An increase in online shopping is pushing up freight volumes at the nation’s largest package carriers, with UPS reporting stronger domestic volume and FedEx preparing to hire 20,000 seasonal workers to handle holiday shipping demand.
The rapid growth in e-commerce challenges package carriers, which not only must deal with more freight moving in different distribution channels but also with lower weight and revenue per package on many business-to-consumer shipments.
UPS and FedEx, the two largest U.S.-based transportation operators, are preparing for multiple peaks in their holiday shipping season, not only Nov. 23, the day after Thanksgiving, but also Nov. 26, Cyber Monday, and Dec. 10, Green Monday.
Online sales on Cyber Monday, the Monday after Thanksgiving, were up 22 percent in 2011 to $1.25 billion, and first broke above $1 billion in 2010, the year after the official end of the recession, according to digital research firm comScore.
In 2011, U.S. consumers spent another $1.1 billion on Green Monday alone, according to comScore. FedEx expects to handle 19 million packages that day, a 10 percent increase from last year, making it the busiest day of the year for FedEx.
FedEx forecasts more than 280 million shipments will move through its worldwide networks from Thanksgiving through Christmas, up more than 13 percent from 2011, when FedEx handled 247 million holiday shipments.
UPS expects to peak at 28 million shipments on its busiest day this holiday season, “the most ever in our 105-year history,” Alan Gershenhorn, senior vice president of worldwide sales, marketing and strategy, told Wall Street analysts on Oct. 23. “The dramatic rise of e-commerce continues to alter consumer behavior and shipping patterns.”
Historically, holiday shipping ramped up from Thanksgiving through Christmas, a pattern Gershenhorn sees changing rapidly. “This year we are planning for two peak periods,” he said, “one that revolves around Black Friday and Cyber Monday and the other compressed into the two weeks before Christmas.” UPS expects e-commerce holiday sales to jump 12 percent.
Some consumers apparently started shopping online early this year. A “rapid increase” in e-commerce is credited with driving U.S. package volume at UPS up 3.7 percent in the third quarter, increasing domestic package revenue by $94 million to $7.9 billion, according to financial data UPS released on Oct. 23.
Ground package volume rose 3 percent and deferred package volume a whopping 9.3 percent, while next-day air volume expanded 5.7 percent, UPS said, noting a third quarter shift from business-to-business to business-to-consumer demand.
“While B2B declined a bit, average daily volume growth was slightly higher than anticipated across all products, advanced entirely by B2C,” UPS Chief Financial Officer Kurt Kuehn said during an Oct. 23 conference call with investment analysts.
Total revenue per piece dropped 1 percent year-over-year at UPS, largely because of lower-priced e-commerce shipments. “The rapid growth in lightweight B2C shipments continues to push average weight per package lower,” Kuehn said.
That means a higher volume of e-commerce shipments is needed to compensate for the revenue lost through the decline in B2B shipping. “As B2C expands, we are continuing to adapt both our business model and revenue strategies,” Kuehn said.
Transportation consultant Satish Jindel was surprised by the strong growth in deferred shipments in the third quarter. “It’s unusual this far ahead of the holiday season,” the president of SJ Consulting Group said. “Usually consumers wait.”
It may be that computer, tablet and smart phone-savvy consumers are not only getting an early start on holiday shopping, but also buying more for themselves online. In 2011, e-commerce growth rates tracked by comScore remained high year-round.
Surveys indicate e-commerce sales will jump this holiday season, despite and perhaps even aided by economic uncertainty. Nearly six in 10 e-commerce shippers expect better sales than last year, according to a survey by Chase Paymentech.
Google says the distinction between online and in-store shopping is blurring. “People no longer see a line between online and offline shopping, and neither do smart retailers,” Google said in its 2012 Holiday Consumer Intentions report.
For example, 44 percent of consumers will research and buy goods online, while 51 percent will do online research and then visit a store to make a purchase. That blurring can make fulfillment and distribution planning even more challenging.
Retail giants such as Kohl’s and Macy’s have made significant investments in e-commerce; so have more boutique operators such as Uniqlo, a Japanese fashion retailer that just launched an e-commerce Web site in the U.S.
The relationships between e-commerce outlets, retailers and their suppliers are becoming more intertwined and complex. Online fashion outlet Yoox.com, for example, also runs e-commerce stores for many major fashion houses.
Transportation operators are upping their online game. UPS, for example, acquired Kiala, a Brussels-based online delivery company that lets consumers decide where to receive packages, earlier this year in an attempt to tap growing e-commerce in Europe.
UPS’s Kuehn offered some advice for consumers during the Oct. 23 conference call. “Indulge during the upcoming holidays, purchase lots of gifts and ship UPS.”