Special
Delivery
Christmas, directing drivers to deliver by the end of a committed day rather than by a specific time, according to SJ.
In addition, FedEx Ground suspended its ground service
guarantees for the entire peak season, while UPS did the
same for Cyber Week (the week after Thanksgiving) and
Christmas week, according to the firm. The adjustments
to the delivery guarantees were designed to blunt the cost
impact of residential delivery spikes rather than to maintain
profitability by levying additional charges, SJ said.
Perhaps most significant, both are working to generate
sufficient e-commerce delivery densities to reduce costs and
capture more of the last-mile e-commerce traffic that they
have historically tendered to USPS. The companies have
operational alliances with USPS where residential packages are inducted deep into the postal network for last-mile
delivery by postal carriers. USPS prices the service cheaply
because it is already required by law to serve every U.S.
address and can pick up or drop off parcels along the way.
Though the model is popular with FedEx and UPS customers, the carriers don’t generate much revenue from it and
have to share what they take in with USPS.
FedEx is also consolidating shipments moving in its
FedEx Ground, FedEx Home Delivery, and “SmartPost”
service (FedEx’s joint service with USPS) in a bid to boost
efficiency. UPS, meanwhile, has created about 8,000 U.S.
“access points,” commercial establishments in residential
neighborhoods where packages are dropped off for cus-
tomers to pick up. Customers using the company’s “My
Choice” service can redirect a package to a convenient
dropoff location. The strategy benefits UPS by consolidat-
ing multiple residential stops into one commercial stop,
which optimizes UPS’s network and minimizes costly “not
at home” delivery attempts, said Martinez of Shipware. In
addition, UPS has expanded its “Synchronized Delivery
Solutions” capabilities, creating what Martinez calls “syn-
thetic density” to speed up or slow down package deliveries
so multiple packages get delivered at the same time.
The strategy of diverting last-mile deliveries into the
carriers’ own systems appears to be paying off, at least at
UPS; its drivers now deliver about 35 percent of packages
moving under its postal product rather than letting USPS
do it. FedEx is nowhere near that level. However, few would
bet against the company should it decide to follow the same
course.
USPS, for its part, is concerned. In a Feb. 9 government
filing, it acknowledged that the growth of that business—
known in the postal world as “Parcel Select”—could be
jeopardized if three of its biggest customers continue building out rival networks. USPS didn’t identify the carriers, but
it’s clear that they are FedEx, UPS, and Amazon.
There’s no question FedEx and UPS can pull multiple
levers to get ahead of the e-commerce tsunami. However,
they may still find it tough going unless they can convince
retailers that they can’t constantly demand lower prices
just because they’ve made service commitments to consumers that they may now regret. “Bending the cost curve
isn’t just about density, but revenue per stop,” Martinez
said. “We see both carriers walking away if margins are
forced too low.” For retailers and other B2C shippers, that
may require building a bit more cushion into their parcel
delivery budgets. ;
MARK B. SOLOMON IS EXECUTIVE EDITOR – NEWS AT
DC VELOCITY.
Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016
B2C of
domestic
volume 41.7% 40.5% 43.0% 48.3% 44.0% 43.0% 45.0% 50.0% 43.8% 43.1% 45.4% 51.0% 44.5% 44.1% 47.5%
Domestic
operating
margin 13.1% 13.7% 14.4% 12.9% 10.9% 13.5% 14.7% 11.4% 11.6% 13.6% 14.2% 13.1% 12.1% 13.7% 13.5%
growth
of total
B2C
shipments – – – – 2.3% 2.5% 2.0% 1.7% -0.2% 0.1% 0.4% 1.0% 0.7% 1.0% 2.1%
Year-over-year margin
growth – – – – - 2.2% -0.2% 0.3% - 1.5% 0.7% 0.1% -0.5% 1.7% 0.5% 0.1% -0.7%
SOURCE: SJ CONSULTING
[FIGURE 2] UPS: DOMESTIC B2C VOLUME VS. OPERATING MARGIN
