No, we don't want much more Fedex and UPS on Dec 24

A big story this Christmas was a huge surge in the use of rush shipping in the last 2 days before Christmas. Huge numbers of people signed up for Amazon Prime, and other merchants started discounting 2 day and overnight shipping to get those last minute sales. In turn, a lot of stuff didn’t get delivered on time, making angry customers and offers of apology discounts from merchants. This was characterized as a “first world problem” by many outside the game, of course.

When I shop, I am usually travelling outside the US and so I have to get stuff even before the 24th, and I’ve had stuff I left to the last day not delivered several times, so I know to avoid doing it. Some packages are not going to make it, and this should be expected — even desired.

While it makes sense to increase the infrastructure a bit as online shopping grows in popularity, you don’t want to go nuts at Christmas. If you need to build your infrastructure to handle every Christmas gift, you have to build it too big, and you pay for that through higher prices the rest of the year. Shippers need to figure out their real capacity, and everybody needs to plan based on it.

The failure this season was not a failure of the delivery system. Rather it was a failure of either the shippers to tell the merchants what their capacity was, and/or a failure of the merchants to communicate to customers that too much was being shipped and not everybody could be promised Dec 24 delivery.

The obvious way to fix this is first to have the shippers get a solid handle on their capacity for the various types of shipping to the various destinations. They can also identify the bottlenecks and widen them a modest amount.

The next thing is for the merchants to know just how much shipping they can buy. There can either be a live spot market — so the merchant web sites just stop offering the delivery promise when the capacity is reached, or merchants could even attempt to pre-contract for capacity, paying for it whether they need it or not (or reselling it if they know they won’t need it.) Merchants should be building their own forecasts about available capacity and querying shippers for updates on just how much more is left. Capacity isn’t a fixed thing — it depends on the size of packages and where they are going and many other things — but this is a problem computers can handle.

Finally, the shippers and the merchants can start increasing the price of the rush shipping so that demand and supply match. This can be based on accurate forecasts, or just live data. As Dec 23rd wears on, the price of next-day shipping will keep going up and up so only the serious buy it. Of course, this might reveal just how keen some people are to get items, and justify having more capacity in years to come. Indeed, as the price goes up, it may make sense for Amazon to say, “Listen, we’re just going to buy this for you at your local Wal-Mart, it will be waiting for you there.” Wal-Mart surely won’t mind that.

There are also some tricks to increase capacity. For example, most people would probably tolerate having to pick up items at a retail location — FedEx and UPS and the USPS of course have tons of those — especially if it is the only option or offers a serious discount over surge priced home delivery. (This is not as good for sending gifts to remote locations.) Temporarily contracted depots could also be used. You want to streamline these depots, as lots of people will be coming in, so you want some nice system where people bring in a bar code and everything is optimized to get them out the door with the right package quickly.

All of this will push people to shop and ship a little earlier, smoothing out the rush, and avoiding having to design the system for one peak day. I have always found it remarkable that most stores and malls have giant parking lots (back in the brick and mortar world) which are only filled in December. It’s such a waste — but something robocars will fix in the future.

Delivery to the wrong address

I had a missed delivery myself this year. In this case it was on December 14th because I went home early, and I had the gifts arriving 2 days before I left. But oddly, I got the note that the package had been delivered at 6pm — but it wasn’t. Both UPS and Amazon had very little set up to handle this. Amazon’s system insists you wait at least a day to complain about this, which was no help to me. I could have used that day to replace the items if I were sure it wasn’t coming.

After I left, the package showed up on my porch on Sunday. UPS does not operate Sunday so it seems pretty likely they had left the package with a neighbour who was perhaps away for a few days. I presume the neighbour eventually came and dropped off the package but they left no note. (Of course I wish they had done it right away — replacing the gifts in Canada cost me a bunch extra.)

Amazon had already given a refund — fairly good service there — and so I just had UPS return the package as undelivered which costs me nothing, so that all worked out, except the scramble and the extra cost of replacing the items.

I don’t know how often this happens — it’s in the Amazon FAQ so it must be often enough — but there are some obvious fixes. The UPS driver’s wand, which scans the package on delivery, should record more data, including any location from a GPS in the wand or the truck, but perhaps more easily the MACs and signal strengths of any WIFI nodes visible when the package was scanned.

That information would have both allowed UPS to say, “OK, that’s odd, this doesn’t match where the package should be going” right when it was scanned, or it would have allowed me to figure out where it went and get it right away.

You’re probably wondering, didn’t I just imagine it was stolen? I did consider that possible, though in my safe neighbourhood it doesn’t appear to be a real danger. Somebody following UPS trucks at Christmas time to steal gifts would be very Grinchey, not to say it doesn’t happen. In safe neighbourhoods, UPS and Fedex routinely just leave packages at the door. Not actually signed for, I presume they just eat the loss the rare times they are stolen, or perhaps the merchant does. It’s small enough shrinkage that the system handles it.

Delivery

I'm a curmudgeon who thinks people really should plan ahead when they have a full year. So I like the notion of delivery capacity feedback adjusting the price as capacity is reached.

In a broader sense, I've wondered for a few years why shipping companies don't allow pickup at their retail stores. (sure, it might require more storage capacity, but they could even charge if a recipient wanted them to hold the package beyond a standard limit) . I was glad to see Amazon initiating pick-up lockers, though I haven't been anywhere that has them. Also, it seems more brick and mortar shops should have inventory online and order/pickup from physical store. I frequently ordered from REI and picked up items in the store, with free shipping.

Retail pickup

They all offer pickup in their retail shipping depots. For most, though, the incentive is just not having to worry about being home or having something left on your door if you fear it might be stolen. It is not cheaper. I suggest that it should be cheaper, or in the case of Christmas shipping, it should be the only option, as in, “We can get this to you on the 24th but you have to come to our retail location.” The retail locations could stay open late — though getting workers for that could be hard, and they would be swamped.

For this I am presuming that the delivery trucks going to millions of residences is a bottleneck. If the bottleneck is in the planes or pickup runs, or sorting centers, this does not help much.

we might be least bad already

This kind of capacity planning affects all manner of direct-to-consumer businesses. The most obvious example is retail stores. People buy reams of stuff the week before Halloween that they don't buy for the rest of the year. Retailers respond not so much by changing prices but by pre-ordering stock to cover the glut.

Another example is hotel rooms; hotels certainly do raise their prices when they anticipate a lot of visitors.

It's not a perfect process, though. The providers don't have full information about what all the other actors in the economy are going to do, so they are essentially speculating. With retail, they speculate in how much stock they keep on hand, and in hotels they speculate with the rental rate.

One difference with shipping, as you say, is that shippers don't stop taking orders when they are at capacity. It might be that they don't have any practical way to do so. Note that shipments are bundled, so each incremental shipping order will make use of an ill-defined and hard-to-predict amount of shipping resources. As well, there is issue of what you offer to customers. It would be bad, perhaps fatally bad for the company, to start telling customers at the checkout screen that you can't ship their order.

I'd love to be proven wrong and see a vast improvement in reliable shipping promises. As things are, it might be least bad to continue predicting capacity needs and sometimes getting it wrong.

Telling people

Well Amazon, which is surely the largest of the online shippers, tells you on every product screen when they can ship it for you, and how many minutes you have to place your order to get it delivered by that day. You can tell which things are in which warehouses that way if you want. The price does not change, just the shipping date. But they could make that happen without too much work. Other shippers I am not sure about. Amazon also has their Prime service with cheap (prepaid) 2-day and overnight shipping and lets you shop among only the things which ship that way. They could also offer an option “show me only items that I can get by this date — if I do or don’t pay an additional premium fee.”

Amazon Prime has a contracted price (they might have to change that to do such variability on shipping) but they could just take the items out of prime when there is no more shipping capacity.

Prediction will not be perfect, the the information will be. UPS should be able to tell Amazon exactly when it can’t take more items to given zip codes. The latter gets a bit more complex as Amazon’s ordering process lets you pick the destination zip at the end, though there is an assumed one at the start.

Store parking lots

I noticed your throwaway remark about robocars 'sorting out' the issue of stores and malls having huge under utilised parking lots. I think large store chains are I a really interesting position with regard to the upcoming robocar revolution.

If on-demand vehicle rental becomes more commonplace, as is regularly speculated, then it is likely that there will need to be companies that can store and operate fleets of vehicles. Large stores have large parking lots with excellent access to the existing infrastructure. Here in the UK where physical space in towns and cities is more constricted, supermarkets are pretty much the only players with any sort of existing vehicle storage capacity.

Stores will also be using a fleet of robocars for their own delivery so it's a natural extension that they can also rent vehicles out for common use. I can see the business model being similar to that of mobile communication providers. Verizon, for example, don't manufacture phones or the software that runs them. They provide a rather more mundane role as a utility provider. But they still make a lot of money doing it.

But two-day shipping is the reason they signed up!

For most of these customers, though, two-day shipping with the order placed three days before Christmas is the reason they paid for the service at all. It's what Amazon uses to attract their business in the first place. If Amazon starts saying "two-day shipping doesn't apply during major holidays or heavy shipping periods" then people will start saying "why should I bother to pay extra for it, then" and stop signing up.

Rules on fast shipping

Chances are they would not say it like that. There are a few options

  • Amazon could just eat the extra cost, possibly raising the cost of Prime
  • They could just express the policy as having fewer items available for Prime shipping as capacity runs out. Again, the problem isn’t the capacity, it’s promising that an item can be there in 2 days and not delivering. You might think that would scare people away, but I would rather know it won’t come, and go buy it elsewhere.
  • Amazon could use its immense clout a a huge customer for shippers to say, “give us priority, so we can have more Prime items.”
  • They could overtly declare orders on Dec 21-23 to be “best efforts”
  • Yes, they could charge a holiday surcharge. I would still join Prime if it had a holiday surcharge for orders Dec 21-23, and if some items that were in stock had their Prime flag turned off in that period.

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