2020 was the year the term ‘Shipageddon’ grew in popularity. Ok, maybe that’s a stretch but I know the term hits home for sellers and people in the logistics space.
When the country started to shut down in March of last year, there was an immediate surge in online buying. It’s estimated that ecommerce retail grew from 11% to 15% of total retail sales in the US. Keep in mind that it took a decade for ecommerce to go from 5% to 10%. This unprecedented shift essentially happened overnight and put a huge strain on the global supply chain, especially the last mile carriers who saw package volume nearly double.
The onslaught of packages funneling through the shipping carriers grew steadily over the course of the year and reached a record-breaking amount during the holiday season. The combination of package volume, workforce shortage at the carriers, infrastructure issues, and capacity constraints created significant delays, lost packages, and above all, frustration for both sellers and buyers. Now, nine months later, those issues are still creating ripple effects through the industry.
Carriers Adapt and Invest
While the hockey stick growth of online sales created headaches and bottlenecks for all the carriers, they were one the biggest beneficiaries during the pandemic as most reported record revenue and profits. The two largest carriers, UPS and FedEx, saw their stock nearly double over the past 18 months and are now valued at $160 Billion and $70 Billion, respectively. Carriers invested this new found capital in infrastructure—buying assets like vehicles and shipping hubs—to support the growth of small package volume.
UPS Super Hub
By the end of this year, UPS will complete a three-year strategic investment in global enhancements to improve automation and increase productivity. UPS estimates that nearly 100% of the eligible packages in the UPS network will be sorted by automated technologies, improving productivity by 30%. As part of this initiative, UPS will be opening their fifth and largest US “super hub” in Pennsylvania.
FedEx Ground Economy
FedEx also revamped several of their services to be more aligned with the increase in small package volume. For example, FedEx reimagined their most popular ecommerce service, FedEx Smartpost, which had previously used USPS for their last mile delivery, by moving everything in-house to be handled by FedEx trucks and drivers. This has resulted in faster, more reliable deliveries. They have since rebranded Smartpost to FedEx Ground Economy.
Dip in First Class Mail
While large private carriers have flourished during the ecommerce boom, things haven’t been so rosy for USPS (United States Postal Service). USPS saw a 4.9% decrease in first class mail volume in 2020, a significant drop compared to the previous three year average of a 2.9% annual decline. The decline has been largely due to an increase in competition, shrinking partnerships (i.e. FedEx moving away from using USPS for Smartpost deliveries), and a decline in overall performance and reliability. To add insult to injury, UPS and FedEx capped delivery orders for some large retailers during last year’s record holiday season, sending massive volumes to an unprepared Postal Service.
Prices Continue to Climb
It would seem logical that an increase in carrier revenue, combined with added infrastructure (planes, trucks, and shipping facilities), would lead to a decrease in shipping costs. Maybe it would at least flatten out, year-over-year. In fact, fuel rates and surcharges have increased more times this year than anyone expected. While an annual rate increase, and peak season surcharges during December are commonplace, this year all carriers have announced rate increases multiple times. Follow the 2021 carrier increases and surcharges blog post for more detailed updates.
Indefinite Surcharges at FedEx
FedEx has revised their package surcharges three times this year alone. Their most recent announcement stated their peak surcharges will continue indefinitely in 2022. Alternatively, UPS announced their peak surcharges will end January 15, 2022. Although it comes at no surprise that these surcharges aren’t going away, FedEx is the first carrier to put it in writing.
Fewer Packages at UPS
UPS updated their peak surcharges twice in 2021, but the increases have been slightly more modest than the ones with FedEx. UPS posted a 14.5% increase in second-quarter sales despite shipping fewer packages than the same time last year—it’s clear that their price increases offset the package slowdown.
10 Year Plan at USPS
USPS is projected to lose a record $9.7 Billion in 2021, up from their $9.2 Billion loss in 2020. In March 2021, USPS announced a 10 year plan to save USPS $160 Billion. As part of the plan, USPS announced several pricing increases this year, including a temporary rate adjustment for 2021 peak holiday season.
The reality of the situation is that demand for shipping still far outweighs supply. Carriers can’t buy or build assets fast enough to meet consumer demand. Ecommerce will only continue to grow and before the carriers catch up to the volume, carriers will be in the driver’s seat and demand premium prices for their services. However, retail stores opening back up and smaller national carriers (like Pitney Bowes and LaserShip) are growing. With these changes, sellers will have more options this holiday season compared to last year.
It’s Not All Doom And Gloom
It may seem like sellers get the short end of the stick here: delayed packages at a premium cost? No one is signing up for that. But there is a light at the end of the tunnel for ecommerce sellers. Package volume moving through the carriers has stabilized and COVID cases have declined allowing the carrier workforce to get back to an adequate level of service. Most carriers have relieved shipping caps and reported pre-pandemic delivery speeds so far in 2021.
Here are some tips for sellers for the upcoming 2021 holiday season. It’s not too late to mitigate some of the issues that occurred in 2020: slow delivery speeds, stuck packages, incredibly high shipping costs.
Use more than one carrier. To put it simply, don’t put all your eggs in one shipping box. Sellers should have at least two carriers programmed with a clear understanding of their cost so they can easily pivot from one to another in the event of any bottlenecks or issues.
Get your products closer to your primary buyers. If your supply will allow for it and you can realistically manage multiple pools of inventory, it might be worth the effort to ship out of at least two facilities. This can directly lower shipping costs and reduce delivery speeds. There are diminishing returns once you put your products into too many locations, so don’t go overboard.
Keep your packaging simple. We all love getting neatly packaged boxes with delicately placed tissue paper and a handwritten note. However, looking at this from the fulfillment side, it can get very costly and time consuming to put specialty packing materials together. Not only does it add upfront cost, it can slow the fulfillment speed which will affect your overall order speed to customers.
Consider regional carriers. With the ongoing rate increases from national carriers, plus unprecedented package volume flowing through their system, regional carriers can be an attractive and cost-effective option for sellers. Technology providers have provided a boost to their viability by stitching regional carriers together to provide national coverage and shipping speeds comparable to the household names like FedEx and UPS.
Start your holiday promotions early. Let’s face it, even with all the planning and preparation leading up to the holidays, there will be delays. Last year, retailers like Walmart, Macy’s, and Home Depot moved their holiday sales up to effectively balance the holiday rush. Cyber Monday morphed into Cyber November, helping alleviate supply chain bottlenecks and getting orders to customers in time.
While there doesn’t seem to be any slowdown in sight as it relates to shipping volume and rate increases, as an industry, we’ve adapted quickly and are more prepared than ever. Hopefully, this means that ‘Shipageddon’ is a term of the past and we’ll have a smooth(er) holiday shipping season.
If you are a high-growth brand looking for fulfillment or shipping support, we’d love to hear from you. Brands who work with DCL Logistics save an average of 18% on shipping. Reach out to chat or get a quote.