As we enter October, hopefully your organization has started communicating, if not implementing, your peak season strategy for this year’s holiday cycle. A healthy economy, low unemployment and heightened levels of consumer confidence all indicate a very strong holiday sales sheet in 2018. With the cooler temperatures and fall colors making their debut, I felt it necessary to provide a high level analysis on some key elements your organization may want to consider while rounding out the final quarter of the year.
Online sales will be up once again, equating to additional shipping needs
With online holiday sales projected to increase over 15% from the 2017 peak season, shippers will need to prepare for the increased procurement of parcel services to keep up with customer demand. Retail sales have recorded their best growth since 2014, and it should be no surprise the majority of growth has occurred in the e-commerce sector. This trend has been consistent for several years and shows no signs of slowing down anytime soon, so establishing strong relationships with a variety of carriers can help you navigate this year’s shipping spike as well as the continued growth projected in future years.
Capacity issues will return as per usual
It’s no secret carriers have significantly struggled to meet volume spikes over the past several holiday seasons. And putting additional strain on capacity, retailers’ greater emphasis on omni-channel offerings have resulted in more non-traditional products entering parcel networks. The packaging for many of these products remains ill-designed and thus is leading to an increased number of over-sized and unauthorized shipments now impacting the carriers. To combat these logistical nightmares, the major parcel carriers have implemented significantly higher oversized handling rates and fees that can be viewed as a “deterrent plan” against shippers trying to hand off unqualified products to carrier services. Consumer expectations have hindered carrier capabilities and retailer service levels are fighting to keep up with them as well.
Uncertainty exist among certain carriers
Potentially adding to the aforementioned capacity issues, UPS Teamsters have yet to agree to the latest contract agreements, with the deadline for voting to occur Friday, October 5th. If an agreement isn’t reached by this deadline, UPS will almost certainly experience delays leading up to and going into the holiday peak. But UPS isn’t the only carrier experiencing a cloudy future as the jury is still out on how effective Amazon’s delivery service will be moving forward. These issues will certainly cause havoc on holiday delivery lead times if they aren’t resolved soon.
Parcel prices have and will go up again
Year after year, shippers witness general increases in parcel rates and handling fees, not to mention the additional peak season surcharges and fees occurring each November and December. Yet despite these annual rate bumps, many shippers have yet to implement an optimized parcel strategy to help mitigate higher rates associated with inflated customer service expectations and promises. With more items available for home delivery, extra fees occur across all services and will continue to do so as more and more organizations offer expedited shipping simply as an attempt to win and maintain customer loyalty. Furthermore, carriers allow price variations for large corporations vs. medium and small businesses.
Further driving home this concept, FedEx intimated during its latest quarterly conference that they have a “successful pricing strategy” for this profitable segment of the market (meaning small to medium-sized shippers). In other words, they are admittedly asking smaller shippers to continue paying a higher price (allowing FedEx to achieve a higher margin) and will continue to proactively target this market. Great news for shareholders, bad news for small business owners.
So what’s your mitigation strategy?
Once the holiday season passes, e-commerce sales naturally will drop off, but not entirely to previous levels. Past statistics and future projections show e-commerce growth remains steady with each passing year, so while most organizations experience the bulk of their online sales during the fourth quarter, a percentage of those sales will remain permanently throughout the year.
So with that in mind, what’s your organization’s plan for 2019? 2020? When it comes to overall online sales percentages, what’s the magic number needed for your organization to rethink its parcel strategy and negotiation for the long term? Having a peak season strategy is always advised, but shippers need to look beyond the coming months and implement a plan that ensures ongoing success for years to come.
Chainalytics Senior Manager Jim Haller leads the firm’s Parcel Spend Optimization offering, which enables multi-level organizations to reduce costs, improve service levels, negotiate better pricing agreements and generate cost savings of 8-15 percent on their parcel spend.