DC Velocity - February 2014

THE BRIGHT SIDE OF THE 2013 HOLIDAY DELIVERY debacle is that everyone has almost a year to get things right. UPS Inc., which bore the brunt of the public relations fallout from millions of late deliveries, has begun a deep dive into its systems, processes, and capacity requirements for the 2014 holidays and for the year-round e-commerce tsunami that has challenged its operations as perhaps no issue before it. Merchants—if they’re smart—are taking a hard look at how their behavior shaped the performance of their vendors and the actions of their customers.

There is little doubt that last year was a mess. Gene Tyndall of consultancy Tompkins International says he’s heard that up to 12 percent of business-to-consumer (B2C) orders placed online during the week before Christmas had delayed deliveries. Orders slated for shipping on Dec. 22 or Dec. 23 surged well above 2012 levels and hit peaks no one anticipated.

UPS, as we all know, became the fall guy. But merchants were just as much to blame. Many retailers promised overnight deliveries for orders placed as late as Dec. 23.

Amazon.com Inc.’s “Prime” service, which guarantees free two-day deliveries for most of its merchandise for a $79 annual fee, signed up 1 million customers in one December week alone. These shipping “goodies” helped unleash a torrent of orders toward the end of the holiday cycle.

Overwhelmed merchants were late in tendering packages for down-to-the-wire deliveries. UPS quickly maxed out its air capacity; from there, the problems grew exponentially.

So what to expect for yuletide 2014? The supply chain won’t catch much of a break in that there will only be one more day between Thanksgiving and Christmas than there was last year. Consumers reminded of last year’s disaster could spread out their 2014 buying in a more orderly manner. But consumers are not that rational. Merchants could bring some discipline to the table by making consumers aware of the consequences of procrastination. But holiday sales will be as critical to merchants this year as last. And the retail landscape will be as brutally competitive this holiday as last. In short, don’t look for merchants to willingly put their customers on a short shopping leash.

That leaves it to the carriers. Noted transport consultant
Satish Jindel suggests the levy of a “Christmas
surcharge” on big shippers. Charges would be
based on daily volumes tendered after a pre-
set date (Dec. 15, for example) that exceed the
shippers’ average daily traffic during the rest of
the year, Jindel says. Surcharges would offset
the carriers’ super-high seasonal costs and put a
brake on what Jindel says is merchants’ reckless
behavior.

Others say that with big retailers effectively controlling the nation’s supply chains, carriers will be loath to anger them with surcharges. A less-dra-conian approach, they say, would be for carriers to tell retailers and consumers to expect delays if they ship late and to not guarantee on-time deliveries of packages tendered after a certain date.

There will also be a fair share of innovation. Tyndall says UPS tested a scheme in select markets last year where it placed trailers full of packages in a centralized location and had drivers (or workers)

in golf carts pull packages from the makeshift pod and deliver them to nearby residences.

The keys to any solution will be Amazon, the world’s biggest e-tailer, and UPS, the core piece of the delivery puzzle. Both are innovators that don’t tolerate missteps and that have the resources to correct them. They face a tough battle. Digital commerce has raced ahead of the physical world’s limited capabilities. It will take all the creativity of people on the ground to bring the two into alignment.