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UPS's Christmas Snafu: What Amazon Can Learn From Amazon

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

With three trading days left in 2013, stocks are hovering near all-time highs, with the S&P 500 and the narrower Dow Jones Industrial Average (DJINDICES: ^DJI  ) both within 0.03% of breakeven as of noon EST.

What can't "Brown" do for you on Christmas Eve? By now investors will have heard of -- and perhaps even personally experienced -- the snafu experienced by United Parcel Service (NYSE: UPS  ) and, to a lesser degree, FedEx (NYSE: FDX  ) , over Christmas when the delivery companies failed to make good on guaranteed delivery dates on behalf of a number of retailers, including e-commerce giant (NASDAQ: AMZN  ) .

This is a problem for UPS and the retailers. Christmas is one of the few times of the year in which the delivery date actually matters for a huge number of customers, so it's the period when shipping companies have to get things right.

For UPS, which advises companies on improving their logistics function, the "miss" is a black eye, as it has a larger share of retail e-commerce than its rival, FedEx. If you want to understand what went wrong, The Wall Street Journal put together an excellent piece that delves into the causes behind the Christmas Eve snafu (registration may be required. Bottom line: A surge of last-minute online orders overwhelmed UPS' key Louisville, Ky., hub. According to Bloomberg, one analyst estimates UPS will spend $50 million to $100 million this quarter on refunds, rebates, and higher operating costs.

Beyond the direct cost, UPS will also suffer a reputational cost, particularly since the story has gained national coverage. But the fallout hurts the retailers that depend on UPS in equal measure. Ask yourself: When you order a product online and it arrives outside the expected arrival date, do you blame the shipper or do you blame the company that sold you the product and provided a delivery-date estimate? You may blame both, but you will also very likely blame the latter first since that is the company with which you transacted and for which you may have an ongoing relationship.

That's not entirely unfair, as these companies bear part of the blame by testing the limits of what is possible with regard to cutoff ordering dates in a holiday-shopping season that has been brutally competitive. In the wake of the problem, Amazon has responded intelligently to mitigate the fallout by offering affected customers $20 gift vouchers. But the company could have taken a page from its own Zappos unit, which is even more fanatical about customer service than Amazon.

StellaService, a customer service rating firm, singled out Zappos this holiday season, noting that it was one of three retailers with the latest cutoff date -- Dec. 23 -- and that it chose to upgrade the shipping method in certain cases in order to ensure packages reach their destinations on time. That choice is a short-term hit to profitability that ends up being a long-term investment in customer retention and loyalty. had a huge run in 2013; here's the one stock to own for 2014
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Related Tickers

9/26/2016 4:35 PM
^DJI $18094.83 Down -166.62 -0.91%
AMZN $799.16 Down -6.59 -0.82% CAPS Rating: ****
FDX $175.34 Up +0.95 +0.54%
FedEx CAPS Rating: ****
UPS $108.84 Down -0.37 -0.34%
United Parcel Serv… CAPS Rating: *****