FedEx forecast Monday that e-commerce sales will drive a 12.4% increase in its holiday shipping volume from last year, to a record 317 million shipments between Black Friday (Nov. 25) and Christmas Eve.
FedEx says it expects to see three spikes in package volumes during the holidays: On Cyber Monday (Nov. 30), and the first two Mondays in December. During those days, FedEx expects its daily volume to be double that of an average day.
“The shift in consumer shopping patterns, fueled by the rise of e-commerce, continues to drive our volume,” said FedEx CEO Frederick W. Smith in a statement announcing the holiday projections.
The FedEx Ground service that handles most online orders will operate seven days a week during the holiday period, as it has for several years, but will not make residential deliveries on Saturday and Sunday, a spokeswoman says.
UPS also processes parcels seven days a week, but only delivers standard ground shipments Monday through Friday. Business and residential customers can schedule Saturday delivery for a $16 fee. Saturday pickups are available in certain locations, and, a UPS spokeswoman says, “Specialized holiday operating plans are coordinated with many large retailers to arrange pickups or receive trailers on the weekends throughout the holiday period.”
FedEx spent $1.6 billion this year to upgrade its FedEx Ground infrastructure to handle extra holiday demand, including adding 30 airplanes; upgrading package-sorting systems; hiring 55,000 seasonal drivers, package handlers and others for the holidays; and putting enhanced vision systems on 250 aircraft so pilots can land in low-visibility conditions. FedEx also is adding 7,000 fuel-efficient vehicles in fiscal years 2015 and 2016, the company says.
Donald Broughton, an analyst at Avondale Partners who covers FedEx, says FedEx’s projection is on the low end of holiday shipping increases historically, as shipment surges have ranged from 12%-20% since online retail sales began to take off in 1999. He says consumers may be holding back their spending this year. Economists cite continued uncertainty about the economy’s strength and interest rates.
Trying to smooth out their holiday volume, major carriers have been meeting with online retailers to discuss the upcoming holiday season, says Marc Wulfraat, founder and president of MWPVL International. He says FedEx and UPS sit down with major retailers to plan the ups and downs of e-commerce traffic during the holidays so that the package delivery companies can be prepared. The shippers and the retailers sign agreements setting limits on the numbers of packages to be shipped during the holiday period, he says, and FedEx and UPS impose a surcharge on the retailers who exceed or underperform the agreed-upon limits.
FedEx, in an emailed statement, said it “closely collaborates with our customers all year to set expectations early and understand their planned shipping needs leading into the holiday season.
“Understanding the trend of shifting consumer shopping habits, we will continue to work constructively with e-tailers and retailers and have placed volume caps where necessary to help ensure we provide our customers the world-class service they’ve come to expect,” Fedex said.
The extra preparations and investments are more important than ever because Amazon’s use of the U.S. Postal Service to deliver last-mile shipments on Sundays is cutting into the revenue of FedEx and UPS revenue, Wulfraat says.
The Postal Service on Nov. 17, 2014, started delivering packages for all retailers on Sundays—one year after it made the deal to do so for Amazon.
USPS has 105 clients in the Top 500, according to Top500Guide.com, up from 98 last year. UPS has 176, up from 161. FedEx has 144, up from 137.
Broughton says UPS has a tougher time competing because its drivers and many of its package handlers in the United States are members of the Teamsters union, and the company has less flexibility in managing its workforce than does FedEx.
A UPS spokesman says the company has always had agreements with the Teamsters to hire part-time help for the holidays.
UPS recently raised the fuel surcharge it adds to the shipping fee online retailers pay, matching a similar increase FedEx announced earlier this month. UPS also told web retailers to allow an extra day for delivery in the last few days before Christmas, hoping to encourage them to avoid making promises to last-minute shoppers UPS can’t fulfill.
Morningstar analyst Keith Schoonmaker says he expects FedEx and UPS to reap the rewards from their holiday preparations. Schoonmaker says 2015 should be a year in which UPS can price more assertively, unlike last year when it may have been reluctant to increase rates significantly because of 2013 holiday season delivery problems.