January 30, 2014, 1:08 PM

UPS admits it was unprepared for the late surge in online holiday shopping

The parcel delivery service took last-minute “extraordinary” measures to keep up with higher-than-expected demand for Christmas deliveries, but the company acknowledged today that its efforts weren’t enough, and some orders were delayed.

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United Parcel Service of America Inc. admitted today that it wasn’t prepared for the large increase in online orders placed during the holidays. This lack of preparation hurt its bottom line during the fourth quarter, as the company had to deploy last-minute resources to keep up with demand and issue refunds when it failed to do so.

During the holiday period, global daily deliveries exceeded expectations, surpassing 29 million packages on each of five days, with peak volume exceeding 31 million on December 23, the company reported today in its fourth quarter earnings release. UPS incurred $125 million to $150 million in costs to prepare for peak season deliveries, including the hiring of 30,000 more seasonal employees than planned. The company employed a total of 85,000 temporary workers during the holidays.

UPS also shelled out $50 million in refunds for missed delivery commitments.

Given the compressed calendar between Thanksgiving in Christmas in 2013—six fewer shopping days compared with 2012—UPS knew that it was going to be one of its most challenging holiday seasons ever, CEO Scott Davis told analysts on its earnings call today.

“Shipments of online orders significantly exceeded even our most optimistic forecasts as more and more Americans shopped online,” he said. “The surge in volume and inclement weather strained our network, causing delays. We took extraordinary measures and deployed additional people and equipment, placing a greater emphasis on service and cost, yet we did not meet the service standards the UPS historically does at Christmas.”

During  the holidays, the company shipped 14% more orders per day than it did during the same period in 2012, and this increase was double was UPS had prepared for, chief operating officer David Abney told analysts on the call.

Online retailers’ last-minute promotions and promises of next-day deliveries also contributed to higher-than-expected volume leading up to Christmas. “Another indication of the growing acceptance of e-commerce, there were more than 70 online retailers promoting guaranteed next-day delivery on purchases made as late as 11 P.M. on December 23,” Abney says. “This helped create the latest peak day ever for UPS, six days after it was expected.”

For the fourth quarter ended Dec. 31, 2014, UPS also reported:

  • The company delivered about 20.0 million packages per day during the fourth quarter, a 6.4% increase compared with 18.8 million in the same period of 2012.
  • In the U.S., revenue increased 4.2% to $9.3 billion and daily package volume increased 5.6%.
  • International revenue increased 5.3% to $3.4 billion on 8.8% growth in daily package volume.
  • Net income was $1.17 billion compared with a loss of $1.7 billion in the fourth quarter of 2012.

For the full year, UPS reported:

  • Total shipments increased to 4.3 billion, a 3.9% improvement over 2012.
  • Total revenue was $55.44 billion, up 2.4% from $54.13 billion in 2012.
  • Net income was $4.37 billion compared with $800 million in 2012.

The company says it plans to invest $500 million in 2014 to expand capacity and modernize its delivery hubs.

UPS supplies delivery services to 412 merchants in the Internet Retailer 2013 Top 500 Guide and Second 500, which earns the company a No. 1 spot in the Internet Retailer Top Tech 2014. This digital-only publication ranks e-commerce service and technology suppliers by the combined 2012 online sales of their Top 1000 clients. UPS’s Top 1000 clients brought in $104.9 billion in only sales in 2012.

FedEx Corp. ranked No. 2, has 320 clients with a total of $89.7 billion in e-commerce revenue.

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