January 18

UPS forced to change plans for holiday shipping season

Bad weather and a flood of last-minute online shopping orders left the company overwhelmed.

By David Koenig
The Associated Press

DALLAS — UPS may be forced to change the way it plans for the holiday season after December shipping problems took a bite out of fourth-quarter earnings.

click image to enlarge

A UPS delivery worker moves packages in Newark, N.J. UPS says the rough holiday shipping season means its fourth-quarter profit will be smaller than expected.

File photo/The Associated Press

The company said Friday that it took “extraordinary” steps to meet holiday demand, including hiring 85,000 seasonal employees – 30,000 more than planned.

But the company’s network of brown trucks and planes was overwhelmed by what it termed “an unprecedented level” of online shopping including “a surge of last-minute orders.” Bad weather and a shorter shopping season were also factors, it said in a news release.

Analysts said the company will make changes, including higher last-minute prices to smooth out the peak caused by the final rush of shopping just before Christmas.

Online shopping is good for UPS, as customers count on delivery companies to get those packages where they are supposed to go on time. But volumes were so high last month that hundreds of thousands of packages didn’t get to their destinations before Christmas – UPS hasn’t disclosed the exact number.

Amazon.com offered shipping-charge refunds and a $20 credit for some customers affected by UPS delays.

On Friday, UPS said that it delivered a record 31 million packages on Dec. 23. That peak, however, came six days later than UPS had planned, and it was 7.5 percent more packages than the company had expected on the busiest day of the season.

Jim Corridore, an analyst with S&P Capital IQ, suggested the company learned a lesson.

“We think UPS did a poor job forecasting the holiday season, but we expect improved readiness this year as online shopping continues to grow,” he said in a note to clients.

Online shopping, he added, “is a positive trend, but UPS needs to do a better job capitalizing upon it.”

Kevin Sterling, an analyst with BBT Capital Markets, said UPS had to catch up after icy weather delayed early-December deliveries, only to get slammed by a wave of late online shopping.

“I think they’ll push through a peak surcharge – you’ll pay more if your online order is after, say, Dec. 20,” Sterling said in an interview. “They’ve got to change that customer behavior of waiting until the last minute.”

Ben Hartford, an analyst with Robert W. Baird & Co., said UPS would likely impose “variable pricing” and make improvements to its network. “I’d be surprised if we saw these kinds of problems next time,” he said.

Stifel, Nicolaus & Co. analyst David Ross said that UPS would probably hire more seasonal workers and arrange for more backup shipping capacity next season.

UPS executives are expected to provide details about future plans when the Atlanta-based company reports fourth-quarter results on Jan. 30.

 

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