Earlier this week I attended the Industry Day held by US Transportation Command (USTC) to explore the outsourcing of the DOD's Personal Property Program to a single source provider. During the forum a representative from USTC was discussing the idea of moving shipments out of the peak season (aka Demand Smoothing) and made a comment something along the lines of "Fed Ex and UPS don't ask Amazon to move up Christmas and we aren't going to move our requirements away from peak season". The implication being that shipping companies and retailers just deal with it. This comment has been gnawing at me for a couple days, so I thought I'd put together a response to that idea to share with USTC and the others that were in the room.
Under a little bit of scrutiny it's pretty easy to see that comparing the peak moving season to the Christmas season is a false equivalency of dramatic proportions. You might even say that this statement is disingenuous or go as far as to call it fake news. The truth is that buyers of transportation and other services at Christmas face a degradation of service because, as with any service business, when you operate at, or beyond, peak demand service will necessarily be degraded.
Taking a closer look at Christmas there are really two primary components of the Christmas peak season that are impacted by shipping, the retail bricks and mortar piece, and the on-line piece.
Think about going to the mall, Target, or Kohl's during the Christmas season. Is your customer satisfaction as high during that trip on December 18th as it would be on May 15th? When you go during peak season it's a near certainty that you' going to have to park farther away from the entrance. Once you make it to the entrance you walk in to a store that is in complete disarray – things will not be restocked, things might even be lying in the aisles. And you can bet that there is going to be a long checkout line. And guess what, it isn't as nice of an experience as it will be in May when the store isn't crowded, they have what you want, and the line won't be very long at checkout. And, as you leave the store to go to your conveniently parked car near the entrance, you will likely be more satisfied than you were when you came in on December 18th. This is a fact.
Now, if we're talking about the process of shipping the goods to the stores for the peak season I want to point out how that it is simply different than what movers do. First of all these consumer goods have been manufactured throughout the year and have been stored in nearby distribution centers in preparation to re-stock the shelves. The drivers that do this work back the truck up to the dock at a warehouse, someone else loads their trailer, they then drive to the store, and then back up to the dock at the store and someone else unloads the shipment. They do not interact with the customer, manage a crew, carry furniture, wrap individual already-assembled items for shipping, or load the trailer in a way to maximize the protection of the goods and minimize the space it takes up on the truck.
As for on-line shopping, it is easy to see that it faces a degradation of service during the Christmas peak season too. You can find plenty of information that shows it. LateShipment.com reported that late deliveries to Texas during the peak Christmas season of 2017 went from about 6% to over 9% for UPS and that FedEX had an increase in late deliveries of similar scale. All states experienced similar increases. The full, and interesting, report is here (https://www.lateshipment.com/Report-2018-State-of-Holiday-Shipping-in-the-U.S.pdf?x45747). The report also correctly states, "…when the surge in online orders is beyond the ability of the shipping carriers to handle, high customer frustration and a poor last-mile delivery experience is inevitable". That sounds familiar.
The other part of the comparison that doesn't pass the smell test is that there is a dramatic difference between what UPS or Fed Ex are paid to move a truckload of items. I just did a price quote on a 1.5 cu ft. box from Chicago to San Antonio at an $80 declared value and found that FedEx charges $38.53 to get it there in 5 days. That is their cheapest option. There are 3,500 cubic feet on a standard HHG trailer which means we could fit 2,333 of these boxes (1.5 cu. ft.) on it and that would result in a linehaul of $89,890! And that price doesn't include the box, packing the box, carrying the box out of the home, and unpacking the box and taking away the debris. And this is the non-peak price.
A very good linehaul for a professional household goods van operator moving coast to coast during the peak season would be $25,000 and the operator would also have to carry the box, load it, deliver it and unpack it.
Even more dramatic is to think that if you've ever sent anything by UPS or Fed Ex you know that the charge for an envelope of papers is always over $20. So think about how many envelopes can fit on one of their trucks. The point is that Fed Ex and UPS earn WAY more per truckload than what we earn in the HHG industry.
Let's also remember that the peak season for Christmas has spread out over the last couple of decades. Thirty years ago the 'official' start of Christmas was after Thanksgiving, but now folks are advertising and selling as soon as Halloween is over. Meanwhile, in the in the DOD HHG market the peak season has compressed over the last couple of decades from what used to be May 15th to end of August to what is now primarily May 15th through the weekend after the 4th of July.
Even though Fed EX and UPS own trucks and deliver shipments their business is very different than the HHG business. And, for the record so are the folks that handle privately owned vehicles. We regularly have up to 15 people that will physically touch a customer's shipment while a POV might have one interaction. All it takes is for one of those 15 people to have a bad day for that entire experience to be ruined.
Back to the original point of this – in every type of industry, service degrades some during the peak demand period. The more extreme the peak period is it follows that the more extreme the decline in service levels. It simply isn't true to cite Christmas as an example of a time when shipping companies or others are magically able to create the highest customer satisfaction rates during a period of peak demand and there is data to support that assertion.
No one controls or sets the dates for Christmas. However, the military does decide when it moves personnel and what the industry has asked for is some recognition of the fact that when demand exceeds supply service gets lower and the way to better service it to take reasonable steps to try and flatten the demand curve because everyone wins when it is flattened.
The DOD may have reasons to keep pouring more shipments in to the peak season than the supply can support, but suggesting that the industry should just 'figure it out' and 'deal with it' like the shippers and retailers do for Christmas is simply a Christmas wish that no single source contract can or will ever be able to grant.