Peak Season preparation is top of mind for UPS

When it comes to efficient and effective planning for Peak Season, transportation and logistics bellwether UPS is leaving no stone unturned.

Atlanta-based UPS made that clear in its second quarter earnings announcement last week, when it stated that it plans to up the ante for 2014 operating expense for capacity and peak-related projects to $175 million, with some of this capital allocated for things like expanded operations on the day after Thanksgiving, accelerated deployment of route optimization software (ORION), IT development, additional hub sorts and temporary capacity.

“One frequent topic of discussion has been our preparation for peak season. We’ve had meaningful conversations with customers about our plans,” said UPS COO and CEO-elect David Abney on the company’s earnings call last week. “These discussions provide the foundation for a joint commitment of forecast volume enabling UPS to better manage how large accounts impact our network. We have made changes to UPS technology that will improve communication with customers. Solutions have been implemented to provide better information on package location and shipment status, ultimately benefitting customers and UPS.”

This forward-looking approach is both smart and needed, given how many supply chain networks, not just UPS’s, dealt with myriad delays and service disruptions during Peak Season in 2013, and are not determined to go down that road again in 2014. And while there were delays and some people did not get their items in time for the holidays, industry estimates suggest it was a relatively modest amount of volume that got lost in the shuffle.

Other steps being taken by UPS in advance of Peak Season include: facility automation and expansion projects moving ahead on schedule; new buildings and retrofit projects in California and Texas that will provide additional capacity and flexibility coming online later this year; opening 50 new hub sources in existing buildings, which is expected to add 5 percent to total capacity; staying ahead of the holiday shipment surge that kicks in during Cyber Week; and expanding Black Friday operations to a full operating day, which Abney said will benefit the UPS network by leveling volume fluctuations and also drive additional operating costs.

“As we look more closely at preparing for peak and the implications of the accelerated volume growth, we have expanded the scope of several projects,” said Abney. “Though these projects will weigh on 2014 earnings, they will pay for themselves in the long run. Overall, we are ahead of our peak readiness plan and I am confident UPS would deliver a great peak season this year.”

Outgoing UPS Chairman and CEO Scott Davis said on the call that one of the key components of the company’s preparation for Peak Season was increased visibility with customer and making improvements on the planning and collaboration.

Davis explained that one of the parts of its peak planning has been joint commitment sessions with its customers and a sharp focus on the highest peak periods and making sure that UPS has sufficient capacity.

Alan Gershenhorn, UPS EVP and CCO, said on the call that UPS is working with customers on special weekend operations, with close attention being paid to their omnichannel strategies and whether or not they should be fulfilling from their DCs or fulfilling from their stores. He explained that this type of approach helps UPS to manage their business better and also do it at a more effective cost.

Like his successor, Abney, current CEO Davis made it clear that UPS is planning and expecting a clean Peak Season, noting that it could come at a premium to customers in future years.

“We think we’re prepared,” he said. “We’re working very well with the customers. So we certainly expect a real strong peak season in 2014. As I said, this year is about investing for the customers. I don’t think you’ll see the level of OpEx (operating expenses) required in 2015 that we saw in 2014. But if e-commerce conditions change again in 2015 to drive more OpEx, I think we’ll have to evaluate everything. Everything is on the table and that could include a surcharge to peak in the future.”