Will holiday shopping lead to peak shipping?
My favorite stories are the ones without clear answers; nothing that is simple is real, and nothing that is real is simple.
When we look at this year’s holiday shopping season, we find a perfect example. Competing projections are pitting the strategy and sophistication of retailers against those of small parcel shippers.
We are officially in peak season already, and have been since late October. 43 percent of shoppers planned to start their holiday shopping before November this year, and most major carriers have demand surcharges in effect through mid January.
In this week’s Dial P for Procurement, I research the many trends and forces about to collide in shopping malls and ecommerce shopping carts around the world.
Ghosts of Christmas Past
The last few years have been no kinder to retailers than to anyone else. The most common scenarios were feast and famine, where in-store shelves were bare or excess (and often unwanted) inventory gummed up supply channels and crushed cash flow. Neither of those situations did consumers or retailers any good.
Now, however, retail inventory is back in check according to National Retail Federation CEO Matthew Shay as reported in Supply Chain Dive. “Our assessment is that the inventory sales ratios are really back to the pre-pandemic levels at about 1 to 1.3. I think people are pretty comfortable about that. They’ve got the inventory mix right.”
Most retailers walked a careful line this year, bringing in new inventory without panic buying. They used time to their advantage, moving inventory in sooner than in the past to make sure that supply chain disruptions and labor shortages didn’t come between them and consumer demand.
Fighting for Demand
The small parcel market became more fragmented in response to tight capacity during the pandemic. For small carriers, that meant an opportunity to become regional, and for regional players, it meant an opportunity to grow their territory and/or market share.?
Companies like DHL and Amazon Shipping have been chipping away at demand that national carriers like FedEx and UPS would have covered in the past.
In addition to everything else going on, UPS spent much of the year warding off a strike led by the Teamsters labor union. And while they came out on the other side with an agreement, there was a lot of uncertainty along the way.
FedEx managed to convince some shippers to leave UPS in advance of a potential strike, but now they have to keep them - and UPS is fighting back.
UPS is offering to cover early switching fees for shippers that left them for FedEx. The company estimates that they lost 1.5 million packages per day during the labor negotiations. They have won back 600,000 of those packages, with Amazon accounting for half of that volume on their own. Just 900,000 packages to go…
领英推荐
Blue, Blue Christmas
Demand for parcel services usually increases at the holidays, and the National Retail Federation’s forecasted 3 - 4 percent sales growth over 2022 would suggest that this year will be no different.
But the carriers seem to know different. Both UPS and FedEx are bracing for a weak holiday season, a downward trend that is being observed across supply chains - and news stories about a freight recession are becoming more common.
Steve Howard, Director of World Parcel Alliance, recently said in an interview that shipping volumes are down by 25 percent overall and some ships from China are being canceled because they aren’t at capacity.?
Rates are plunging worldwide, including container ship rates to transport freight across the Pacific Ocean or from Asia to Europe.?
In 2022, carriers delivered an average of 90 million parcels a day during the holiday season, but according to ShipMatrix, that number is expected to drop to 82 million in 2023. Shoppers are cutting back on product spending and shifting their spending to travel and services. Sales of Taylor Swift tickets - almost $600 Million worth - serve as an exclamation point on statements about consumer willingness to spend - but for experiences, not goods.
Trimming the Wish List
92 percent of adults have cut back on discretionary spending over the past six months according to a CNBC poll from mid-September. That attitude towards spending extends to their shipping expectations. Individual shippers are prioritizing reliability, transparency, and cost over speed.
In fact, the National Retail Federation report I referenced earlier, where 43 percent of people started doing their holiday shopping in October, states that most of them (60 percent) did so to spread out the cost of the holidays over multiple credit card cycles. That suggests that consumers don’t need everything delivered in 2 days or less - especially if it costs more to do it.?
FedEx and UPS can read the writing on the wall. They are driving per-package revenue by identifying the most profitable shipper segments.They are sophisticated enough to realize that they can’t be everyone’s preferred carrier and emphasize profitability at the same time.
Retailers are expecting a strong season while small parcel carriers are bracing for a weak one. Given the natural connections between them, it seems as though someone is likely to be proven wrong.?
Black Friday is two weeks away. It will be better for everyone if FedEx and UPS are wrong and retailers are right, but I’m not betting against their supply chain predictions. Time will tell how strong this holiday shopping season will be and how many gifts will end up traveling to their final destination via small parcel carriers.