2022 Holiday Delivery Challenge: Slowing eCommerce Demand
By Lisa Baertlein
LDVANGELES – FedEx, United Parcel Service and other delivery companies that have struggled with pandemic-fueled too much demand from online retailers like Amazon and Walmart, now have the opposite problem – too much delivery capacity.
Online sales began to slump during last year’s peak delivery season, from Thanksgiving weekend through the end of the year. fedEx, UPS and the US Postal Service (USPS) continued to add facilities and staff, even as more consumers returned to in-store shopping and rising food, fuel and rent prices eroded discretionary spending.
These delivery companies can now handle 110 million holiday parcels per day. That could exceed peak season demand of 18 million packages a day, according to Satish Jindel, a consultant whose holiday peak volume forecasts are closely watched by delivery companies.
That imbalance could lead to “financial hardship for carriers if they don’t reduce hiring for this peak season,” said Jindel, president of consulting firm ShipMatrix.
Indeed, it is difficult for the increased volume of low-margin door-to-door delivery to offset the additional cost of temporary workers, Jindel said.
A shift to excess capacity would mark a sharp reversal for delivery service providers.
During the peak holiday delivery seasons of 2020 and 2021, demand exceeded capacity by 7.2 million and 1.3 million packages per day, respectively, Jindel said.
FedEx warned last week that global demand was slowing more than expected and said it would cut costs by cutting work hours and combining sorting centers. FedEx overestimated vacation demand last year, and many ground delivery contractors found themselves stuck with bills for hiring workers and renting trucks they didn’t need.
UPS is sticking to its plan to hire more than 100,000 holidaymakers, similar to last year, a spokesperson said.
Changing market dynamics could mean that FedEx and UPS will be more open to using discounts to retain customers next year, experts said.
“We’re close to getting there,” said shipping consultancy partner Kenneth Moyer. LJM Band.