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UPS, FedEx Cap Holiday Deliveries
From the Wall Street Journal of Tue, 23 Dec 2014 19:17:08 EST
A package sorter scanning boxes on Friday at a UPS hub in Atlanta.
A package sorter scanning boxes on Friday at a UPS hub in Atlanta. Chris Aluka Berry for The Wall Street Journal

Sorry, last-minute holiday shoppers.

United Parcel Service Inc. and FedEx Corp. started capping air express deliveries in recent days after an 11th-hour increase in packages caused some retailers to exceed agreed-upon limits, according to people briefed on the situation.

This year, both UPS and FedEx held some retailers to their volume commitments during the final shopping days before Christmas, aiming to avoid a repeat of last year’s fiasco. Last Christmas, an estimated 2 million express packages didn’t arrive under the tree in time, according to software tracking developer Shipmatrix Inc.

Tom Barone, the vice president of North American operations for eBay Enterprise, which handles shipping and other logistical issues for close to 100 brands and retailers, said delivery companies had asked Tuesday for his clients to scale back last-minute shopping deals to take some pressure off shipment volumes.

Mr. Barone said most of his clients had already rolled back shipping deadlines to late afternoon on Dec. 23 for delivery by Christmas Eve to minimize missed deliveries. Last year, the cutoff went as late at midnight at some retailers.

Surging online shopping over the holidays fueled by offers of free shipping and deep discounts tests the limits of the infrastructure—planes, trucks and sorting hubs—used to deliver the gifts to tens of millions of homes in neighborhoods from Miami to Seattle.

Last year, UPS was caught flat footed by a surge in deliveries, a limited air fleet and bad weather and had to tell millions of Americans their gifts wouldn’t arrive in time for Christmas. FedEx said it wasn’t affected as badly, apparently because it rejected some last-minute unexpected volume, a demand UPS tried to meet, although it conceded it struggled with the weather.

This year, the delivery giants encouraged retailers to plan ahead and cautioned that they could be out of luck if their packages over the holidays exceeded closely negotiated deals. UPS had called on retailers to tone down promotional offers and free overnight-shipping promises on Dec. 23, when time is tight and the room for error is minimal.

At the same time, UPS invested $500 million to prepare for the holidays, including with a “control tower” system to keep an eye on package volume during the company’s peak season.

A spokeswoman said UPS has held to its plans. For customers trying to ship more volume than expected, the answer depended on the region, the number of packages and other factors. “Some we said yes, some we said no,” she said.

FedEx said some customer needs have shifted in part due to West Coast port problems that have affected inventories. “These changes did result in some caps on volume,” a FedEx spokeswoman said.

EBay Enterprise’s clients were basically expected to have adhered to forecast volumes for Tuesday, so Mr. Barone didn’t expect to have any issues with UPS. “If we are a little over, UPS has said it will work with us,” he said.

Some customers had already experienced delays. Rob Whitemore ordered eight items on Dec. 20 using Inc. ’s two-day shipping guarantee for members of its Prime service. As of Monday, the 65-year-old project engineer said five of those items were still stuck in an Amazon facility in Kenosha, Wis., about 80 miles from his home. Amazon handed it off to the U.S. Postal Service for delivery, and the tracking number says it was delivered today.

An Amazon spokeswoman said that it works closely with its delivery partners and is confident in their ability to deliver for Amazon customers this holiday.

UPS has been in near constant communication with one large retailer this week as volume came in slightly lower than expected, said Steve Osburn, a supply chain consultant with Kurt Salmon. “UPS is managing this almost at the package level,” he said, to reallocate any extra space.

One large retailer’s volume was capped by both UPS and FedEx at the agreed upon number, while another was left holding some packages. “The discussion will go on for weeks as to who is responsible,” Mr. Osburn added.

Both delivery companies appear to be doing much better this year. UPS and FedEx both achieved estimated 97% on-time delivery rates for express packages on Monday, even factoring in delays due to weather and shipper errors, up from closer to 90% last year, according to ShipMatrix.

The U.S. Postal Service has taken a different tack, lowering prices for some Priority Mail packages in September and encouraging retailers to ship more packages with them. Shipmatrix data shows Parcel Select packages—which letter carriers cart from a local post office to the door—have been delivered by the next day 99% of the time during the holiday season, excluding Mondays, when the on-time rate dipped slightly.

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