UPS and FedEx Set Limit on Festive Season Deliveries

Rising demand for last-minute delivery of packages from retailers compelled both the express carriers – United Parcel Service, Inc. (UPS) and FedEx Corporation (FDX) – to limit their delivery volumes at the very onset of the holiday season.

Aggressive marketing efforts from retailers during the festive season coupled with a surge in e-commerce business triggered considerable rise in shipments. However, restricted numbers of trucks and fleet created pent-up demand for supply which may in turn impede timely deliveries.

FedEx delivered nearly 290 million packages between Black Friday and Christmas Eve, demonstrating a 9% rise year over year. Likewise, UPS is expected to ship 585 million parcels in December, which highlights an 11% rise from last year. One of the leading parcel delivery companies, U.S. Postal Service, shipped 28.2 million packages on Dec 22, 2014, surpassing its previous record of 27.9 million.

According to ShipMatrix, Inc., which tracks and analyzes retail shipments, nearly two million packages failed to arrive on time in the festive season last year. Supply constraint combined with poor weather conditions during the season had resulted in delays.

Hence, logistic companies remained cautious during the busy holiday period and had to schedule set last-minute delivery limits for retailers.

In order to deal with such supply concerns, both United Parcel and FedEx spent nearly $500 million and $2 billion, respectively, to upgrade their respective air cargo network by means of adding more fuel-efficient aircraft. Moreover, the companies recruited 95,000 and 50,000 seasonal labors to ease pressure and facilitate timely deliveries. Furthermore, the agencies decided to refuse order overloads and also charged fines for the same.

These strategies helped the companies achieve 97% success rate with respect to timely delivery of packages during the holiday season, as per reports by the ShipMatrix.

On the flipside, we believe that setting caps or charging late fines on last-minute delivery of packages may mar the companies’ relationships with important clients.

Currently, both United Parcel and FedEx Corp. carry a Zacks Rank #3 (Hold). Other better-ranked stocks in the same industry include Atlas Air Worldwide Holdings, Inc. (AAWW) and Expeditors International of Washington Inc. (EXPD). Atlas Air Worldwide sports a Zacks Rank #1 (Strong Buy) while Expeditors International has a Zacks Rank #2 (Buy).