Holiday shoppers overload shippers

Published 12:00 am Friday, December 27, 2013

Robert Stolarik / New York Times News ServiceA UPS worker passes deflated Christmas decorations to deliver a package Thursday in Cliffside Park, N.J. Across the country, some customers were left without Christmas gifts as the United Parcel Service failed to meet delivery deadlines in the face of bad weather and an unexpectedly large surge in demand.

After years of preaching the convenience and reliability of online shopping — shop in your pajamas, with fast, free delivery — retailers may have been too successful at spreading the message this year, contributing to the volume of holiday orders that overwhelmed delivery services like UPS and FedEx.

As the companies scrambled to deliver gifts the day after Christmas, they also struggled to explain how it had all happened. Some analysts wondered aloud whether it was not just logistics, but industry and customer expectations that needed to be re-examined, while one suggested that the companies might have to reconsider their pricing system.

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“We have this perception that anything can be delivered at any time, and that it will be super cheap and really fast — but this is not Santa Claus,” said Sucharita Mulpuru, an analyst at Forrester, the research firm. “It is an operation in which there are constraints, and there are costs associated with getting more packages than were expected to be somewhere on time.”

The volume even surprised the U.S. Postal Service. Officials said Thursday that they had expected a 12 percent increase in packages during the holiday season, but package shipments jumped 19 percent, and it added Sunday deliveries to accommodate them. A spokeswoman for FedEx said this season was the busiest the company had ever seen.

But it was UPS, the world’s largest package delivery company, that was perhaps the most unprepared for the crush. The company hired 55,000 seasonal workers this year, but that number was roughly the same as last year and the year before that — not enough to keep up with rising demand.

“It hasn’t fluctuated that much over the past couple of years,” Natalie Black, a spokeswoman for the company, said of its holiday staffing. “Whether that was part of the problem, I can’t say. Right now, we don’t know what the linchpin was for the network breakdown.

“You can only fit so much in planes,” she added.

It was unclear how many customers were affected, but complaints poured in from across the country and retailers large and small were caught up in the maelstrom.

While bad weather and a short holiday shopping season were cited as possible causes by UPS officials, they also said the volume generated by growth in online shopping was a likely factor. Online sales have been growing for years, and this season the rise during the weekend before Christmas was extremely steep, up 37 percent, according to IBM Digital Analytics Benchmark. FedEx said it had predicted that it would deliver 22 million packages on its busiest day this year — double the volume in 2007. The actual number is not yet known. One way to address future demand, Mulpuru, the analyst, suggested, would be to approach the surge the same way that the airlines do: by charging more for the service.

“An airline doesn’t just buy additional aircraft so they can accommodate everyone who wants to fly the day before Thanksgiving for $300,” she said. “They just raise the price of your ticket and force people to go earlier.”

Shipping is often subsidized for shoppers, Mulpuru said, and it is retailers that have contracts with companies like UPS. If rates stay relatively static for retailers, they have no incentive not to encourage people to buy as much as possible until the last moment, she added.

This year, for example, if customers ordered from Nordstrom by 3 p.m. Eastern on Dec. 23, they were eligible for arrival Dec. 24. Amazon’s one-day shipping deadline was also Dec. 23, and it even offered same-day delivery Dec. 24 in some locations.

Shipping has been a crucial battleground for online retailing since the earliest days of e-commerce, but it has become more important over time.

Krista Clark, an analyst with the research firm eMarketer, said services like Amazon Prime, the online retailer’s program that offers unlimited two-day shipping for $79 a year, had conditioned consumers to expect faster delivery of everything.

At the same time, customers aren’t willing to pay for it. “The thing people care about more than fast shipping is free shipping,” Clark said.

She cited a study by comScore that found that half of shoppers said free shipping was the most valuable benefit an online retailer could offer.

Some retailers have invested more in central warehouses and distribution systems to better handle online orders. Others, such as Gap, Best Buy and Wal-Mart, have relied on their physical stores to fulfill online orders.

That allows retailers to get the goods in the hands of customers more quickly. “People have gotten crazy trying to compete with Amazon with faster delivery,” Clark said.

Although explanations were in short supply Thursday, UPS took to social media to offer abundant apologies, responding individually with direct messages to its unhappy customers on Twitter. As it apologized, it had plenty of company from retailers that were offering their own regrets, while placing most of the blame on the package carriers.

“While we are dependent on our shipping partners to hold up their end of the bargain on getting your orders to you, we also realize that we are accountable for meeting your expectations and take responsibility for what happened here,” Jamie Nordstrom, president of Nordstrom Direct, said in an email to customers. “We feel awful whenever we let a customer down, especially at this time of year.”

A spokeswoman for Kohl’s said the company was “deeply sorry.” Amazon issued gift cards to affected customers. In San Diego, even a distributor of Glock guns and parts took to Twitter to “apologize if any of your orders didn’t arrive in time for Christmas due to the holiday overload.”

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