E-commerce explodes into holiday shipping season
Peak season e-commerce sales, turbocharged by an accelerated shift to online buying as consumers shy away from crowded stores during a pandemic, are expected to hit all-time highs this year, putting additional pressure on express delivery networks.
Retail and logistics analysts say the unprecedented level of digital commerce has pulled forward 10 years of expected growth in the span of six months.
The flood of new orders, especially early in the coronavirus crisis when so many stores were closed, impacted express carriers’ delivery times, leading them to eliminate on-time guarantees, implement package surcharges and throttle volume available to some retailers.
The current gap between demand and supply is about 2.6 million packages a day, for a seven-day week, which will rise to 7.2 million during the upcoming peak season, according to data from Pittsburgh-based ShipMatrix.
“It doesn’t mean those packages won’t get moved, but they will be affected in terms of the number of days for transit. So, the on-time performance will be challenging for the carriers because they are operating way beyond their capacity,” said Satish Jindel, president of the parcel analytics and benchmarking company.
“Even though the parcel delivery companies will add temporary drivers and warehouse personnel, the demand will increase in the meantime,” he said in an interview.
On-time performance for ground services during the week of Oct. 4 -10 was 95.2% for FedEx (NYSE: FDX) and 98% for UPS (NYSE: UPS). He attributed the difference to the fact that FedEx Ground is also delivering its SmartPost packages, whereas UPS relies on the U.S. Postal Service for final delivery of about two-thirds of its SurePost economy ground service — freeing up resources for other deliveries.
The ground performance figures for both express carriers, as well as Amazon (NASDQ: AMZN) and the Postal Service, have improved since earlier this year, when they were first hit by the surge in e-commerce demand.
Jindel noted that express services, which have time-definite standards, have a lower on-time performance.
On Monday, DHL Express said it expects e-commerce shipments to grow more than 50% from last year’s peak leading up to the holidays, with a similar spike in inbound volumes to the Americas — most of it in the U.S.
Mexico is DHL’s second-largest growth market after the U.S., followed by Canada.
The international parcel carrier, part of integrated logistics provider Deutsche Post DHL (LSE: DPDHL), said e-commerce volumes in its network are already up 35% this year over 2019 and predicted online sales will increase further with popular blowout shopping days such as Black Friday and Cyber Monday in November, and ongoing gift-buying for Christmas.
Online sales from late November to Christmas are also expected to generate more than 20% greater outbound volume in the region, with the U.S. alone exporting about 30% more parcels, DHL said.
The U.S. Department of Commerce reported that second-quarter domestic e-commerce sales grew by almost a third from the previous quarter and 44.5% from the same period a year ago.
eMarketer forecasts U.S. e-commerce sales will jump 36% to $190.5 billion during the holiday season, while brick-and-mortar retail will decline 4.7% to $823 billion. The research firm estimates Cyber Monday sales will increase 38% to $12.9 billion. It expects e-tail to represent 18.8% of total retail sales, up from 15.9% in 2017.
Prior to the pandemic, analysts projected holiday e-commerce sales to increase 13% to $155.5 billion, roughly on par with the compound annual growth of the past three holiday seasons. In a recent report, Berkeley Research Group said it believes digital sales could go even higher, to $200 billion.
The coronavirus pandemic has created a number of conditions that are driving people to shop online, including a desire to avoid potential infection in stores, local laws and health guidelines limiting indoor capacity, and stay-at-home precautions that are leading to more purchases for home offices and recreation rather than spending on services that involve more person-to-person contact. The research groups said the relatively short calendar between Thanksgiving and Christmas and store closures stemming from bankruptcies will also affect holiday shopping dynamics.
Online deliveries during the holidays will also be boosted by large retailers shifting sales promotions online, where shoppers may find better deals than in physical stores, said Michiel Greeven, executive vice president of global sales for DHL.
DHL’s peak plan
DHL Express said it is prepared for the surge in volume, thanks to regular investments of about $1 billion per year in its network. For 2020, it has hired more than 10,000 permanent employees, including 3,000 in the U.S. A third of those positions are at DHL’s hub at Cincinnati/Northern Kentucky International Airport (CVG), with 500 others taking customer service roles and 1,500 jobs for ground pickup and delivery couriers around the country.
DHL has increased daily cargo flights this year to handle the extra demand for e-commerce and COVID medical supplies, partially alleviating ongoing transport shortages associated with the grounding of passenger flights.
It also has added four Boeing 777 freighters to its fleet and said two more will join next month. The six additional aircraft enable the company to carry out more than 3,000 additional intercontinental flights per year.
Earlier in 2020, DHL began a new Hong Kong-Los Angeles-Miami flight five times per week with 45 tons of capacity per flight and a daily flight from the Americas hub to Singapore with space for 55 tons of goods. It also added a weekly freighter flight from Los Angeles to East Midlands, U.K https://www.freightwaves.com/news/dhl-adds-flight-from-la-to-uk-hub.
DHL Express said it has invested about $20 million in several projects to expand U.S. facilities, including the addition of about 80,000 square feet of warehouse space at service centers in Ohio, Pennsylvania and New York. The Los Angeles, CVG and New York gateways also received a combined $3.7 million for ground support equipment.
The company is also moving into a larger facility at Atlanta Hartsfield-Jackson International Airport so it can bring goods directly from Asia and Europe, instead of transshipping them at CVG or New York’s JFK airport, according to reporting by Cathy Roberson, who runs a logistics market research firm. The direct flights are expected to begin a year from now.
DHL has invested $58 million in the CVG hub during the past two years.
This article originally appeared on American Shipper