By Jim Tompkins
CEO, Tompkins International
I just received great and very important questions from an editor regarding weather concerns affecting Christmas 2015 delivery. How will today's updated weather report effect deliveries? I cannot predict the weather, but I can explain the impacts of the weather and how companies can create a supply chain where weather predictions will not matter as much and customers will remain happy, "Get Local".
What kind of an impact could the upcoming severe weather that's set to hit the southern portion of the U.S. tonight into tomorrow from Indianapolis to Houston have on holiday deliveries?
Certainly the weather forecast is a problem. I read damaging winds, wind gusts and isolated tornadoes, I understand from NE Texas on Tuesday to Central Indiana by Wednesday night. All this after there has been so much discussion on, no snow. Of course snow has a bigger impact on ground, but high winds have bigger impact on air. At this point a very high percentage of the ground is already local to the destination to be delivered over the next two days. Therefore, we are good on ground from a weather perspective. Luckily the storm did not hit 36 hours earlier. The problem lies in the USPS Priority Mail, UPS Next Day Air, FedEx 2 Day and FedEx overnight. Certainly tornados and other severe weather events could add one full day to these delivery options and thus not having gifts under the Christmas tree on the December 25th.
How are on-time delivery rates this year compared to last year?
FedEx performance has held up well, UPS suffered a drop in on-time deliveries as they continue to manage their costs while increasing capacity for the seasonal peak. Fortunately, this has not been a 2013 type of year, things have gone pretty well. The challenges have resulted not in the volume of dollars being shipped by retailers, but rather in the impact of smart phone orders. Smart phones have for the first time registered a significant volume of orders, where the customers are placing smaller orders. As one clique mobile checkout becomes more prevalent, the order size will continue to shrink (snacking) and thus more deliveries per dollar of sales will be taking place. Retailers need to either get these orders shipped earlier to be sure of on-time delivery or they need the inventory to "Get Local". If the inventory becomes "Get Local" the area impacted by bad weather is substantially reduced.
Have you heard of any carriers experiencing disruptions?
No major disruptions have yet been reported. UPS discussed after Cyber 5 how certain nodes in their network were stressed more than others due to imbalances in volumes, they have continued to work through any major problems. A few facts to think about when pondering the volume of deliveries for Holiday 2015:
- Over 1.3 billion packages to be delivered in December.
- The big 3 in December will be USPS at 42%, UPS at 32% and FedEx at 17%.
- The other delivery companies at a record 9%.
- Overall volume to be up 9% over December, 2014.
- Cyber 5 performance for FedEx was 95% and UPS at 91% on-time delivery, which is really pretty good for peak.
- Up until this week customers using faster shipping options (overnight and two day) have seen FedEx at 99% on-time performance and UPS at 96%.
How about any shipper disruptions?
Clearly the bigger problem with disruptions for Holiday 2015 has been website crashes, rather than delivery problems. But one noticeable exception is, beginning on December 15th Jet.com began telling customers if you do not use two-day shipping, your orders may not arrive before Christmas. Interesting, Jet.com is not calling this a Final Delivery problem, but instead is faulting their "fulfillment partners". Further Jet.com is saying this is an "industry-wide" issue. My view is this is a Jet.com issue of promotion outrunning capacity not an industry-wide issue.
What, if anything, can retailers do to prepare themselves and their customers for possible service disruptions (such as a storm) during peak times?
Retailers need to accept that there is a fixed capacity to delivery volume even with perfect weather. They cannot go after every last sale knowing that they will be disappointing many customers. They need to incentivize early online purchases and disincentivize last minute shopping with higher delivery fees or sell "delivery reservations" for limited delivery capacity. They need to deploy dynamic promotions to shape demand, not to exceed system capacity. Lastly, they need to manage the impact of weather disruptions by placing inventory local to their final delivery to customers and thus avoiding the catastrophes of hub shutdowns. The lesson that needs to be learned is inventory and deliveries must "Get Local" and leave the obsolete hub concepts out of final delivery.