UPS, FedEx want more of holiday shipping pie
The increase in online shopping benefits both companies by way of higher volumes.
While FedEx said it is adding 20,000 seasonal workers this season, its larger rival UPS said it is adding 55,000 seasonal workers in the U.S. as package sorters, loaders and drivers to cope with higher delivery volumes.
Both players benefit from the increasing share of e-commerce in holiday shopping as it increases their shipping volumes through delivery contracts with online retailers. Additionally, UPS's My Choice program offers package receivers unique benefits that can prompt senders to favor the company's services.
We currently have a stock price estimate of $78.44 for the company, approximately 10% above its current market price.
Increase in shipping volume during the holiday season
UPS estimates that this year it will deliver 527 million packages, up 10% year-over-year, in the weeks between Thanksgiving and Christmas. In comparison, FedEx estimates its total shipments at 280 million, up 13% year-over-year, for the same period.
UPS expects December 20, 2012, to be its busiest shipping day when it delivers 28 million packages worldwide. On average, UPS delivers around 16 million packages per day. On the other hand, FedEx anticipates December 10 to be its busiest day when it ships an estimated 19 million shipments. The second Monday of December is traditionally referred to as Green Monday in the e-commerce industry and it kicks off one of the busiest online shopping weeks of the year driven by holiday purchases. In 2011, U.S. consumers spent an estimated $1.1 billion on Green Monday, according to comScore.
This increase in online shopping benefits both UPS and FedEx by way of higher shipping volumes. According to eMarketer, in the upcoming holiday season from Thanksgiving to Christmas, online sales excluding travel are expected to grow by 16.8% year-over-year to $54.5 billion. Compared to this, retail sales are expected to grow by only 4.1% year-over-year to $586.1 billion in the same period, according to the National Retail Federation (NRF).
UPS and FedEx compete for a larger share of holiday shipping
To attract greater volumes, UPS offers UPS My Choice service that allows package receivers to avoid missed deliveries by getting an advance text or email message from UPS that alert them the day before a package is scheduled to arrive. Receivers can also reschedule delivery for a different day. This enhanced service experience at the receiver's end can prompt senders to choose UPS among other delivery companies as it ensures that deliveries are not missed by receivers especially in cases when delivery has been sent at the eleventh hour. This service was launched by UPS in October 2011 and until now more than 2 million people have registered for it.
FedEx on its part offers FedEx SmartPost service that targets the e-commerce industry. This service helps online retailers and catalogers ship high volumes of low-weight shipments to residential customers. The company picks, sorts and delivers packages to the U.S. Postal Service facilities, which then makes the final deliveries to residences. In fiscal 2012, average daily package volume through FedEx SmartPost increased 18% year-over-year to 1.7 million shipments.
In short, both companies have very different strategies to take advantage of the surge in shipping volume during the holiday season as they look to gain a larger share of holiday shipping.
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