• The Star Staff

With 3 billion packages to go, online shopping faces tough holiday test

By Michael Corkery and Sapna Maheshwari

E-commerce became a lifeline for consumers and companies during the pandemic. But this holiday season, online shopping will strain the industry as never before: An estimated 3 billion packages will course through the nation’s shipping infrastructure — about 800 million more than delivered last year.

This flood of packages is hitting shipping companies at the end of a year of frenzied demand for everyday household items by a public largely stuck at home and wary of doing its buying in person. The deliveries could make or break some smaller retailers already on the edge financially because of lockdowns and fewer customers in their stores.

Packages that don’t arrive by Christmas will be a disappointment for customers but a disaster for these struggling retailers, which have been forced by the coronavirus pandemic to rebuild their business around e-commerce. The future of retailing is increasingly online, and companies don’t want to give customers any reason to think they can’t deliver.

“Everyone is preparing for the worst and holding their breath,” said Ravi Shanker, a transportation analyst at Morgan Stanley. “It is far easier to lose at peak shipping than to win.”

To cope with the surge, the large shipping companies have expanded weekend deliveries and hired more workers. They have also played hardball with retailers, introducing steep holiday surcharges on shipments and enforcing strict limits on how many packages companies can send out each day.

FedEx and UPS, the biggest private U.S. carriers, have enormous leverage over how many packages will be delivered and when, and some retailers worry about pushing back against their demands for fear of being cut off.

But the carriers are also under pressure, largely from Amazon, which has been building out its own logistics business and is becoming increasingly independent in shipping. If more retailers falter this holiday, that only strengthens Amazon’s dominance.

By one accounting, 7.2 million more packages need to be shipped each day this holiday season than the system has the capacity to handle.

That figure came from ShipMatrix, which provides technology to the shipping industry. Its president, Satish Jindel, said expanded weekend deliveries were covering part of that shortfall, “but not all of it.”

“Demand exceeds capacity, no matter what part of the country you are in,” he said.

Many brands, both large and small, have yanked forward order deadlines for customers who want to receive items by Christmas and posted reminders on their websites to order early.

Beatrice Bakery in Beatrice, Nebraska, which expects to sell 750,000 pounds of fruitcake this holiday, set a cutoff of Dec. 9 — nearly a week earlier than last year — while the Disney Store is advertising a Dec. 10 deadline.

Typically, shipping volumes during the holidays are 30% to 40% higher than at other times of the year. But those levels were being reached this year long before people started buying Christmas gifts. Even Amazon struggled to keep up with the demand in the early days of the pandemic.

The shipping companies say they are better prepared for the holidays. FedEx said it was hiring 70,000 seasonal employees, and UPS said it would hire 100,000. That expansion pales next to the preparation at Amazon, which said it was building 100 new fulfillment warehouses, sorting centers and delivery facilities across North America. The company has hired 275,000 full-time and part-time workers since the start of the year and 100,000 seasonal workers to handle the increased volume.

Major shipping companies are also preparing to distribute coronavirus vaccines, though most of those shipments are not likely to start until next year.

Some retailers are already reporting delays.

Executives at Kendra Scott, the contemporary jewelry brand, said they had discussed rising sales during the holidays with UPS but were told this past week that deliveries would be delayed because of capacity issues. On Wednesday, an alert about the delays was at the top of the Kendra Scott website.

“I don’t know how it could be as unexpected as it appears to have been,” said Tom Nolan, the brand’s president. “We are not getting what we were told we would get when we embarked on our holiday season.”

Nolan said the delays were particularly frustrating because customers tended to blame the brands, rather than the shipping companies.

“We’re paying a fee to a shipping provider to hold them to the expectations we have,” he said.

Kendra Scott employees scrambled, including moving goods to some of its 100-plus stores and warehouses that were closer to certain customers. But Nolan was uncertain about how the rest of the month would look.

“We’re trying to work that out now and anticipate, coming closer to the holidays, is this going to get better or going to get worse?” he said. “This is not a free service that we’re talking about. We pay a premium to get this done effectively, and the expectation is that it’s done effectively.”

One retailer that sells apparel and accessories has already been grappling with UPS’ capacity restrictions and surcharges, which can add several dollars to a package and increase its overall cost by 25% to 40%, according to two company executives, who spoke on the condition of anonymity, citing fear of retaliation from UPS.

The parcel limits were based on holiday volumes from last year, even though many more people are shopping online this year. Once a day’s quota is reached, remaining parcels must be pushed to the next day, the executives said, a move that can then snowball into other days.

Overall, delays have been relatively minimal so far, analysts say. A UPS representative said the carrier was “delivering previously agreed upon, collaboratively planned package volume, but there are limits on unplanned volume until we have capacity in our network that we can steer it toward.”

Still, many retailers are urging customers to pick up orders in stores or curbside.

The shipping calculus for the smallest retailers leaves little margin for error. Doug Haney, who owns Bike Adirondacks, a cycling business in Saranac Lake, New York, ships his products though the U.S. Postal Service. This year, the shipping rates for smaller items like T-shirts and hoodies have gone up, and Haney is absorbing some of the costs.

“A $5 price point for shipping for a small order is what people want to spend,” he said. “Otherwise, it becomes unappealing.”

Shipping companies are walking a tightrope, too. In some past years, they were criticized for not having enough employees to handle the packages, leading to delays. But in other years, investors criticized them for hiring too many drivers and sorters, lowering profits.

“You have to match the resources with the volume,” said Shanker, the Morgan Stanley analyst. “It is easy to get that wrong.”

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