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Peak season planning is top of mind for UPS and FedEx: the duopoly is busy adjusting pricing and network design to meet expected volume gains.

ON ITS RECENT SECOND quarter earnings call, freight transportation and logistics bellwether UPS touched on many topics related to its different business lines, including pricing, and shipping patterns, and how those elements make an impact on various macroeconomic trends of its business.

Second quarter earnings calls--not just for UPS, but many other companies in the freight transportation and logistics space--tend to take a look at the definitive, or what has happened so far through the mid-point of the year. And when it comes to the future, especially in UPS's case, that had to do with assessing "peak season" prospects.

One of the things made very clear by UPS leadership is that the company needs to make sure it's being properly compensated for its services over the peak season, given that it's typically the most hectic time of the year.

"Last month, we announced peak season surcharges, and we're addressing the impact with customers as we develop peak shipping forecasts for later this year," UPS CEO David Abney said on the recent earnings call. "These surcharges are necessary to ensure UPS continues to provide customers with the best-in-class value and highly reliable service they've come to expect."

Alan Gershenhorn, chief commercial officer at UPS, added that the surcharge is designed to compensate for the additional cost that UPS incurs with volume increases and the temporary capacity enhancements needed to meet service levels.

"And while these rate increases, even for a short time, are rarely welcome, our customers really understand and appreciate the value of our network, what we do to provide the service and the capacity for them at peak and year around as well as the cost of doubling of the network," said Gershenhorn.

As for UPS's biggest competitor, FedEx, preparation is well underway for the 2017 peak holiday shipping season.

"The expectation is for another record peak season, with multiple days that'll set records for package pickup and delivery," said Raj Subramaniam, executive vice president of global strategy, marketing and communications, on the company's recent fiscal year 2017 fourth quarter earnings call. "We continue to work directly with a relatively small number of large customers that drive the majority of the surge and demand to ensure that we have appropriate pricing related to volume expectations and capacity needs."

When assessing peak season from a planning and preparation perspective, there are several considerations, according to Jerry Hempstead, president of parcel consultancy Hempstead Consulting.

"First and foremost is the interaction between the carriers and the handful of shippers that represent the majority of shipment surge," Hempstead explained. "The big customers are very defined now and are key in the dialogue in terms of shippers projecting anticipated volumes, with the carriers subsequently planning for equipment and staffing levels."

As an example, he said UPS will add more than 100,000 seasonal employees, while FedEx will bring on more than 50,000 of their own. The recruiting process will be kicking off right after Labor Day in order to find and vet employees.

The next step, said Hempstead, is focusing on network throughput capacity. "Both carriers have invested an extraordinary amount of capital in order to insure that there's enough elasticity in the system to prevent package bottlenecks and consequent backups," he noted. "The network is ready, and you will not hear the post holiday 'kevtching' from the shippers about service as we heard a few years back."

From a peak pricing perspective, Hempstead said that at this point UPS and FedEx are addressing the addi tional costs in different ways.

According to Hempstead, the FedEx approach is more "surgical" and aimed at the few shippers that present the greatest challenge to serve, while UPS has decided to just impose a surcharge based on service selected, date shipped and the residential attribute.

"The UPS approach has the potential of affecting non-seasonal residential shippers like Express Scripts and CVS and other prescription benefit management firms, as well as firms like Dell that ship laptops year round to residences," said Hempstead. "Like everything in the world of parcel, accessorial prices and rates are negotiable. Not everyone is going to be paying rack rates this holiday season."

By Jeff Berman, Group News Editor
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Title Annotation:NEWS analysis
Author:Berman, Jeff
Publication:Logistics Management (Highlands Ranch, Co.)
Date:Sep 1, 2017
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