FedEx Jet Fleet Pressured by Weather, While UPS Keeps on Trucking

FedEx (NYSE:FDX) and UPS (NYSE:UPS) have had a lot on their plates these past few weeks as yet another holiday season came to an end. Despite the immense preparations for a quarter that witnessed “record numbers” of packages, the shipping companies faced significant difficulties in delivering packages on time. FedEx was hit harder than its Atlanta-based arch rival, due to severe weather across much the U.S. As a result, the company added shifts on the holiday itself to insure the belated delivery.  UPS, less reliant on air transport, was less affected.

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With each passing year, the quantity of sales recorded from online transactions is increasing at unprecedented levels. This holds true, especially around the holiday season when sales from e-commerce spikes considerably. It was recorded that, this year, online sales increased by about 20% (year-on-year) between Thanksgiving and Christmas Eve. It was noted that the reason for such growth was because shoppers are now conducting a lot more product research online before they purchase anything. This practice is translating to higher online sales. ^[1] Given the momentum, it seems highly plausible that this trend is only going to strengthen in the years to come, as internet connectivity increases and convenience begins to trump all else in the consumer’s mind. What this essentially means is that there is a surge in the number of package deliveries. Intuitively, larger volumes translate directly to higher revenues; however, this fact holds true only if shipping companies are well prepared to handle the sudden increase in packages.

UPS displayed a good performance this time around. According to data compiled by Big Brown, the company delivered almost 98% of the packages on time, which is similar to its average 99% on-time delivery rates during non-peak seasons. ^[2] To accommodate the high package volumes, the Atlanta based shipping giant opened 24 “pop-up” sorting locations across the country, while increasing the number of seasonal workers, trucks and planes in use. Apart from this, the company also decided to set an upper limit to the number of orders it would accept this season. ^[3] FedEx, as we noted above, experienced difficulties as tornadoes across the central U.S. paralyzed air traffic, creating significant delays. Unanticipated high volumes were a problem as well.  The Memphis-based company as a result had drivers deliver packages  Christmas day in an attempt to catch up.

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1. Holiday E-commerce Sales Surge 20%, www.internetretailer.com [↩]
2. UPS Delivered this Christmas, FedEx got Bogged Down, www.fool.com [↩]
3. Online Surge Raises Questions about Delivery Network, www.albanyherald.com [↩]