Resource Center/Article12/17/2020

With Peak Season Nearly in Rearview Mirror, Carriers Prepare to Prioritize COVID-19 Vaccine

Carriers & shippers continue to navigate pandemic-driven landscape, while making way for COVID-19 vaccine and starting to review Peak Season.

Industry Outlook

So far (November 1 through Cyber Week), this year’s Peak Season is on track to hit record spend, particularly with E-Commerce sales amassing $106.5B. Trends: fast shipping (Same Day/One Day) made lower priority in purchase decision, BOPIS/Curbside Pickup on the rise, high returns anticipated. Holiday consumers spent big, and they spent early. Each of November’s four big holiday shopping days (Thanksgiving Day, Black Friday, Small Business Saturday, & Cyber Monday) saw YOY sales growth; however, a large portion appears to have taken place before the holiday shopping weekend, and perhaps even before November. Consumers prioritized price and promotions/discounts over fast shipping, and pandemic safety concerns were at the forefront of their minds when deciding whether not to enter stores. Unfortunately, an unforgettable Peak Season with record sales will undoubtedly be followed by unforgettable record returns. Don’t miss our 2020 Peak Season (review thus far): E-Commerce Consumer Spending Insights.
Carriers prepare for COVID-19 vaccine distribution. FedEx and UPS express confidence in their ability to deliver a global distribution of COVID-19 vaccines in 2021. Each carrier has certainly been plagued with capacity challenges and concerns throughout the pandemic and this year’s Peak Season, so it’s no surprise many seem curious not only about how such a global logistics plan will be implemented, but also how its prioritization might affect others in the transportation industry. However, both carriers remain firm in their commitment and prioritization of vaccine distribution, as well as to their customers, while reminding us of the many process and network optimization efforts completed in under a year.

Parcel Carrier News

FedEx continues its pursuit of E-Commerce amidst longstanding Amazon rivalry, while also addressing preparedness for COVID-19 vaccination distribution.
  • In addition to Happy Returns partnership, FedEx furthers commitment to E-Commerce with ShopRunner acquisition. ShopRunner is a membership program that offers shoppers exclusive 2-Day shipping options and free returns with participating retailers. Member shoppers can find participating retailers via the ShopRunner website, or by simply shopping their favorite brands and looking for the ShopRunner logo during checkout. No doubt, FedEx’s acquisition will only further the program’s success and permanence.
  • During Operation Warp Speed vaccine summit, FedEx Americas President, Richard Smith, says FedEx and UPS are both ready and able to handle estimated air cargo capacity necessary for COVID-19 vaccine. An estimate by Accenture’s Seabury Consulting predicts a need for 65,000 tonnes of air freight (or five times the air freight used last year for vaccine trade) to distribute the vaccine globally. “There’s plenty of capacity in our networks to handle this, and remember it’s not all going to hit us on a Tuesday,” Smith said.
  • In a partnership bid with Innomar Strategies, FedEx Canada has been awarded the Canadian government’s $70.5 million COVID-19 vaccine logistics contract. Though Pfizer notably plans to ship its vaccinations directly across Canada due to temperature requirements, the FedEx-Innomar partnership will assist with overall logistical planning as it relates to vaccine distribution where the Canadian government is involved.
  • For third-party sellers, Amazon restricts FedEx Ground delivery as a shipping option for Prime orders during Peak Season. While addressing the restriction, Amazon cited recent changes in FedEx Ground’s transit times. FedEx Express is still an option for Prime orders, or sellers can utilize FedEx Ground for standard orders. Certainly not an affable move, this further highlights the divide and delivery rivalry between the two. FedEx responded to Amazon’s restriction by referencing the importance of process and network optimizations efforts to ensure capacity to as many shippers as possible throughout Peak Season.
After reports the carrier stopped package pickup for many large shippers during Thanksgiving’s shopping weekend, UPS released a statement addressing its continued commitment to customers, optimization accomplishments driven by Peak Season and the pandemic, and preparedness to deliver COVID-19 vaccines.
  • CNBC & the Wall Street Journal report: UPS hit capacity allocations limit on Cyber Monday and instructed drivers to stop collecting from large retailers. During reporting, both news sources referenced leaked UPS internal documents said to be verified by UPS employees. Affected retailers included: GAP, Hot Topic, L.L. Bean, Macy’s, Newegg, and Nike. This reporting is notable, as many carriers and shippers frequently encouraged consumers to make their holiday purchases before the Thanksgiving holiday shopping weekend. As it turns out, consumers largely did – overall YOY in-store foot traffic was down, and a large portion of the YOY growth in E-Commerce sales for the shopping period was done early and fell into the lower revenue projections made by Adobe Analytics. Additionally, with carrier capacity concerns rising, many retailers have shifted their marketing communications to emphasize BOPIS and Curbside Pickup as a Last Mile alternative for consumers. Still, this reporting means many large retailers still met or exceeded the “specific capacity allocation” assigned to them during the weekend. UPS affirms that it has worked closely with its customers to clearly communicate capacity allocations and limits, while also trying to be as flexible as possible throughout the period. A number of large retailers have expressed gratitude and contentedness with their UPS carrier relationship and Peak Season capacity; however, the CEO of L Brands (owner of Bath & Body Works and Victoria’s Secret) described capacity allocations and limits as “challenging.”
  • Following capacity concerns reporting, UPS released public announcement promoting carrier’s service accomplishments and speed throughout Peak Season and pandemic.
    • Leadership Quote: “UPS is running one of the most successful peak holiday shipping seasons ever,” said UPS CEO Carol Tomé. “With great discipline and precision, we are delivering industry-leading on-time delivery performance – all part of our focus on ensuring we maintain a reliable delivery network that all of our customers can depend on. A huge thank you goes to each of our UPS frontline heroes, who are the heartbeat of our company. Because of them, we also stand ready to begin delivering vaccines as soon as they are available for distribution.”
      • In the statement, UPS referenced a recent data study that showed the carrier ahead of both FedEx and USPS in terms of Peak Season on-time delivery.
      • The carrier also reviewed efforts made since the start of the pandemic to ensure continued service to its customers, ranging from:
      • Investment into its physical network with the addition of 39,000 permanent new employees and 100,000 seasonal employees;
      • 20 new facilities and an additional 14 aircraft specifically for Peak Season;
      • Weekend operations expansion to guarantee 7-Day and Weekend Delivery;
      • Process and network optimization efforts to increase overall sorting and delivery speed, claimed to set UPS “at parity of faster than FedEx in 22 of the 25 most populated areas of the U.S.”;
      • A dedicated effort to understanding and optimizing peak season capacity for all UPS customers, as well as a commitment to communicating such plans to shippers as clearly as possible.
    • In addition, the carrier briefly touched on its preparedness to help deliver the imminent COVID-19 vaccine.
  • Going further with plans to distribute the COVID-19 vaccine, UPS Chief Sales and Solutions Officer, Kate Gutmann, gave an interview to the Today show to discuss how and why UPS is ready to deliver.
    • Leadership Quote: “We are ready,” Gutmann said, “We’ve worked extensively over the last few months with Pfizer for sure, and eight of the 10 vaccines in development, and the planning paid off. We have made the complexity of it easy, and we are ready to deliver.”
    • U.S. government program, Operation Warp Speed, intends to oversee the production and delivery of 300 million vaccine doses, starting as early as January, 2021. On speaking about the carrier’s preparedness, Gutmann specifically referenced UPS’s ability to produce 24,000 lbs of dry ice per day, a special GPS-enabled package sensor that will help the carrier monitor both temperature and transmit information during travel, as well as a 99% vaccine delivery success rate during delivery practice runs.

Carrier Rate or Service Changes

LTL Carrier News

  1. New Digital LTL Council formed in effort to bring automation and digitalization to the LTL industry for more scalable success and structure. Comprised of more than 20 carriers and service or tech providers, the council commits itself to the continued growth and evolution of the LTL industry as a whole. First, the council plans to create and encourage the adoption of standards for digitizing the lifecycle of LTL shipments – an effort to not only streamline LTL shipment data, but also gain increased visibility into shipment and network bottlenecks or pain points that often plague the industry. The concept is considered a win-win for both shippers and carriers, as many shipment billing and administrative tasks will be automated to reduce errors. VP of Value Engineering at council member company, project 44, states early analysis and results estimate parties that adopt such standards can expect a 2-4% cost savings per shipment, though that estimation includes a variety of optimization factors.

Shipping Industry Trends

  • Fuel Trends:
    • Current Price (⬆︎): November Oil Prices climbed due to COVID-19 vaccines and market expectations that OPEC+ would delay or limit production increases planned in January 2021.
    • Supply (⬇): EIA expects U.S. crude oil production will decline to less than 11.0 million b/d in March 2021, due to falling production in the Lower 48 states, where EIA expects declining production rates at existing wells will outpace production from newly drilled wells in the coming months.
    • Demand (⬇): EIA forecasts that global consumption of petroleum and liquid fuels will average 92.4 million b/d for all of 2020, which is down by 8.8 million b/d from 2019, before increasing by 5.8 million b/d in 2021.
    • Price Forecast (⬆︎): The forecast for higher crude oil prices next year reflects EIA’s expectation that while inventories will remain high, they will decline with rising global oil demand and restrained OPEC+ oil production. EIA expects high global oil inventory levels and surplus crude oil production capacity will limit upward pressure on oil prices through much of 2021.
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