What’s In Store For FedEx And UPS This Holiday Season?

by Trefis Team
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While most people will be taking taking time off from work and spending time with their families, workers at UPS (NYSE:UPS) and FedEx (NYSE: FDX) will be slogging it out to make sure no one is disappointed this holiday season. Typically, the holiday season is the busiest time of the year for such logistics companies that rely on sales from the quarter to make up for other potentially slower quarters over the remainder of the year. This period also represents a make or break situation for such shipping giants. Failing to make deliveries on time tend to tarnish their reputations significantly, while hurting investor sentiment even more. Therefore, it is absolutely essentially that FedEx and UPS are on top of their game in the upcoming months.

FedEx expects to deliver close to 400 million packages this season, with three busy Mondays driving a record-breaking pace. The Memphis-based company forecasts to deliver about 26 million packages a day on those Mondays, more than double the usual amount, as online retailers ship out orders placed over the weekends. The total expected deliveries this quarter represents a massive 20-26% increase over two years ago, when the 2015 peak forecast projected the company’s network would handle 317 million shipments between Black Friday and Christmas Eve. Similarly, UPS expects to deliver a mammoth 750 million holiday season deliveries, a 7 percent increase from 2016, while the U.S. Postal Service projects a double digit increase to nearly 850 million packages.

In general, the heavy rises in shipments, in and around the holiday season, are primarily attributable to the rise in e-commerce globally. According to the National Retail Federation, e-commerce is expected to grow by around 8-12% this year, which is more than double the overall increase for all retail. This is a staggering growth rate that is expected to grow at a similar rate over the next few years, at least.

To cater for the heavy rise in shipments, like always, FedEx has employed over 50,000 seasonal workers across the country, while UPS has hired 95,000 temporary workers to drive delivery trucks and sort, load, and deliver packages. Further, over the years, both companies have focused on making these temporary workers more effective and better able to handle more packages. In this respect, both companies are using technology to boost driver efficiency, while using automation at their hubs to increase processing speed. Such use of technology also helps maintain good margins for FedEx and UPS as volume in the business-to-consumer category, which has been a less profitable business than business-to-business, rises exponentially.

All in all, it seems as though both companies have learned their lessons from the 2013 holiday season debacle, and have made adequate arrangements to meet the rising demand. That said, the season has just begun, and a lot can still go wrong.

 

 

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