UPS is counting on a big boost in shipping capacity to avoid logjams in its network during the peak holiday shipping season, and the delivery giant is raising prices to help offset those investments. The company is planning to deliver 800 million packages in the U.S. between Thanksgiving and Christmas, up from 750 million last year, reports The Wall Street Journal (Oct. 25, 2018). Nearly every delivery day during that stretch will see volume of more than 30 million packages!
To handle the surge in packages driven by online shoppers, UPS is building more automated sortation hubs, including its 3rd-largest U.S. facility that just opened in Atlanta. UPS says it has added 7 times more processing and sorting capacity this year than it did in 2017. To offset those costs, it is pushing up prices on domestic deliveries and adding surcharges on oversize packages. In the U.S. business, revenue per piece rose 4.8% in the 3rd quarter, the fastest growth since 2011.
UPS also working closely with more of its largest shipping customers, like Amazon, on better forecasting demand during the period, including predicting volume based on where it’s shipped from and coordinating with shippers when they have promotions. The company hopes to avoid unexpected volume surges that caused delivery delays in the past. “The last couple (years) we’ve been constructively dissatisfied,” UPS’s COO said. “Our goal is to have this peak be the peak we all want it to be through the eyes of our customers.”
UPS is addressing its recent declining profit by trying to woo more higher-quality businesses—including small- and medium-size customers and health care companies—to offset predominantly lower-margin shipments tied to e-commerce.
Classroom discussion questions:
- What tactics for matching capacity to demand that we discuss in Supplement 7 is UPS employing?
- How might UPS’s moves impact profit and revenue?