Worley Blog


Posted on: October 28th, 2014 by Clifford F. Lynch

As the Christmas season approaches, both retailers and their customers are getting a little nervous about the ability of retail distribution systems and package carriers to handle the holiday volume. Many of us will remember that last year, approximately 2 million packages did not make it to their destinations by Christmas morning, resulting in disappointed spouses and tearful children. Both UPS and FedEx were a little overwhelmed by the holiday shipments of retailers such as Amazon, Wal Mart, Target, and others. The conventional wisdom was that the carriers simply did not perform well.

To be fair however, much of the blame should have been placed on the retailers whose last minute deals, offers of free shipping, etc. contributed to the problem. The pipeline can only handle so much.

Predictions are that volume will be up 14% this holiday season, so what is going to prevent a repeat of 2013? FedEx and UPS are trying to do their part. UPS is spending $500 million on facility expansion and improvement and hiring 95,000 temporary workers, 10,000 more than last year. FedEx also is making significant capital investments in facilities, and is hiring 50,000 seasonal workers. Both carriers are working with the large retailers in an attempt to anticipate and plan for the expected huge number of shipments. But will that be enough? We will find the answer under the Christmas tree.

Amazon just posted its biggest quarterly loss since 2003, $437 million, which puts them on track to lose about $40 million this year. No doubt they will be pulling out all the stops to minimize 2014 losses.

There is another development that is of concern to a number of retailers – the logjams at the ports of Long Beach and Los Angeles. The congestion at these ports has been going on for over two months, and there doesn’t seem to be an immediate solution on the horizon. Cargo ships are standing off shore waiting to tie up at gridlocked docks. It is taking as long as three weeks to get a container off the docks after it is unloaded. While larger vessels are offloading an increasing number of containers, the main issue seems to be the shortage of trucking equipment, primarily chassis.

Some ships are being diverted to the East Coast but at best, that is a limited, inadequate solution. And, as if that were not enough, 13,000 longshoremen are working without a contract. While no one has threatened a strike and negotiations continue, a breakdown in the negotiations could be disastrous. Although most Christmas merchandise is already in place, a wave of last minute shoppers such as that experienced in 2013, or heavy sales of unusually popular products could create some problems.

Certainly, I do not want to come across as the Grinch. Supply chain managers are survivors and often maneuver themselves and their companies out of difficult situations. I do think however, this will be a critical holiday shipping season; and those retailers who can influence a smoother holiday distribution should try to do so. Ironically though, if there is a problem in moving all the packages, the carriers probably will shoulder the blame.