We thought it would be helpful to provide insight into some critical issues all retailers are facing this year as it relates to their shipping programs. Unfortunately, many retailers fail to fully recognize and plan for some of the key issues that drive up the cost of doing business. The problems can compound themselves, especially during the holiday season. Since most retail/e-commerce brands are deep into peak planning for 2017, here are a few items to consider.

Whiplash Hurts!

Logistics 101 would identify the ability to accurately forecast and manage the “demand curve” as the lifeline of any supply chain. The explosion of the e-commerce marketplace has taken an already difficult period of the year and allowed for rapid contraction of the buying cycle. The result can be a demand curve that’s unmanageable. Transportation programs play several critical roles in managing the demand curve. First, they need to accommodate the whiplash effect we continue to see, especially in the e-commerce space. The ability to procrastinate has pushed the peak buying period from a month-long process to a two-week frenzy. The effect can be magnified by promotions and offers used to increase traffic on retailers’ e-commerce sites. Second, a transportation program can create both risk and opportunities for flattening your demand curve from Thanksgiving through the Christmas holidays. Margin management and the way transportation and shipping is used to influence buying activity can deliver significant benefit to the bottom line.

Wait, When is Christmas?

The big three — UPS, FedEx and USPS — have integrated networks which operate with little room for storage of packages. All three have perpetual “pipelines” that would literally dry up in a week if the carriers stopped picking up packages. The pipeline can also “burst” as we saw in 2013, when so many retailers took the brunt of customer anger over the poor performance of the big three when some 2 million express packages were left stranded by the delivery companies.

The day of the week Christmas falls on is a critical metric in the planning process. Arguably, Saturday, Sunday and Monday are the three most difficult “day of week” Christmas calendars we will face. The big three operations aren’t built to play catch up, especially during peak season. They also have limited ability to advance operations on Saturdays and Sundays, and where they do it’s expensive. Christmas falling on a Monday this year will limit most options for expedited last-minute ordering.

UPS and FedEx have been very public about their network expansion activities and continuously work to expand their peak operations. For many customers, those activities are used to justify higher pricing. Recently, FedEx started to position its residential network as a “value add” not just during peak season, but year-round. This approach is showing in FedEx’s pricing strategies. While many retailers think they’re doing the right thing by partnering to create the best opportunity for success by working with the carriers, they’re also being taken to the cleaners when the bill comes. New “peak season” surcharges are already making it into the market.

3 Carriers Walked Into a Bar …

At least for now, online retailers’ supply chains heavily depend on one of the big three, which have an unusual relationship. This is a little hard to follow but … UPS and FedEx compete with the USPS by using the USPS final mile delivery to create their SurePost and SmartPost products. At the same time, the USPS is a large customer of FedEx, which provides air lift for Priority Mail. While most retailers are exposed to both the USPS price increases and the UPS/FedEx increases on postal products, the economics of the workshare programs are complicated.

In the meantime, UPS and FedEx continue to use technology to operate more efficiently in their postal relationship by diverting more packages to their own networks for delivery. Both UPS and FedEx have promoted these programs to address investor community concerns of the margins in their B-to-C operations. What this means for most retailers is that they get caught in the cyclone of the big three leveraging each other’s activities to raise rates on the e-commerce world throughout the entire year.

Distribution and shipping can add from 6 percent to 28 percent to a company’s operating costs. With parcel programs becoming more complex and fluid every year, an increasing number of online retailers are seeking support from consultants with industry expertise and top knowledge of strategic, cost-effective service and sourcing options. This allows clients to focus on their core competencies and gain a competitive advantage, while achieving incremental efficiencies and savings of 10 percent to 30 percent in a contracted amount of time.

For further information, contact Patti Hester, chief strategist, e-commerce and distribution, Platinum Circle Partners. Patti can be reached at Patti.hester@platinumcp.com.