Richard Metzler purchased automation equipment as part of a plan to more than double the volume of his small parcel delivery company this holiday season. There’s just one problem: the machinery is stranded on a ship offshore due to a global supply-chain disruption.
Retailers are increasingly turning to regional couriers like LSO to help shuffle packages that delivery behemoths United Parcel Service Inc. and FedEx Corp. can’t – or won’t – handle. This holiday season will rely more than ever on operators accepting business that the two dominant couriers are avoiding in a rapidly growing delivery market. It’s unclear whether the smaller players are prepared, as they deal with issues ranging from transportation gridlock to labor shortages.
Rather than rushing to build capacity, UPS and FedEx have chosen to raise prices aggressively and turn away lower-yielding business. This has come as a surprise to shippers who rely on those two companies, which, together with the US Postal Service, control approximately 95 percent of last-mile deliveries of third-party parcels.
Carol Tome, who took over as UPS CEO last year, stated that her company expects to increase revenue per package in part by throttling the volume of packages flowing into its network. “For some shippers, we’re no longer delivering their packages, and that’s fine with us,” Tome said during a conference call on Oct. 26.
FedEx predicts that the volume of shipments this holiday season will increase by 10% over last year to record levels. This equates to 100 million more packages in its network than during the pre-pandemic 2019 peak period.
Smaller operators, such as LSO, have attempted to increase capacity to handle the pandemic-era flood of e-commerce packages, but this may not be enough to fill the gap before December 25 – especially if hiring difficulties worsen. Some shoppers may end up with gifts that are stuck in transit, which may nudge them toward digital gift cards or picking up online purchases at retail outlets themselves.
Deliveries will also be more expensive, whether they arrive on time or not. Shippers must deal with double-digit increases for parcel service, including special surcharges, even after experiencing price increases of nearly 10% last year, according to Josh Dunham, co-founder of Reveel, a shipping consulting firm. This only adds to the rising costs caused by supply-chain disruptions and a trucker shortage.
In the midst of capacity constraints, both UPS and FedEx have stated that they are focusing on small businesses, which frequently pay full price for delivery, while surcharging large-volume customers who negotiate discounts. Last year, UPS and FedEx were forced to limit package intake at times during the holiday season in order to keep their networks from becoming overburdened, prompting reports of trailer loads of boxes left to sit awaiting pickup.
Amazon Inc. is rapidly expanding its network of gray and blue delivery vans, but it can only handle approximately three-quarters of its own packages. It primarily relies on UPS and the Postal Service to make up the difference. This has prompted Walmart Inc., Target Corp., and other retailers to introduce their own delivery services. However, those efforts are nowhere near the scale of Amazon’s network, which now delivers more packages in the United States than FedEx, according to Satish Jindel, said founder of ShipMatrix, a parcel delivery data provider.
According to Jindel, the shortage of delivery capacity during this peak season will be less than originally estimated because the supply-chain crunch keeps out merchandise that would have shipped. It also helps that more employees are returning to their workplaces. A delivery driver can then drop off several business packages to one office location rather than making individual deliveries to several homes, freeing up capacity, according to Jindel.
Regionals and startups provide a safety net for shippers, but they pose little of a threat to UPS and FedEx. In an October acquisition, UPS acquired Roadie, the largest of the same-day delivery startups. As a result, retailers who used Roadie last year, such as Tractor Supply Co. and Home Depot Inc., have one fewer alternative shipper.