Why UPS was overwhelmed on Christmas Eve

The company's air fleet apparently couldn't handle a last-minute surge in online orders.

By MSN Money Partner Dec 27, 2013 12:40PM
File photo of a UPS package (© Paul Sakuma/AP Photo)By Laura Stevens, Serena Ng and Shelly Banjo, The Wall Street Journal

In the earliest hours of Dec. 24, packages poured into United Parcel Service's (UPS) main air hub in Louisville, Ky. And they were piling up.

Employees responsible for sorting packages -- already deep into a 100-hour week -- were furiously getting them ready to be sent on to their destinations at airports around the country. 

But dozens of other workers responsible for loading those packages into planes to be shipped out were left standing around idle, because the unexpected glut of packages from last-minute shoppers had swamped the company's air fleet.

The dearth of planes stranded a large volume of packages in Louisville in the early hours of Tuesday morning. Many of those that did make it out were shipped too late to make delivery trucks' pickup schedules and were left sitting in warehouses not far from their destinations. 

By sundown, UPS was forced to tell many Americans that the gifts they had ordered wouldn't arrive before Christmas as promised.

The bottleneck was largely in UPS' air business, which retailers leaned on heavily in the past week as they scrambled to fill down-to-the-wire orders. UPS has a bigger share of retail e-commerce business than FedEx Corp. (FDX), but its smaller fleet of cargo planes might have been a limiting factor, people in the industry said. UPS said it had added 23 extra chartered aircraft to its year-round operating fleet of more than 237 planes and regular 293 daily charters. FedEx owned 581 and leased 66 as of May 31.

UPS originally expected to ship about 7.75 million packages in its air network Monday, with about 3.5 million of those sorted at Worldport, as the Louisville hub is known. The facility handles on average 1.6 million packages a day. It isn't yet known how many packages arrived at Worldport during the last minute crush, but on Christmas Eve UPS said the volume of air packages in its system had exceeded its capacity.

It is still too early to know what went wrong, UPS said, adding that the company is analyzing the situation.

Some shoppers also complained of delays with shipments handled by FedEx. A spokeswoman said FedEx "experienced no major service disruptions during this holiday season, and we experienced no major service disruptions in the week before Christmas, despite heavy volume." She said FedEx is working with customers "to address any isolated incidents."

UPS carefully plans how it will handle the holiday peak. Extra resources such as additional cargo planes had been lined up as "hot spares" -- company lingo for aircraft that could be fired up quickly in case of a logistics emergency. But it ran into a confluence of factors. 

Retailers have been encouraging online sales, which have grown much faster than retail sales overall. And retailers likely contributed to the logjam by offering some of their best discounts late in the season in a final push for sales. Many chains dropped prices on the final Saturday before Christmas to levels below what they were offering on Black Friday, according to Simeon Siegel, an analyst with Nomura Equity Research.

That, coupled with retailers' promises of just-in-time deliveries, encouraged many shoppers to put in orders at the last minute. People buying from more than 70 retailers including Toys "R" Us Inc. and Dick's Sporting Goods Inc., whose online shipping is handled by eBay Enterprise, were able to place Web orders as late as 11 p.m. on Monday, Dec. 23, a full 24 hours later than last year.

The result was a surge in online sales shortly before Christmas. UPS had been forecasting an 8% average rise in its daily shipping volumes during the holidays. But online sales in the last weekend before Christmas jumped by 37% from the year before, according to data from IBM Digital Analytics. On Monday Dec. 23, growth in online orders spiked by 63% from the year before, according to Mercent Corp., which works with more than 550 retailers. By comparison, overall sales of holiday goods rose 2.3% between Nov. 1 and Dec. 24, according to preliminary data from MasterCard's (MA) Spending Pulse unit.

To cope, retailers shifted more orders from shippers' ground delivery to their air networks to get gifts to customers in time to put them under the tree.

Mercent CEO Eric Best said some of his clients experienced delays.

"It's easy to blame UPS, but it's the retailers that are pushing these next-day shipping offers in the final hours of the shopping season," Mr. Best said. "Retailers are driving consumer expectations to get stuff they ordered by the next day and the later shoppers wait, the harder it is to predict."

The shipping delays at UPS sparked outrage among people who had bought gifts from Amazon.com (AMZN), Kohl's Corp. (KSS) and other online retailers in the days and weeks before Christmas. Many had been swayed by guarantees from the retailers that their packages would be delivered by the holiday.

Rudy Lai, a finance executive in Union City, Calif., said part of a gift he ordered from Amazon was scheduled to be delivered on Christmas Eve. That morning, the UPS tracking information showed the item had reached Oakland, Calif., and was "out for delivery," he said. At 5 p.m., he found out that the package "was left in a UPS facility," according to the information.

Retailers including Wal-Mart Stores (WMT), Amazon and Kohl's have started issuing customers gift cards and refunds for shipping costs and items that didn't arrive before Christmas. Those retailers are expected to seek reimbursement from UPS or other carriers that had guaranteed arrival times. UPS had made such guarantees for many air shipments during the holidays, though some large retailers may have waived them, analysts said. The company has said it would honor guarantees it made to customers, but it isn't clear how much the carrier might have to pay.

Analysts at StellaService, a startup that measures customer satisfaction with online shopping, placed orders for tablets, boots and other gift items at 25 top retailers including Amazon, Wal-Mart and Kohl's to see if they would receive the gifts in time for Christmas Eve.

The orders were placed on the last day the retailer guaranteed delivery by Dec. 24, the latest of which was Dec. 23. Out of 75 orders, 12 items -- from retailers including Dell, Macy's, Gap and Pottery Barn -- didn't make it to the analysts' homes by Dec. 25. Eleven of those items were delivered by UPS.

UPS handles 50% to 60% of e-commerce orders, according to Sucharita Mulpuru, an analyst with Forrester Research. And it is an increasingly crucial part of its business. In its 2012 annual report, UPS said "business to consumer" shipments represented over 40% of its domestic package volume and grew rapidly. Its business-to-business shipping volume, meanwhile, was relatively flat.

UPS deployed its spare planes Monday and flew twice as many flights as usual on Christmas Eve. It flew 50% more on Thursday to handle the additional volume.

--Suzanne Kapner contributed to this article.

More from The Wall Street Journal

Dec 27, 2013 12:57PM
next time order your stuff earlier if you want it there on time.  people will complain about anything.
Dec 27, 2013 1:16PM
UPS didn't drop the ball....in this "instant gratification" world we live in, people can't see that they are asking for the impossible! Why would any reasonable person think they could order something from New York on Dec 23rd and have it arrive in Arizona Dec 24th? If you want it by Christmas then order it early! Idiots!!!
Dec 27, 2013 1:08PM

People are such a bunch of spoiled babies these days. They act like a late package will destroy their lives.   The gift recipients will enjoy their presents just asw much on Dec. 26 or 27th as they will Dec.25.



Dec 27, 2013 1:00PM
Like the old saying goes "Plan ahead, it wasn't raining when Noah built the ark".
Dec 27, 2013 1:27PM
What a bunch of crybabies! UPS and FEDEX can't work miracles nor control the weather. While you were all sitting around drinking eggnog they were out working, trying to get that package delivered that you ordered at the last minute! How many of you worked a 100 hour week? Get real!
Dec 27, 2013 1:18PM
It seems to me the last minute ordering was to blame, not UPS' lack of planning.  
Dec 27, 2013 1:16PM
So people ship order their stuff at the last minute, and UPS is supposed to magically have more airplanes and the crews to fly them to handle the back log? Order your stuff sooner next year.  Dumb
Dec 27, 2013 1:46PM
I think they did a Great Job  !!!!!!!!         Go UPS
Dec 27, 2013 1:43PM
The biggest reason people wait until the last few days to order gifts or something for themselves is because they want a lower price. Actions have consequences.
Dec 27, 2013 1:22PM
Oh my, the end of the world if my package is delayed a day or two. Oh wait.... the sun came up and the world is still here. Unless you had Omaha steaks delayed and are defrosted,  YOU WILL LIVE. Sheesh... get a life.
Dec 27, 2013 1:36PM
Dec 27, 2013 1:48PM
The main problem is these delivery services do such a good job all year long that people expect them to be infallible. Just about everyone orders online from time to time these days, but online retail is still growing. There has been so much growth over the last few years that retailers and delivery companies are left guessing at how much increase there will be during the holidays. Add to that the unpredictability of winter weather and it's even harder to predict delivery times. There have always been backups in holiday mail as long as I can remember and I'm sure long before that, yet people still wait till the last minute. These deliver companies get an ever increasing work load right up till Christmas Eve and they never know how much more there will be, they just know it will be more. I had my orders delivered by Dec 10 so I didn't have to worry, it might be hard to find time to go shopping but shopping online shouldn't be a problem. If you waited till the last minute to order and you gifts were late you have nobody to blame but yourself. Some things just happen the world spins, rain falls, and the Mail gets backed up at Christmas time.
Dec 27, 2013 1:32PM
Shop early ship early, they ship your packages they don't carry your baggage.
Dec 27, 2013 1:49PM
Ups cant keep staff and vehicles all year for an event like this and be profitable. Just order early or shop your self. Bad weather messes up them too. I drove a truck for two years and i can tell ya i still have nightmares pulling a 53' trailer in snow and ice.
Dec 27, 2013 1:39PM
ahhh  horse sh--   too  many  dumb a---  ordering  too  much  crap  at  the  last  minute.......   you   dopes  with  delivery  problems  couldn't   place  your  order  a  couple  weeks  BEFORE  Christmas?
Dec 27, 2013 2:17PM
Wow, another great headline grab there MSN NBC.  "UPS dropped the ball".... kind of sounds like UPS did something bad for the 90% of people who wont read or make an informed decision.  MSN/NBC knows that.... but the truth.... no company can be expected to expand its services, equipment and personnel 20 times its size just for one day a year because a ton of idiots decide to click a button on their computer expecting a 12 foot stuffed hippo to be delivered to their fourth cousins kid 1000 miles away in six hours.  The people at MSN and NBC must have some been doing some serious pre holiday short selling of UPS and Fed Ex stock to keep writing all these negative articles. 
Dec 27, 2013 2:02PM
Why bitch about a late package?, at least someone had money enough to get you something.
Dec 27, 2013 1:23PM
Not that this info will help now however. We ordered a 75" TV and a telescope from Costco. Delivered week before Christmas. Ordered a power supply from Amazon delivered week before Christmas. Ordered 4 pair of Sneakers from 6PM.com delivered week before Christmas. Ordered a phone system from Factory Outlet Systems delivered week before Christmas
Dec 27, 2013 1:48PM

And the US Post Office is supposed to look to the private sector for ideas?


Gee. Maybe UPS should prefund its retirement plans for the next 80 years, shut down Saturday delivery and lay off a whole bunch of people. That seems to be the way to make things better according to the geniuses in Congress.








Dec 27, 2013 2:40PM

We need to turn express mail service over to the US Government because they're already good at making excuses and if you complain, they can have the IRS audit your taxes.

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