Written by Lisa Bertlin
Los Angeles (Reuters) – FedEx (NYSE:) , United Parcel Service (NYSE: 🙂 and other delivery companies that have struggled with so much of the demand fueling the pandemic from online retailers like Amazon (NASDAQ :)) and Walmart (NYSE:), are now facing the opposite problem — too much delivery capacity.
Online sales started to fade during the peak delivery season last year from Thanksgiving weekend to the end of the year. FedEx, UPS and the US Postal Service (USPS) continued to add facilities and staff, even as more consumers returned to in-store shopping, and rising food, fuel and rent costs eroded discretionary spending.
These delivery companies can now handle 110 million holiday packages per day. That could exceed peak season demand by 18 million parcels a day, according to Satish Jindel, a consultant that delivery companies closely monitor for peak holiday volume forecasts.
The imbalance could lead to “financial challenges for airlines if they do not reduce hiring in this peak season,” said Jendel, president of consulting firm ShipMatrix.
That’s because it’s difficult to increase the volume of low-margin home delivery to offset the additional cost of temporary workers, Gendel said.
Switching to excess capacity would be a severe reversal for delivery providers.
During the peak delivery seasons in 2020 and 2021, Jendel said, demand exceeded capacity by 7.2 million and 1.3 million parcels per day, respectively.
FedEx warned last week that global demand is slowing more than it expected and said it would cut costs by reducing operating hours and bringing sorting centers together. FedEx overestimated holiday demand last year, and several ground-delivery contractors stuck with bills for hiring workers and renting trucks they didn’t need.
A spokesperson said UPS is committed to its plan to hire more than 100,000 holiday workers, the same as it did last year.
Experts said changing market dynamics could mean FedEx and UPS will be more open to using discounts to keep customers next year.
We’re on the cusp of that,” said Kenneth Muir, partner at freight consultancy LJM Group.