ShipRight offers up a look at a regional carrier’s approach to Peak Season

Planning for Peak Season is viewed as full-time endeavor, especially now more than ever, given the myriad challenges that the COVID-19 pandemic has placed on supply chain and logistics operations, going back to March 2020.

And that is really evident for parcel express delivery services providers, regardless of size. While the Peak Season efforts of the parcel duopoly of UPS and FedEx are well-documented and publicized, the efforts made by the smaller, regional carriers are significant, in their own right, as it relates to how they approach the most challenging time of the year. To get an in-depth look at how a smaller, regional carrier approaches Peak Season, Logistics Management Group News Editor Jeff Berman recently spoke with executive leadership at South Portland, Maine-based ShipRight, a provider of order fulfillment, contact center and final mile delivery services, Todd Flaherty, ShipRight Executive Vice President, and Drew Graham, ShipRight Founder and President. Their conversation follows below.

LM: How do you typically deal with the increased volume of freight during the last quarter of the year?

Flaherty: The reality is that Peak Season affects us all year. What I mean by that is we need to keep about one-third of our space available, at empty, so we can accommodate that swell during Peak. It is not efficient, and it is not cost-effective, but you need to have extra space and you need to have it for most of the year. That is one of the impacts of Peak Season we feel all year. The other thing we get into, at this time of year, is that we start draining our warehouse about three weeks prior to Peak Season, meaning we might send out some inefficient, or non-cost-efficient, routes, just to get stuff out of the warehouse. The other thing we do is start looking for contractors who can help us with additional trucks and people. We start running into some overtime and bringing in people of our own, and, if possible, if we are really stacked up with freight, we will sometimes ask the trucking companies if they can drop one or two trailers with us. We can work on those trailers throughout the day and then move it once we are finished processing the inbound inventory. That does not happen much, but if they can do it, then it helps.

LM: What is your timeframe for Peak, in terms of when things really get moving for you?

Flaherty: Towards the end of October, we will start running more trucks, even though we don’t have enough stops to make that truck profitable, as we need to start getting more inventory out of the building.

Graham: Because the inbound activity is so fast and furious, if you are used to unloading two trailers a day, for instance, and then you are suddenly getting four. and a bunch of LTLs that equate into another one, the building will fill up so fast that you cannot react. For all of the asset-based stuff we do, we have also developed a very disciplined planning process, where we track the freight levels in our buildings every day.

LM: How does that process work?

Graham: We track the inbound and outgoing freight, and we get together on a Zoom call with our staff and watch the numbers and make quick decisions. In a way, it is kind of a war room thing and we do it every day if we have to, or at least two-to-three times a week.

LM: What steps can ShipRight take to temporarily increase their warehouse and delivery capacity during Peak Season?

Flaherty: We do start six- and seven-day weeks…we are pretty much forced to do that by our clients, and that falls in the window between Thanksgiving and Christmas. You cannot get around it.

Graham: Stretching the storage warehouse capacity is far and away the problem to solve. If the warehouse fills up, you can really run into all sorts of issues that are obvious. And there are also secondary issues. You can start to have trouble finding freight, and it can get very difficult. Like Todd said before, parking a trailer tends to be the only thing you can do. In this market, there is not a lot of empty warehouse space. We are very fortunate here in our South Portland terminal, in that we can use our fulfillment center and have a little buffer space in there. It is not efficient to overflow that space, but it beats just stuffing the place. Once the building is full, it is exponentially more difficult to deal with it. Adding people, trucks, and call center resources is hard enough. When you fill a space, you are in trouble.

LM: Does handling and moving this additional Peak Season freight increase or decrease revenues for you as a company?

Flaherty: It is our least-profitable quarter of the year and sometimes it is a loss, because you have so many incremental expenses…a lot of overtime for contractors is very expensive, and you are working weekends. The retailers do very well, but the final mile companies really struggle, from a cost perspective, during that quarter, or at least the four weeks between Black Friday and Christmas. It is painful.

LM: Do you have Peak Season pricing rates, or surcharges, in place?

Flaherty: It is not an industry standard, at least for final mile companies. The small package companies are implementing fees, like FedEx, UPS and other larger parcel carriers.

Graham: That is the challenge, as we have signed contracts with pricing already established and oftentimes the pricing is somewhat standardized from the different shippers. And nobody includes that kind of [peak] surcharge. We are a little sensitive going after it simply because you don’t want to lose business.

Flaherty: The other thing is we have heard from some of our clients is that they have fixed pricing with the retailers, so if they don’t have any sort of coverage for Peak Season built into their pricing, then how do you pass that on to your final mile delivery partner? I think it starts way upstream with the shippers.

LM: Does Peak Season compromise service to existing customers?

Graham: It is another one of those challenges that makes it a chaotic time. It is obvious that peak volume can affect all the clients we are shipping for. We try not to let that happen. It is the opposite of a rising tide, and everything gets a little caught up in it. Presuming clients are hitting their marks with forecasting—and when product is supposed to arrive and reasonable service expectations—we have never favored one client’s activity over another. But you do sort of serve many masters, when it comes to it, and it just adds to the challenge. If everything falls apart, which it hasn’t, we won’t let it. But if everything falls apart, then obviously everybody gets hurt.

LM: What are the risks in accepting new business during Peak Season?

Flaherty: It does not happen. You are setting yourself up for failure with a new client. We are maxing out on our space and our people without bringing on new business, and that is an opportunity cost people don’t talk a lot about. The thought of “what if I could have brought on two or three new customers during Peak Season and have that volume run into the following year?” Even the biggest players like FedEx and UPS want forecasts and they cannot take volume over the forecasts, and if you don’t work within the forecasts, you may pay penalties to those companies.  We do ask our larger customers to give us forecasts. A lot of them don’t do too well at it, but if we can get some of that type of data from them, we can hold them accountable if they come in way over or under forecast. That provides some negotiating leverage with them going forward.

Graham: That is another tactic we put in play. We are constantly talking to our biggest shippers, whether it is a 3PL representing a few different retailers or a single large customer. We are talking about what is coming in and how we are doing getting everything out and where we are at with things like needing to be open on a Sunday or slowing down inbound. There is constant communication, which is way better than surprise phone calls.

LM: Why is forecasting difficult for shippers? Is it due to spikes in demand levels?

Flaherty: A lot of it goes back to their supply chains. They don’t know when their freight is coming, because container ships are being held up. We see spikes and dips. It is not consistent so there will be a big spike in treadmill shipments on a given week, for a customer, because a container ship came in, and then there will be three weeks with less activity. It is a combination of supply chain issues and shippers not having good data as to when their inventory is going to be arriving.

Graham: The folks we ship for directly tend to have better forecasts…it is the same on our fulfillment side. There is a sales forecast and an actual forecast. If you ask just right, you can sometimes get a sales forecast from the customer. The 3PLs representing shippers, I find, have far less tight forecasts, and I don’t really know why that is the case. You would think it would be a big part and parcel of what they do, in order to serve those retailers.

Flaherty: Working directly with retailers provides a little bit more control and accuracy on what we have coming. When you have someone in the middle, it can get a little more [uneven].

LM: Do you think the demand for rapid order delivery is customer driven or has it been created and pushed onto consumers by business marketers?

Graham: It is definitely the marketers first, but in doing so over the years, fast and free is everybody’s mantra. They have conditioned the customers to expect it…and until the retailers sort of push back on some of this cost back on the customers, even for a simple deferred service, for next-day or a few days, they have to pay a nominal amount, consumer behavior would change very quickly. Fast and free is what everybody wants. That cost has to be absorbed somewhere; it is painfully obvious.

Flaherty: We say there is no such thing as free shipping. Those costs are being recovered somewhere. Typically, it is in the price of the product. The thing we joke about is people want a good and fast service, and they want it cheap. You cannot have all three.

LM: Is there a growing movement for shippers to “deleverage” from national carriers like FedEx and UPS due to higher rates, add-on surcharges and inconsistent service during Peak Season?

Flaherty: We feel that people look for a backup plan in case there are failures. And they may reach out more, not because of the surcharges, but because they need an avenue in the event that these major small package folks cannot handle their volume.

Graham: It is a one-two kind of thing. The first is inconsistent service, and they cannot have that, and then it is price. I think a lot of this goes back to 2017, when a lot of holiday goods did not arrive until the first week of January. Since then, there are now quotas and surcharges. A lot more has happened on the parcel side, because that Peak Season was deemed a failure on the carriers’ part. I think they took umbrage at that. They work hard…who knew that tidal wave was coming?

Flaherty: We had some national retailers reach out to us just before Peak Season last year, asking whether we could handle their parcels in our geography. They want to have a backup plan in place.