UPS today proved there’s no such thing as free online shipping. The parcel giant lowered its earnings expectation for the full year to $4.57 a share from a previous prediction of $4.65 to $4.85 a share, citing the unexpected surge in last-minute online shopping orders in a compressed holiday peak season.
On Dec. 23, two days before Christmas, UPS said it delivered more than 31 million packages, a 13 percent year-over-year increase and a figure that consultant Satish Jindel of SJ Consulting Group said includes 5 million packages delivered to post offices for final delivery by the U.S. Postal Service.
UPS was widely, and some say unfairly, lambasted in the media for late deliveries over the holidays. Delays occurred after retailers saw an unprecedented surge in last-minute online shopping encouraged by deep discounting and promises — made by some retailers — of on-time Christmas deliveries.
Online purchases between Dec. 20-22 grew 37 percent from the same period a year ago, according to IBM data. Some 73 million parcels were delivered on Dec. 24 by UPS, FedEx and the USPS, according to Jindel.
UPS had to hire 30,000 more temporary workers than expected to handle the surge in last-minute package shipping, bringing a total of 85,000 temporary employees on board this holiday season.
Still, millions of packages arrived late, and as Stifel transportation analyst David Ross points out, consumers could use UPS’s sophisticated tracking technology to watch their packages held up in the system.
Dec. 23 was UPS’s peak shipping day, and it came six days later than expected, and volume was 7.5 percent greater than UPS forecast. The cost of those “extraordinary measures” are apparent in the reduced earnings outlook — 18 cents lower than investment research firm Stifel had predicted.
“This is the perfect justification for a peak-season surcharge,” Jindel said. “There’s a significant increase in cost to handle this kind of surge, and those who contribute to it need to pay.” Inexperienced temporary workers hired at the last minute will be less productive and more costly, he said.
“So on a per package handling basis, the cost goes up,” Jindel said. UPS will release its fourth-quarter and full-year financial results Jan. 30. The company doesn’t expect its problems in the fourth quarter to dim its long-term earnings outlook. UPS forecasts earnings growth this year of 10 to 15 percent.