FedEx CEO blames retailers for Christmas delays
Forget the ice storms and overwhelmed carriers. Much of the blame for the widely covered late arrival of Christmas gifts this past holiday season should fall on retailers, charges FedEx’s CEO Fred Smith.
On FedEx’s Q314 conference call, Mr. Smith said the firm operationally had "very, very good" performance during its peak shipping period versus past years, and company executives were "disappointed" that they kept "getting pinged with the big problem in e-commerce." Indeed, retailers’ internal delivery shortcomings "didn’t get enough publicity last year because they were an integral part of the problem even more than the weather and the carrier performance."
His list of e-commerce provider shortfalls includes:
- Poorly packed shipments leading to damaged packages;
- Shabbily affixed labels resulting to processing delays or lost packages;
- Retailers promising online buyers that shipments had reached the carrier when they hadn’t.
Exacerbating matters are social media remarks that "make anecdotes much bigger than perhaps they are," Mr. Smith said. Also, extensive online tracking tools are creating delivery-time anxieties for recipients more than in the past, especially in cases in which shipments are incorrectly claimed to have reached the carrier.
Mr. Smith said FedEx focuses on working with customers that "don’t overpromise or say we do things that we end up not being able to do." But it’s also "working very carefully" with customers to better manage peak times.
"I can promise you that the customers are not going to tolerate those types of things over the long haul," Mr. Smith warned.
For its part, UPS, which was more affected by the delivery issues, on its recent quarterly call solely blamed the compressed holiday season, much greater-than-expected holiday online buying and last minute ordering, and inclement weather. Its CEO Scott Davis vowed to "make the necessary investments and operational improvements to ensure we effectively manage peak demand in the future."
According to the Wall Street Journal, only Kohl’s has admitted that "operational challenges" had an impact on its fulfillment centers. Its CFO also said the retailer may have to become "more realistic" around delivery dates just before Christmas day.
A report in early March on dcvelocity.com indicated Amazon plans to revamp its U.S. shipping with a mix of private fleet, regional carriers and the USPS. There would be a diminishing role for UPS and FedEx. The report, citing a consultant with knowledge of Amazon’s plans, said most of the changes were set before the Christmas issues arose.
- FedEx Corp. Reports Third Quarter Results – FedEx
- FedEx Corporation’s CEO Discusses F3Q2014 Results – Earnings Call Transcript – Seeking Alpha
- FedEx Takes Sloppy E-Tailers to Task – The Wall Street Journal (sub. required)
- FedEx Cuts 2014 Forecasts on Storms as CEO Scolds Retail – Bloomberg News
- United Parcel Service’s CEO Discusses Q4 2013 Results – Earnings Call Transcript – Seeking Alpha
- Amazon plans revamp of U.S. shipping with mix of private fleet, regional carriers, USPS – DCVelocity
- Delays Ruins E-Christmas for Some – RetailWire
Discussion Questions
With holiday shipping challenges during peak delivery times likely to recur, how should retailers be reassessing internal processes and infrastructure? Should Christmas arrival guarantees be moderated?
Retailers and carriers are going to have to work closely together between now and next Christmas to sort out the causes and provide solutions that work around Holiday shipments. The demand is only going to increase as more and more people order their gifts online. That trend will only grow for the near term. The key is to develop systems, infrastructures and labor and test them in conditions as close as possible to the projected increase for next season.
In addition, expectations on the part of the consumers may have to be more realistic around what variables can and cannot be controlled. Weather played a role around several holidays (just ask my wife, whose Valentine’s Day bouquet arrived on 2/15) and shoppers should take into consideration the weather, the glut of packages and any other variables and be more proactive in their timeliness of orders. Will that happen? Probably not, as procrastination is the norm not the exception, so retailers and shippers need to be better prepared going forward.
A huge driving factor will be retailers forecasting models (or lack thereof) for the impact of Free/Next Day/Guaranteed shipping on Christmas Eve. Reports of 12/22 – 12/23 online order volumes exceeding even the most aggressive forecasts by as much as 25 – 35% indicate failure was the only thing really “guaranteed” this year.
No logical logistics system is set up to handle that kind of surge above theoretical “peak demand.” Retailers and carriers simply underestimated the penchant of the American consumer to put off shopping until the last minute. As one who regularly cruised the malls on Christmas Eve before the advent of instant online gratification, believe me — I know.
You’re only as good as the people (vendors) you surround yourself with. Anytime that a merchant over-leverages their reliance on a 3rd party, they are at risk of problems. Factor in weather and the likelihood that there will be a last minute holiday shipping snafu is greatly increased.
No matter how much e-tailers want to push the envelope with last minute delivery, there is a realistic hard stop that must be considered and made known to customers. In the pre-Internet days, it wasn’t uncommon to have a cut-off shipping date a week before the holidays. Whatever the correct time period is now, it is what it is and until the merchant controls its own delivery service and knows what it can manage. That’s reality. Sorry shoppers.
Wait, seriously? Delivery delays were retailers’ faults? Not snowstorms? Not the agreement between FedEx and retailers to extend shipping deadlines (promise to deliver before Christmas) to silly dates?
That’s just not right (I struggle to find a non-inflammatory statement). Is FedEx a victim of retailers or a partner? I can’t believe they were mandated against their will.
Yes, some retailers ship in packages that were not meant to be picked up by fork lifts and thrown around. But I’ve NEVER seen FedEx send back a shipment in that condition. They just go ahead and deliver it anyway…and it has been on me to return it. In fact, I did that 3 separate times with air conditioner filters from a particular retailer. And then I gave up on the merchant.
The answer is REALLY simple. There was a time about 8 years ago when the end of guaranteed delivery dates was December 13 (for some odd reason, I remember the date well). We pushed it forward to around December 22-23. That’s well beyond my personal appetite for risk.
I vacillate between astonishment, irritation and boredom with the stories executives create to explain away poor results. This one hit two out of three.
The perceived need to promise quicker and faster prompt deliveries has almost reached a point of diminishing returns. Just as you can’t fill a 8 ounce jar with 16 ounces of water, you can’t continue to promise Christmas deliveries on December 24 under both existing and unexpected conditions. There are too many pitfalls — internal processes, infrastructures, weather and unrealistic customers’ expectations — for such a promise to be flawless.
Should Christmas arrival guarantees be moderated? Yes, but by whom? And we must remember that Mother Nature has been excluded from blame by a very high executive order.
There is a saying in many areas including sales that you “under promise and over deliver.” In this case it appears the opposite happened by over promising and under delivering. We can all assign blame or responsibility where we are most comfortable. But what good does that do when and if the problem remains unresolved?
It’s time to stop playing the blame game. My first response is that the shipping companies should have known that this year’s holiday shopping was going to be bigger than years prior. It’s a trend that everyone is aware of.
If the retailers missed shipping deadlines, then it falls on their shoulders, however, from all that I’ve read about the “debacle,” most of the issues were in the shipping companies not being prepared. Retailers should impose some deadlines to guarantee timely holiday arrivals.
Bottom line is that it’s about preparation. Prepare for more packages. Prepare for storms. Noah didn’t wait for it to rain before he started building the Ark.
The surge will likely intensify. No way around it. Shoppers are getting lazier by the week. And which competitor is willing to give up the procrastinators by pegging a cut-off date to pre-holiday delivery?
Oh wait. Maybe there is a way. Declining prices are sort of the reason shoppers wait to buy. Would increasing prices retrain the bargain hunters and prod the last minute shoppers? Like some retailer is going to do that. Back to no way around it.
So, more infrastructure, better facility operations and increased supply chain visibility might be the only solutions. I expect to see LTL shipping costs notch up a bit in the near term. Someone (besides Amazon Prime members) has to pay for this.
Speedy delivery is the name of the game in retail right now. Not a day goes by without a dozen articles about a new local delivery startup, Sunday deliveries, curbside pickup, ship-from-store, forward-deployment of inventory to local DCs or Amazon’s wacky drones. Consumer expectations are driving everything and these expectations are rising daily.
While retailers are scrambling to improve fulfillment capabilities, it seems expectations could use a reality check:
* More honesty and transparency about package tracking: if the item hasn’t left your DC, don’t be telling the customer it’s already in the carrier’s hands. Dishonesty is not good customer service.
* Carriers should tweak their tracking status messages to be clearer. “Shipment info transmitted to carrier” and other industry-speak language makes it harder for consumers to understand what’s really going on. What about, “Waiting for package from___”? This would be much clearer and would put the onus of responsibility back on the retailer. (While they’re at it, carriers should re-write ALL their status messages to be friendly to everyday humans. FedEx, UPS, USPS and others: call me if you help with this.)
* Retailers and carriers should consider communicating the likelihood of a package arriving on time as Christmas draws near, rather than a flat-out guarantee: “If you order today, there’s an 80% chance your package will arrive by Dec 24.” I know this is a bit like the prisoner’s dilemma: nobody wants to be only retailer saying “your package may not arrive by Dec 24,” but if everyone was honest about it, we’d all be better off.
* Retailers and carriers could offer early-order discounts on shipping or on the order total, to encourage people to order with longer lead times and help mitigate this problem.
* And finally, because we live in an imperfect world, consider taking a page (literally) out of Groupon’s checkout process: their order confirmation page provides a link to “Print gift envelope and card.” You get a nicely designed 2-page PDF containing a personalized gift card with a picture of the item plus a matching envelope, and you can print these yourself in minutes to let the recipient know their gift is on its way. Lovely; not perfect, but better than nothing.
No one wants to be the gift giver whose presents aren’t under the Christmas tree, but face it: it’s just as easy to order those gifts on November 23 as it is to order them December 23. We live in a time-starved, right-now world, but the good news is that we ALL live in it. I’ve been that guy whose gifts arrive late because I let myself wait until the last minute. People get it: my kids still love me, and I haven’t yet been written out of anyone’s will because of a late-arriving gift.
Life’s imperfect: retailers and carriers should do all they can to avoid delivery problems, but in the real world missteps will still happen. When that happens, we should all remember to relax, live in the moment, and just go with it. They’ll still appreciate your gift on the 26th.
In related news, genetic scientists are experimenting with de-extinction: using DNA to clone long-dead species Jurassic Park-style and reintroduce them into the wild. Apparently, the passenger pigeon is a top candidate. Could massive flocks of pigeons carrying tiny packages tied to their legs be the answer to our prayers? I’m heading to the patent office right now to see if I can get in line before Jeff Bezos.
In this instance, where failure to receive the package by the holiday means disappointment for the recipient and a sharply-worded review, tweet, and post left for the retailer, setting some realistic expectations may be the best option.
Next winter will have storms, ecommerce sales will continue to increase, and last-minute shoppers will be lured to retailers who promise (together with their carriers) to push the limits of time, space and logistics. Future package delivery may leverage methods such as crowd sourcing, drone transport, and shooting packages out of cannons but inevitably some will be late so retailers should look for ways to get more people to shop early and avoid disappointment.
In this case, it seems FedEx may be right. Detail is everything in retail (and life). Consider that addresses are completed via technology by the customer. So I think it’s fair to assume consumers are complicit.
My family and I were enjoying Christmas lights while walking around Pacific Heights (San Francisco) on Christmas Eve. It was well past 10:00 p.m. and we watched two UPS drivers frustrated in their attempts to deliver packages to incomplete addresses. No doubt FedEx had the same problem. Incomplete addresses should not be accepted.
There’s an old saying in technology; GIGO. It meant Garbage In-Garbage Out. Some things don’t change.
Of course they should be moderated – it’s silly to promise that you’re going to run a 2 minute mile. But it’s unlikely they will be. After thirty years of “free” this and “instant” that, consumers are too conditioned to fantasy to listen.
I too was somewhat outraged at the attitude of FedEx. And to think I did my senior thesis on that brand new concept (at the time) back in the day. But I can’t say it better than Paula! For my 2 cents….
Retailers might want to consider getting with FedEx for some tips on how they can work together more effectively and efficiently. Forget about being concerned with who is at fault and look for what needs to be improved. It usually takes two to make things work.
Just because information is real time doesn’t mean logistics is real time. Retailers have been pushing the delivery envelope in terms of time and it bit them this past holiday season, especially given the weather. The answer is simple; work with the logistics and transportation team, and set a realistic date which the package can be delivered and tell the truth if you can’t deliver up front, rather than take the order and then apologize later.
I think it is more likely that consumers will start hearing “We heard you and have made the improvements needed to get your order where it belongs on time.” A simple message like that will go a long way to calm the nerves of customers willing to believe in magic and Santa. This will be followed by a few months of apologies and blaming others followed by more of the same promises the next holiday season. And so on and so forth.
Of course retailers need to reassess internal processes and infrastructure. The challenge is even more so now that consumers have shifted their spending closer and closer to Christmas, despite retailer efforts to get them to do the exact opposite of that. Reassessing processes should be part of any thoughtful businesses response to those challenges.
I am more concerned by Fred Smith lambasting the very retailers that he needs to succeed in his own business, like he is doing them a favor by delivering packages under adverse circumstances. Several of his competitors will be glad to take away his business if he is so dissatisfied.