked by the retailer. When a good is not delivered to a customer with in the promised timeline, there is always a risk of looking them. The retailers can mitigate this risk by increasing the time frame of festive discount sale from one week to one month and offer discounts on a few category of goods at a time with a same delivery timeline. An e-commerce giant in India offers mega sales twice a year and the products available at a discounted price would be exclusive to each sale. This was strategised after they failed to meet the customer demands in the first mega sale which was the only sale offered for that year.

  15. Akanksha Soneja says:

    Business during holiday season requires in-depth planning. In order to sail through it, it is important to forecast sales and the additional sales because of competition (approximate) and make sure that both the retailers and the carriers are in sync regarding the same. As the retailers cannot stay behind in the battle to be the best, it is important that they create a strategy to deal with the same. They may consider providing options of higher rates and faster delivery and lower rates for longer delivery. This may shift some customers to the latter option and help them ease the pressure of fast delivery. A similar strategy can be made for pickups. The retailer may give an option of pickup from some specified locations at lower cost for the same product. This will help ease last mile delivery pressure from carriers especially in major cities. It will be convenient for the retailers too as they will be saving on the transportation cost. Unable to meet customer expectations may impact image of both the firm and the carrier and therefore the carriers/retailers should have a backup plan to provide delivery solutions in case the sales exceed the forecasted sales. This may be done by contracting with an additional supplier. Additionally. if the retailer is expecting a surge in demand, the same should be conveyed to the carrier (follow the principle of coordination) as it will give them additional time to be prepared for the hike in sales.

  16. Emily Zhang says:

    Adding to Bryan’s idea, revenue sharing and Take-or-Pay would be options for the whole supply chain to consider. Especially Take-or-Pay agreement. Retailers promote the last-minute products because they know that after Christmas day, all those products’ salvage value will be 0. Thus, if manufacturers could make contract with retailers about buy back, this problem might be solved. The benefit for manufacturer is that they could stock those products and resell them next year, or make some simple change and sell them as other purpose. For retailer, since those products’ salvage value will not be 0, they would rather sell them back to manufacturers rather than promote at low price to customers. For transportation companies like UPS, they could compensate the shipping cost from retailer to manufacturer.

  17. Nathan Lowe says:

    Since this article was published, this delivery question has gotten both more complicated and has found additional solutions. The ecommerce market has continued to grow at an extremely rapid pace, and is projected to continue growing from $450 billion in 2017 to $650 billion in 2021. Additionally, there are other key factors resulting in this acceleration- demographics (younger consumers that expect faster delivery), urbanization (more shipments into confined geographical areas), increases in home delivery and the expansion of cold chain logistics (although the cold chain has been historically less important during the holiday season). This trend proves that the demand for capacity is growing, but solutions have grown as well.

    Over the last several years, more truck and fleet carriers have entered the “final mile” space, which focuses on delivering goods to the homes of the customers. As more carriers are entering this space, the capacity of shippers to meet this demand increases significantly. This expands shipping options for companies beyond simply using UPS or FedEx. Now, with many national carriers and hundreds of regional truck fleets, manufacturers and retailers have increased options to coordinate shipments with. This helps to take some of the load off of UPS, FedEx, and USPS while still allowing customers to have their demands of faster shipments at less cost met with each delivery.

  18. David Putt says:

    I don’t think threats to stop pickups once capacity limits are reached is the best way to manage the package volume surge around the holidays. It doesn’t make sense to limit your business when there is more demand to add to your revenue stream. Instead of cutting off demand when you’ve reached capacity, try to find ways to increase capacity or coordinate efforts from marketing and logistics to meet demand as efficiently as possible. UPS learned to do this after the problems they had with the 2013 holiday season when surges around Christmas caused 2 million packages to not be delivered on time. To correct for this problem the following year, UPS spent $500 million to add capacity during Christmas season through new software, tightening forecasting processes, and making sure retailers were aware of realistic delivery dates. UPS added an extra day to its delivery commitments and had hard cutoff dates for retailers for packages to be delivered by Christmas. This forced stores to raise shipping prices closer to Christmas since they would have to rely on air shipping to get the packages delivered by Christmas. This sort of coordination seems more realistic and effective than if UPS would just stop picking up packages once their capacity has been reached.
    Here is the article about UPS fixing the capacity issue in 2013: http://www.scdigest.com/ontarget/15-01-04-3.php?cid=10099

  19. Saumitra Kumar says:

    It would be irrational to assume that retailers are not going push for sales and promotions till close to Christmas. Festival season is retailer’s opportunity to generate more and more revenue. Having said that retailers should consider increasing customer service and taking carriers together with them. To meet objective of high sales demand with happy customer and carriers it is quite obvious and logical that retailers and carriers work in coordination. Customers are going to order late hence improvement in forecasting sales demand would provide carriers fair idea about how much preparedness (in terms of labor, trucks etc.) is required at what stage of festive season. Retailers can also keep some minimum dollar amount to be eligible for one day delivery. This would promote customers either to buy early or go for other delivery options. But this should done keeping competitors in mind and considering that fact customers may not turn away from site. So, previous years’ customer buying pattern can be analyzed to decide minimum dollar value.

  20. Senthil says:

    The threat to stop pickups when capacity is reached will not be sufficient to stop surge. As listed in this business insider articles, FedEx and UPS has to implement lot of new solutions to improve the on-time delivery. Solutions such as adding seasonal employees, transportation, technology are required to deliver holiday season packages. http://www.businessinsider.com/ups-fedex-holiday-shipping-plan-new-technology-2016-11

    At the same time, marketing team has to improve their forecasting method to find the volume that would be expected to ship this year. This forecasting will help to add required capacity to the delivery supply chain. Also, a well-coordinated and route optimized logistic system is required to eliminate the transportation waste to improve on-time delivery metrics. There is less control to change the way customers are ordering products. Maybe, throughout the season if the e-commerce companies keeps the deals fixed without changing, then the customers will develop the tendency in coming years to order sooner than later.

  21. Amer Nasrawi says:

    Retailers might not be affected by such a threat, and they might be backing their behavior by a strong historical data set. Meaning, retailers might not care about the 2 million packages that did not arrive in time as they are nothing but a fraction of their aggregate sales, let alone the desperate customers that did not mind a late arrival or did not request a return/refund. If a giant retailer like Macy’s or Amazon is evaluating their returns during the season that were due to late deliveries, most likely the percentage of those returns for a single retailer might NOT be alarming. However, the aggregate of these returns for all retailers might be alarming to the carriers.
    Another approach the carriers can take is maybe making deals with the retailers that account for the most late deliveries and customizing their approach to different retailers instead of making a plea to all retailers in general.

  22. Xiaodan Liu says:

    It is not a good idea that threats to stop pickups once capacity limits are reached, especially during the holiday season. Doing a close forecasting for the holiday demand is a better option to prepare for the surge demand during the holiday season. The marketing department need to take past few years demand to prepare for the upcoming season. The forecasting may not by accurate, but still will be a good option to prepare for peak season. Also, the forecasting will giving the carrier a better idea about how much labor they need at certain point. And even on-time delivery is important for the business, but most of the customer will not return their order or complain about that one day delay, and the customers knows that the shipping company will experience a heavy duty during holiday season, but some of them still choosing to shipping at the last minutes as long as there is a promotion for their desired product. So, instead of change the customer’s idea, the company and carrier should work together to forecasting the market demand and improve the on time delivery.

  23. Koustuv Pal says:

    Threats to stop pickups when capacity volumes are reached would not stop retailers from booking sales because the retailers job is to sell as much as they can with the maximum profits and retailers are relying on UPS and Fedex on the logistics part and they are paying for it.
    Customers cannot be enticed to order early unless the discount is substantial and the product is very lucrative otherwise customers will always wait for the appropriate time.
    Coordination always helps to up the efficiency parameter so that more parcels are delivered on time .Coordination using speculative capacity can help in these situations.

  24. Xin Wen says:

    In my point of view, it will be a win-win situation for both UPS and FedEx and retailers if the retailers offer discounts earlier not only the last days. By doing this, the holiday season may extend since it starts earlier. And the customers will spend more days to do some online shopping, which may lead to customers buy more staffs and spend more money. Also, many customers will buy products earlier, so the last minute order will reduce. In the meantime, the UPS and FedEx will not suffer too much pressure.

  25. Kyle Fithian says:

    Threats to stop pickups once capacity limits are reached will not stop retailers from continuing to offer late season deals. The shipping companies need to move beyond the threat and take action on their threat. Retailer’s primary concern is sales. They do not care if goods are sold one month or one day before a major holiday. Customers can certainly be enticed to order early with up front discounts. Black Friday is a perfect example of early holiday ordering based on large discounts. Logistics departments for consumer goods manufacturers can and should work with marketing teams to devise a way to eliminate late season surges. Fewer end of season discounts, increased late-season shipping charges, and increased consumer communication can help this issue.

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