UPS provides a look into its Peak Season playbook

Going back to the onset of the COVID-19 pandemic reaching United States shores in March 2020, there have been significant shifts and changes, in terms of supply chain planning and operations, for both logistics services and freight transportation providers and shippers alike.

A major reason for that goes back to how pandemic-related lockdowns left myriad consumers at home, ordering goods online, at a pace that far outmatched anything that had ever been seen prior to that point. But just because there was a pandemic, by any stretch, did that mean that there would not be a holiday season in 2020. Instead, it was quite the opposite, with e-commerce activity moving the chains to a holiday season first down, of sorts. But there were penalties along the way, too, with this frenetic e-commerce activity constraining parcel networks and also restricting the amount of available capacity needed.

That was the case for Atlanta-based global freight transportation and logistics services bellwether UPS, during the 2020 Peak Season, too. In the mainstream media, much was made about how Big Brown implemented shipping restrictions on some household name retailers like Gap, L.L. Bean, and Nike, among others. To be sure, large retailers like these drive a significant portion of UPS’s Peak Season surge volume, something which becomes more heightened at the busiest and most hectic period of the year.

Parcel analysts told LM, in December 2020, that these restrictions were driven by shippers that have extraordinary surges of volumes between Thanksgiving and Christmas, with carriers—even the largest ones like UPS—having finite network capacity in a 24 hour/seven-day span.

“The carriers can’t invent more time,” an analyst told LM. “They can build out more capacity, but the business question for the carriers has to be ‘how much do I want to spend to solve a four-week problem, for shippers with the most deeply discounted, lowest yielding business?’”

And that leads to the 2021 Peak Season. For UPS, in addition to providing service levels it prides itself on, it also enables the company to set the story straight, while also giving LM an inside look at its approach to the 2021 Peak Season and beyond.

“We did not stop picking up volume for our largest customers,” a UPS spokesman said. “What actually happened was that we did not pick up unplanned volume, a big difference. There was this suggestion that UPS was having capacity issues. But the reality is those large customers had to turn elsewhere as did SMBs (small- and medium-sized businesses), and they turned to other carriers, too, and were told the same thing.”

UPS President, Worldwide Sales and Solutions Bill Seward told LM that UPS was “oversubscribed “in June, July and August of 2020 with those customers, observing that nothing about Peak Season surprised the company.

“When the customers oversubscribed and way outkicked their coverage on some of the volume allocations, we had to tell them we were going to slow things down by a day in a couple of spots, in order to protect the service levels,” he said. “The irony is because we ran those plays, we ended up with service levels that were 10% better [according to various third-parties]. That is validating that our strategy works. We have about 250 customers that we work closest with, and I cannot think of one that was upset with how we handled Peak Season last year. They were not unhappy; they were grateful, in the end, that their service levels were protected. A concern of ours for this year’s peak is how do we protect our network from competitor volumes that are migrating here, because they know what is coming. We have a multiyear history of flexing our network, as well as through the pandemic. We need to be really vigilant and have our salesforce keeping an eye on this and protecting the network. Let’s not be taking competitors’ volume if it is not planned into our network right now.”

Seward added that throughout the pandemic and into the 2020 Peak Season there was a demand outpacing capacity dilemma.

“What we did last year—and are doing again this year—is collaborating with our customers incredibly closely to ensure we deliver the required service levels,” he said. “If you go back the last two or three peaks, third-parties have told us that our service levels materially outpace everybody else in the market.

What’s more, heading into the pandemic, Seward said that those same third-parties, as there was an overwhelming tsunami of volume coming into the market, again cited UPS for standing out, in terms of its service levels.

While its service levels shined, that does not mean that these unique market conditions did not make for uncomfortable customer conversations either.

Seward explained that in August 2020, he had to inform a customer with a $200 million annual freight spend with UPS that UPS was prepping to announce its 2020 Peak Season surcharges, which translated into about $15 million-to-$20 million higher than what the customer budgeted on transportation spend for peak.

“That was not an easy conversation,” he said. “We worked with the customer and his team throughout peak to make sure that as demand was overwhelming capacity, we worked with the company to protect its volume and not take every piece into the network that people were trying to throw into it. We collaborated with them across the board…and received a complimentary letter from them to our CEO and myself in January, saying our service was great even though they did pay more, as we hired 100,000-plus employees for peak to deliver and did a ton of work to keep our employees safe through the pandemic.”

This speaks to UPS’s need to protect its network, according to Seward, and creates a blueprint to be finetuned in the coming weeks to gauge things like: what volume it is going to get, from whom, and where.

“We have made technology investments that give us, by the half-hour, the pulse of our network throughout the day, by facility and how we are doing,” said Seward.

And here comes the rub, which created a mischaracterization of the misleading 2020 narrative of UPS turning customers away.

“We did this last year and we will do it again this year,” explained Seward. “If customers are radically exceeding the allocations we agreed to, in advance, we will occasionally run some plays to defer that service for a day and agreed upon in advance as well. You would never dream of showing up in the airport with two tickets for your family if you had four people. And that is how we look at it. We agree in advance and work with you. We do take [some] unplanned volume, as we have the best network by far…and the stats show that, and I think we are in a good position to deliver again this year.”    

While large shippers drive the balance of UPS Peak Season surge activity, Seward said that does not discount the need for the company to serve its SMB customers during this period.

This entails year-round conversations with customers in this segment to agree to what they need and subsequently flex up UPS’s capacity through efforts like hiring 100,000 seasonal employees, with nearly 40% of these hires going onto permanent positions.

And it also requires taking into account lessons learned from previous Peak Seasons in order to beef up a network readiness strategy.

“In some ways, the pandemic last year trained us to deliver a great peak, and it has not really let up for us at all,” said Seward.  “We have been doing this kind of collaboration all year with certain customers who continue to see their volumes spike. And we work with them and collaborate to make sure we have the allocations right so that we can ensure that our SMB customers can thrive. I want to stress that we don’t limit the success of any of our customers, but we do come to agreements on allocations for our largest retail customers in advance. We do not put any limitations on our SMB customers, and we are excited that the solutions we brought to SMB, especially our executive leadership team’s investment in our right to win in that space. We know these SMB customers care about speed, and our ground service is the fastest it has ever been. And we had radically expanded our Saturday and Sunday operations for those customers and those investments have been pulled forward.”

UPS recently also added hundreds of locations for Saturday and Sunday delivery that were not in its network last year, as well as expanding its Saturday operations, with the objective of helping its SMB customers win, according to Seward.

Regardless of customer size, Seward highlighted how UPS uses a playbook of sorts for Peak Season, which he described as voluminous and ever-changing.

“Those same CEOs we are collaborating with so closely on volume allocations [and other things] are sweating big time about whether or not they will have inventory on the shelf to sell,” he said. There are all sorts of contingency planning for wildcards, whether it be vaccine hotspots, global supply chain challenges, or weather events. We plan [for Peak Season] literally year-round. We start in January with our Executive Leadership Team meeting about Peak Season for that coming year, and we are already thinking about 2022, from a staffing perspective.”

Another key part of the UPS Peak Season playbook includes its SurePost offering, which outsources final mile delivery to the United States Postal Service (USPS), and on a global basis, it occasionally uses third-parties to deliver over the final mile, too.

Seward noted that these efforts are a permanent part of the UPS playbook and also said they are flexed a bit at Peak Season. And he also said that the UPS Air network is augmented with things like the third-party leasing of aircraft.

Another action item stemming from lessons learned in 2020 and being implemented in 2021 and beyond, according to Seward, is working with large retailer customers planning to pull their volume forward earlier into the Peak Season, for volumes that might have typically come after Thanksgiving, for example.

“There is a real effort being made by the larger retailers to pull volume forward through merchandising and promotional strategies,” he said. “We have done a lot of research that shows consumers are willing to buy earlier if retailers are willing to promote earlier. The exciting thing is that it relieves so much of the pressure valve and gives us a chance to do more during the highest-volume peak days. We think we are going to see more of it this year, and it also helps retailers manage those inventory levels, which are a concern of theirs as well.”

As for consumers’ willingness to shop earlier in advance of the holidays, data from a UPS Proprietary Study Conducted Through a Third-Party Blinded Research Panel found the following:

• 91% of consumers say that they plan to complete all of their holiday shopping one week before Christmas vs. 81% last year. About 60% of consumers plan to finish all of their shopping two weeks before the holiday, compared to 52% in 2020;
• In 2020, only 17% of shoppers planned to finish shopping before Black Friday. This year, nearly 1 in 4 shoppers will finish their shopping before the traditional holiday season even kicks off; and
• Nearly all consumers (95%) surveyed say they would start their holiday shopping earlier this year if sales and holiday promotions were launched earlier in the season

As for how things are shaping up for UPS heading into Peak Season, from a service metrics position, data provided to LM by ShipMatrix, a subsidiary of Pittsburgh-based SJ Consulting, showed that its on-time performance (OTP), for July and August, was strong, coming in at 96.2% and 95.3%, respectively.