UPS, E-commerce and the ‘Deferred’ Economy

The latest earnings from UPS reveal two trends that might at first seem contradictory: e-commerce is growing in leaps and bounds globally, and customers are choosing to defer delivery on packages to get greater savings.

Surely, as the holiday delivery debacle at UPS seemed to show, people ordering online want their goods as soon as possible, the next day if not the same day? Apparently not, except, perhaps, when ordering a Christmas present on Dec. 23.

“Customers put greater emphasis on cost rather than time in transit,” said Scott Davis, chairman and CEO of the $55.4 billion express carrier, in an earnings conference call with investment analysts Jan. 30. UPS’s results show how much emphasis.

Despite the shortened holiday season and last-minute online bargains offering next-day service as late as Dec. 23, deferred domestic package volumes increased 8 percent year-over-year in the fourth quarter, and next-day volumes 1.2 percent.

A similar trend is apparent at rival FedEx, where FedEx Ground, not airborne FedEx Express, has been driving profits and growth recently. FedEx Freight, the company’s trucking arm, is seeing strong growth in its deferred Economy service offering.

Do consumers really want same-day shipping? That’s what we’re often told. Retail giant Amazon.com is betting on it, building a network of distribution centers near cities to cut delivery times to consumers and offer same-day delivery services.

Same-day delivery fits with the idea that consumers want instant gratification. A Stanford University study last year found more shoppers on e-Bay would rather “Buy it Now” than bid on an item in an online auction, Bloomberg reported.

We’ve all felt the impulse to “Buy it Now” occasionally, and when circumstances are right, maybe we do. But we’re also looking for bargains, and consumers, like businesses, seem quite willing to wait a bit longer for gratification if they can save.

The impact of what could be called the “deferred economy” on supply chains and transportation industries is apparent. Start with slow-steaming on the oceans, and continue to the conversion of truck freight to intermodal rail further inland.

Shippers in many cases can save up to 20 percent on transportation costs by switching to intermodal rail and adding a day to transit times. “Deferred delivery,” whether of a package, a pallet or a trailer load, is acceptable when there are savings.

Is there really a market for same-day delivery? Transportation consultant Satish Jindel thinks that once subsidies such as “free shipping” — which is paid for by somebody, of course — are stripped from same-day online offers, demand drops.

“People are more willing to wait for three to five days to get free shipping than to pay a premium to get second-day service, and they are reluctant to even do that,” said Jindel, president of transportation consulting firm SJ Consulting.

Logistics managers also are more and more willing to wait an extra day or two for a shipment and save 10 to 20 percent on transportation costs, building "delays" into delivery schedules to control their overall expenses.

As JOC Chief Content Officer Peter Tirschwell said in a recent commentary on e-commerce delivery and the added cost of same-day service, "I may not like having to wait five or more business days, but I suck it up."

Good things do come in small packages, and sometimes they really are worth waiting for.

Contact William B. Cassidy at wcassidy@joc.com and follow him at www.twitter.com/wbcassidy_joc.

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