This story is part 1 of a three-part series on e-commerce and parcel logistics. Read all the stories here.
Aaron Rubin is in the sweet spot. With seven warehouses shipping roughly 60,000 e-commerce packages on a busy day, his company ShipHero is exactly the kind of customer UPS and FedEx have been clamoring for and fighting over for years.
ShipHero is large enough to offer carriers valuable business but not so large that it can negotiate deep discounts on parcel shipping. Rubin’s team sought out capacity from regional carriers when capacity started to look dicey for the holiday online shopping season, but the CEO said in December it wasn’t needed.
"We haven't encountered any pickup problems from any other carriers," Rubin said. "And they've been treating us fantastically. ... They provided all the pickups they promised. It's been like a typical holiday season for people like us."
His experience wasn’t a common one in peak season 2020. Many shippers saw their trailers and pickups cut dramatically by both major carriers. Nike, L.L. Bean, Hot Topic and Macy’s all saw UPS pickups cut or reduced, according to The Wall Street Journal.
Glenn Gooding, president of iDrive Logistics, said a client that was normally allocated 10 trailers per day from one of the top two carriers was reduced to five in early December.
"There is no silver bullet. The carriers are performing poorly. They're above capacity."
President of iDrive Logistics
Shippers and analysts are trying to make sense of a truly unique peak, attempting to discern which shippers got better service and why.
Gooding said most B2B shippers without seasonal business were operating as normal at the end of 2020.
ShipHero is a fulfillment software provider as well as a warehouse network operator, so Rubin has a view into parcel operations beyond his own. He said of the small and medium shippers using ShipHero software, his smaller, more out-of-the-way shippers that fed into smaller distribution hubs had been denied service — a fate that few will find surprising if they’ve been paying attention to carrier executive rhetoric.
"They're making it very, very clear that they don't want to make a bunch of capital investments to grow capacity," Gooding said. "They want to improve margin on existing capacity. So what they are doing in this capacity-driven environment is they're hiring and firing customers."
Smart shippers set up alternative capacity, but for those that hadn't, there were few options.
"There is no silver bullet. The carriers are performing poorly. They're above capacity. And they're doing a terrible job of managing their client relationships for the most part," said Gooding in December.
The problem with pickup
Pickups were one of the more palpable friction points in small parcel logistics networks during peak season.
Pickup density and capacity is an issue due to the overall growth of e-commerce, but also the physical footprint of that growth.
Mandated stores closures due to the pandemic encouraged retailers to launch or ramp up ship-from-store capabilities. In some cases, a handful of fulfillment locations became dozens or hundreds. Walmart increased its ship-from-store program to 2,500 stores in May and confirmed the move would be permanent in August. Jewelry company Kendra Scott went from zero to 108 stores fulfilling and shipping e-commerce orders in the Spring and Levi’s, Home Depot, Kohl’s, Michaels and many more made similar moves.
If they built pricing around picking up trailers, I could see why they would not want to be picking up from stores and lose money on every package
"I need less than 20 buildings in the U.S. to cover the entire us population in one day," said Tray Anderson, logistics and industrial lead for Cushman & Wakefield in the Americas.
It’s these numerous locations, in part, that are throwing carriers for a loop. Routes carefully designed based on a 2019 shipment volumes in partnership with retailers would surely have gone out the window in 2020 regardless, but with hundreds of additional pickup points, the math just doesn’t work for carriers, Anderson said.
"If they built pricing around picking up trailers, I could see why they would not want to be picking up from stores and lose money on every package," said Rubin.
Even if ship-from-store trends had not multiplied pickup points and threatened to dilute the density and efficiency prized by carriers, the sheer volume of a 24% YoY increase in holiday e-commerce spending, according to the National Retail Federation, has drained capacity throughout small parcel networks.
"Don't take the bait and think that that's a pickup issue," said Gooding. "It's the top of the funnel."
It’s easy to be deceived by the fact that pickup is a wide-reaching problem, since it is the first step in that process and therefore often the easiest to spot. But the capacity crunch is at every link in the chain, Gooding warned.
Case in point — even those who attempted to get around issues with pickup hit guard rails.
"I know people who rented trucks … and they were just going to drive it to the hub. And when they drove it to the hub they still turned it down," Rubin said, referring to a FedEx sorting facility. "That was everyone’s fallback plan."
Time to take stock
Despite the anomalous nature of peak season 2020, there are lessons to be learned — and shippers will likely make tweaks to their operations going forward to better suit carriers, according to the experts.
The size of the tweaks depends somewhat on how much of the pandemic e-commerce volume sticks.
"When you have an imbalance in what’s happening versus what’s contracted or planned to happen, it absolutely has to be reworked," Anderson said.
Shippers will have to get more strategic with their shipments, Anderson said — essentially not taking carrier service for granted. Which loads should go to which carriers is already a science, but not all shippers have the know-how and funds to treat it as such.
The gap between companies that have put time and investment into optimizing every inch of their e-commerce networks and those that have not is therefore likely to widen.