By Dr. William Oliver Hedgepeth
Faculty Member, Transportation and Logistics Management, American Public University
Supply chain systems and processes get a boost each year in December as customers rush to purchase and ship items from retail stores and online businesses. But the 2019 Christmas rush put added pressure on supply chains from manufacturers, transporters, retailers, and other organizations and people caught in the midst of this complex web.
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The main story of the transporters in holiday supply chains are FedEx, UPS, USPS and Amazon. This story, however, has two parts.
One part is the forward supply chain, where the customer places an order for a manufactured product that is now sitting in a warehouse or on the shelf of a retail store. The second part is the reverse supply chain when those products are sent back to the retail store or to the manufacturer when the customer does not want the package.
The Explosion in Online Sales
Adobe Analytics reported that shoppers spent $4.2 billion online on Thanksgiving, a 14.5% increase from last year and a record high. In addition, shoppers spent $7.4 billion online on Black Friday.
It was also the biggest day ever for mobile sales with $2.9 billion coming from smartphones. Meanwhile, Cyber Monday continued the trend with an estimated $9.2 billion in sales.
Amazon is reported to have sold hundreds of millions of products online during these special online sales that began on Thanksgiving.
Increase in Online Sales Results in More Need for Reliable Transportation
The holiday season also exploded in the need for transport and for truckers or vans to deliver those millions of boxes to homes and offices. That is good news for the trucking industry, one would think.
FedEx and UPS have partnerships with major retailers. FedEx has negotiated with retailers such as Dollar General and Walgreens to not only deliver products to those stores but to the end customers as well. UPS has partnerships with CVS and Michaels. In terms of delivery dates, many retailers offered same day or two-day delivery. The USPS offered a seven-day delivery.
The USPS is reported to serve over 152 million residences and businesses in addition to its Post Office boxes.
Also, Amazon added 50 planes to meet the seasonal rush.
Amazon reported that it controls 26% of package delivery transporting hundreds of thousands of packages each day. It appears that Amazon is on a path to become its own transportation hub much like UPS, FedEx and the USPS. Does this mean that they are losing business? Good question.
Who Delivers That Last Mile in Supply Chains?
FedEx and UPS used to rely totally on the Postal Service for that “last mile” delivery to your home or office. Due to the 2019 holiday purchasing volume, FedEx and UPS have started competing with the USPS and Amazon for prompt delivery, such as same-day, one-day, two-day or five-day service. According to estimates, last-mile deliveries were expected to reach 800 million packages between Thanksgiving and the end of the year.
The Increase in Reverse Logistics of Returned Products
While the forward package explosion has increased the need for transportation, there is an often-hidden side to this logistics and supply chain business. That is the return of those packages that were so quickly delivered to your home.
The transportation scenario for returns is creating a new wave of business for the middle of that complex supply chain. While customers want to purchase items online, they do not necessarily want to return them that same way via UPS or another last-mile carrier.
Many customers want to go to a brick-and-mortar store to make their returns. Currently, it was estimated that $144 billion on online orders would be spent during the holiday season. So the number of returned items is big business.
“On January 2, UPS expects 1.9 million packages to be returned through their network, a 26 percent increase from last year. The insane number of returns on that day earned the name ‘National Return Day’ from UPS,” House Beautiful reported.
This reverse increase has created a new business segment inside this complex supply chain. Amazon has contracted with 100 Kohl’s stores so customers may return items purchased online through Amazon to Kohl’s.
Happy Returns has more than 700 stores for just one purpose, to take returned items no matter where they came from. Happy Returns accepts over 300 different online brands of products for its reverse logistics business.
Resolve is another returns business that takes unwanted gift items without a receipt or even a return mailing label from the purchasing company.
The Transportation System Is Changing to Meet the Needs of Supply Chains
The holiday logistics and supply chain of the past has been replaced with forward and reverse logistics and supply chain movements. The returns process is affecting retail stores that receive these items because the stores need to catalog and track them to a new destination.
That new destination will involve additional trucking, logistics handling operations, new warehouse space, data collection and final disposal of those products. That final disposal could range from landfills to secondhand retail stores such as Dollar General, which is beginning to resemble Walmart.
As a former trucking company owner, I know that my contacts in the business are very pleased that the demand for truck drivers has increased. The main reason is not this holiday surge in buying, however. It’s the returns business.
About the Author
Dr. Oliver Hedgepeth is a full-time professor at American Public University (APU). He was program director of three academic programs: Reverse Logistics Management, Transportation and Logistics Management and Government Contracting. He was Chair of the Logistics Department at the University of Alaska Anchorage. Dr. Hedgepeth was the founding Director of the Army’s Artificial Intelligence Center for Logistics from 1985 to 1990, Fort Lee, Virginia