In a number of prior Supply Chain Matters commentaries, we have highlighted how the ongoing COVID-!9 pandemic has motivated consumers to turn even more towards online ordering to secure basic needs for food, groceries and other consumer staples. The move has been significant and unmistakable and is reflected in multiple retailer financial performance reporting. But the expectations for timely delivery or pickup are adding to more frustrations.
The result across the United States and some other global regions are online volumes that have reached typical end-of-year holiday fulfillment surge levels, and this is only June.
Compounding the problem have been breakdowns in contracted logistics and transportation service levels, as many retailers, merchants and now consumers can readily attest to. Shipments that would typically be a couple days are now quoted in weeks, while real-time shipping status is hampered by idle movements.
The Wall Street Journal has reported that the United States Postal Service’s (USPS) network is “bogged down” with overwhelming package volumes, staffing shortages and building backlogs. In many cases, packages are no longer being scanned, sitting in idle storage on trailers or in distribution centers. Cited data from ShipMatrix indicates that between April 19 and May 23, the agency delivered 68.2 percent of priority mail packages on time compared to an 87.4 percent average between March 1 and April 18. According to the report, upwards of 2800 postal employees have tested positive for the virus, while USPS labor unions report that more than 60 workers have lost their lives as a result of the virus.
The Trump Administration recently appointed a new head for the USPS and President Trump himself has once again become very vocal relative to his opinion that the agency is not charging enough for online packages, particularly those from shipped by Amazon, and that the U.S. Congress should forthwith consider privatization of the agency.
Package delivery giant FedEx recently announced a new policy limiting the total number of packages the carrier would pick-up from major retailer customers store level locations because of volume constraints.
This week, rival United Parcel Service (UPS) is adding what is described as “peak” surcharges for retailers and businesses. Starting on May 31, UPS Ground surcharges will apply to online sellers and traditional retailers whose weekly volumes have exceeded what was shipped the prior month by 25,000 packages. This surcharge adds 30 cents for each package destined for a residential address. A further surcharge adds $31.45 on each classified oversized package for shippers that ship more than 500 of such large packages per week. Keep in-mind that some of the UPS SurePost package volumes are actually handed-off to the USPS for last-mile delivery.
Thus far, FedEx has not announced a similar move.
Recall that last year, FedEx dropped Amazon as a customer, with UPS and the USPS as the two prior commercial carriers having to pick-up that volume. Now, the shipping networks of all three carriers are increasingly being taxed beyond available capacity, without the traditional surcharges commonly imposed in holiday fulfillment surge periods.
Such added volume surcharges are bound to impact the cost structures of large, high volume online retailers, and the question remains as to whether such added costs can be absorbed, offset by other efficiencies, or cause higher online shipping costs to be passed thru to customers themselves.
Meanwhile, Amazon itself continues to struggle with its own shipping network volumes. Last week, the online retailer indicated that 125,000 of the total 175,000 new workers hired to handle COVID-19 online order volumes the option of staying on as full-time employees. As Amazon Prime customers can likely attest, the one-day shipping commitment remains a challenge for many products ordered, given the state of overall global and domestic logistics.
Once again, while retailers have the opportunity to preserve sales volumes thru online or curbside pickup, such volume surges are quickly eroding service levels requiring the addition of more workers. Now, with added high-volume surcharges to contend with, the added cost dimensions have to be reckoned with.
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