Shoppers and part-time workers received a boost recently on news that United Parcel Service (UPS +0.28%) plans to hire 90,000 to 95,000 seasonal workers for the holidays. The hiring is in line with its plans to better deal with the anticipated surge in holiday demand coming from e-commerce.
One thing's for sure: The company can't afford a repeat of last Christmas, when delayed deliveries from both UPS and FedEx (FDX +0.65%) disappointed shoppers who then focused their ire toward online retailers.
It's imperative that UPS gets it right this Christmas, and signs suggest it will. UPS' management has taken note of the lessons of unexpected peak demand, and has invested accordingly in a series of initiatives to manage peak demand and improve operational efficiencies.
Last year's perfect storm
Investors and shoppers need to appreciate that the environment last holiday season was highly unusual for a number of reasons:
- The Christmas selling period contained six fewer days than the previous year, and many shoppers and retailers were faced with a more intense shopping season.
- Extreme bad weather made it difficult for shoppers to visit malls; this helped push up e-commerce demand.
- The same bad weather created huge logistical difficulties for UPS and FedEx, and deliveries were delayed as a consequence.
- A combination of the shorter selling season and bad weather encouraged many retailers to increase last-minute promotions, which helped to raise the height of peak demand.
As a consequence, peak demand was much higher than UPS anticipated. Indeed, in October of last year, the company expected to hire 30,000 fewer workers than the 85,000 it eventually took on. It then was caught off guard and unexpectedly forced to hire extra workers.
This time around the company is being much more aggressive from the outset. (Especially since Thanksgiving falls late in the month again this year: Nov. 27.) It is preparing early in hiring the 90,000 to 95,000 workers. In fact, in its last earnings report, management said UPS would initiate a full operating day on Black Friday this year, when previously it operated on a limited basis.
Investing in expansion
The company has also recently increased its -- already substantive -- investment plans by $75 million, and operating expenses are now expected to rise by $175 million in 2014. The overall investments include things like technological solutions to improve logistical operations (such as package location and shipment status) and increasing hub capacity.
COO David Abney said during the earnings conference call that facility expansions will add 5% to capacity, and the company plans for "Several new buildings and retrofit projects in California and Texas" to "come on line later this year, providing additional capacity and flexibility."
In short, UPS has made aggressive investments to deal with peak demand issues, with technological solutions that will help manage the business better at all times.
UPS can't afford to drop the ball
This holiday season will be important to UPS' business in more ways than one. E-commerce is becoming more important to the company, but it's also becoming more competitive, with FedEx and the U.S. Postal Service, or USPS, also expanding e-commerce operations. The latter is not always seen as a direct competitor -- FedEx and UPS both work closely with the Postal Service -- but the USPS is reported to be slashing prices to become more attractive to business from large-scale online companies. This is obviously a challenge to a revenue stream (e-commerce) that UPS is aggressively expanding into -- and the company will not want to lose these companies to the USPS.
In other words, shoppers and investors can expect UPS to do whatever it can to keep its online customers (often large retailers who care a lot about the Christmas period) happy -- of course, it's also good news for online shoppers.
Readers interested in the investment angle might wish to read our ongoing series of articles on UPS, the first of which can be accessed here.
