Can UPS Improve On-Time Delivery Rate in 2016?

Season staffing growth is flat, but UPS is counting on efficiencies

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Sep 15, 2016
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United Parcel Service (UPS, Financial) announced Wednesday that the company expects to hire 95,000 seasonal employees to address the anticipated increase in package volume from November through January.

For a long time the full-time and part-time seasonal route has been the easiest way to get a permanent position in the company. Last year the company converted 37% of its seasonal employees to permanent positions.

No increase from last year

What is important to note here is the total number of seasonal employees – a key indicator of how much volume the company expects to process during the holiday season – has been flat for the last two years. But the company pointed to increased efficiency for the flat recruitment numbers.

"We're always looking for how we can improve efficiencies as a whole, and in doing that we tend to need less people in the long run," UPS Global Director of Recruitment Strategies Paul Tanguay told Reuters. "So the flat number is not reflective of the volumes we have coming in."Â –Â Reuters

UPS, a global logistics industry leader, faced contrary issues during the 2013 and 2014 peak seasons. In 2013 it was severely understaffed, leading to the late shipment of an estimated 2 million packages. The following year it spent $500 million on seasonal hiring but ended up being overstaffed, which hurt its earnings.

Problem solved?

UPS rectified all those problems in 2015 and, according to ShipMatrix, it had an on-time performance score of more than 98% for more than 60 million parcels on Christmas Eve 2015. The volume on that day was 70% more than the average number of packages it handles on a daily basis. However, according to ShipMatrix President Satish Jindel, even a 1% miss in on-time delivery would mean 600,000 packages not being delivered on time. The 2% miss, therefore, equaled 1.2 million late deliveries.

One of the major factors for the improved performance of UPS last year was the company moving delivery dates forward when it had excess capacity and also was pushing retailers to implement stringent purchase cutoff dates to deliver packages by Christmas. The company obviously has the means to achieve a near-100% on-time delivery rate, and this year it will need to meet and beat last year’s performance.

2016 will be critical

Achieving record volumes is, of course, not in the shipper’s hands. It is entirely dependent on how well Amazon (AMZN, Financial) and other online retail brands perform. And with more and more retailers joining the ecommerce bandwagon this number is only going to keep going higher every year. It is undoubtedly a huge strain on shipping companies like UPS and FedEx (FDX, Financial), but it also boils down to who achieves the highest on-time delivery scores. The company that wins gets a significant amount of public relations for its brand, and potential clients keep looking at these metrics each year.

This year UPS is obviously confident that its efficiency initiatives will compensate for flat season staff growth, but can it exceed the 98% benchmark it set for itself last year? With Amazon looking to bolster its own shipping assets, UPS certainly wouldn’t want its billion-dollar client to re-think its partnership strategies based on missed deliveries.

Disclosure: I have no positions in any of the stocks mentioned above and no intention to initiate a position in the next 72 hours.

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