One holiday item is already sold out: shipping capacity. Both FedEx and UPS have told shippers that most of their capacity is already spoken for, and that any extra trailers with holiday orders will have to wait to be picked up.
“There will be days within the holiday season where the industry will be over capacity,” said one FedEx exec. The outlook has sent retailers on the hunt for alternatives with little luck. Smaller carriers also booked up their capacity for the holidays months earlier than usual and aren’t taking new customers.
The capacity shortfall could average 7 million packages a day between Thanksgiving and Christmas, reports The Wall Street Journal (Oct.19, 2020). Total shipping capacity for the industry will be 79.1 million parcels a day during that period, with 86.3 million packages looking for space.
Carriers and their shippers spend months planning for the holiday season and hone their forecasts for the number of packages they expect to ship. The two sides decide items like weekly shipping forecasts and how many trailers the carriers may need to pick up from their loading docks each day. Any deviation from the estimate can result in higher rates per package or penalties to compensate the carrier for needing to marshal more resources.
In previous years, shippers could usually find space to ship if online sales blew through expectations, though it would come at a premium to rates that had been negotiated. Now that doesn’t exist. The primary reason for this year’s capacity shortage is that carriers already have been operating near maximum capacity for months as consumers stayed home, avoided stores and shopped online. Carriers can’t quickly boost capacity with new facilities as it often requires a multiyear planning process.
Classroom discussion questions:
- What might carriers do to “manufacture” some extra capacity? (Hint: see the section called Capacity on pages 308-313 in Supp. 7 of your Heizer/Render/Munson text).
- What can retailers do?