Wall Street Journal
December 28, 1999Electronic Commerce Lifts
By JOHN SIMONS and DOUGLAS A. BLACKMON
Delivery Concerns' Volume
Staff Reporters of THE WALLSTREETJOURNALWeb-based shopping exploded this Christmas, and among the likely beneficiaries were the U.S. Postal Service, United Parcel Service of America Inc. and Federal Express Corp.
While high-tech Internet gift buying may have been the celebrated mode of commerce, it was the men and women who trudged or drove through snow, rain or gloom of night who made online purchases complete. Analysts had expected online sales to double to $2.3 billion this season, but many say cyber-shopping may have actually tripled.
'They Haven't Seen Nothing Yet'
James McQuivey, an online-retail analyst at Forrester Research, in Cambridge, Mass., believes that some 8.5 million U.S. households purchased holiday gifts online this year, up from about two million last year. And Mr. McQuivey expects similar growth next year. "The shippers did have some additional volume to deal with this year, but they haven't seen nothing yet," he said.
The delivery companies aren't certain how much Internet sales are adding to their bottom lines, especially because some of those sales are replacing catalog sales that were already using the mail system. In addition, executives at UPS and FedEx, a unit of FDX Corp., say Internet purchases by consumers are still dwarfed by the overall avalanche of packages delivered between Thanksgiving and Christmas.
UPS, based in Atlanta, estimated the company delivered a total of 295 million parcels during the peak season, with 17.1 million packages on the peak day of Dec. 22. FedEx doesn't disclose its total holiday season shipping volume, but the company said it delivered 4.5 million express packages on each of its two busiest days of peak period early last week.
The Postal Service estimated that it handled roughly 16.7 billion cards, letters and parcels this season, a 3% increase in total volume over the same period in 1997.
Postal Service's Technology Deficit
But the Postal Service lags behind UPS and FedEx in one crucial area: technology. It doesn't come close to matching the highly sophisticated service provided by both competitors -- allowing consumers to locate, by telephone or the Internet, their packages at any time during shipping. "That really makes a difference with online sellers," said Forrester's Mr. McQuivey, who noted that online retailers need to go extra lengths to make consumers more comfortable with the notion of shopping online.
"In the online world, a consumer feels good about a purchase by being able to track it and knowing where it is," Mr. McQuivey said. "So, [the Postal Service is] only attractive for low-cost, low-weight items that can easily be shipped via priority mail."
The Postal Service does offer basic tracking of overnight mail, and a spokesman said the organization will expand the system to track some other types of mail next March.
Overall, the Postal Service wasn't caught off guard by the increase in packages this year, said John Rapp, the U.S. Postal Service's vice president for field-operations support. Postal analysts had expected a jump in packages related to the Internet analysts' pre-Christmas projections of increasing sales. In the past month, Mr. Rapp held daily teleconferences with national branches, helping to realign workers, shifts and other resources in the midst of the onslaught.
To handle the overload, the Postal Service even had a small percentage of employees working on Dec. 25. At the Arlington Station post office in Bethesda, Md., 14 employees played Santa, delivering more than 500 priority-mail packages on Christmas Day.
Meanwhile, FedEx and UPS were hampered by a severe ice storm in the Southeast and Southwest a few days before Christmas. Both companies said they completed virtually all the delayed deliveries by Christmas Day by using large numbers of overtime workers.
Downside for Online Sales
At the moment, online sales have a downside for the delivery concerns. UPS and FedEx officials said they aren't terribly enthusiastic about adding more of the business-to-home deliveries generated by the type of electronic transactions that have gotten so much attention in recent weeks. The costs of delivering packages to far-flung residential addresses -- and returning perhaps several times if the recipient isn't home -- are very high for delivery companies. Shipping rates barely cover the costs.
"There's no question that we're getting an increase in business as the packages go direct ... [though] it's very difficult for me to precisely quantify," said Alan B. Graf, FDX's chief financial officer. "Do we want volume for volume's sake? No."
Instead, Mr. Graf said FedEx wants "the right volume," or shipments that carry healthy profit margins. For both FedEx and UPS, that kind of volume comes from shipments between businesses, which are far more profitable for the delivery companies. And both companies expect electronic commerce to grow enormously within that category of shipping in the next several years.
"All our research says most of the e-commerce activity is going to happen business to business, 70% of it," says Joe Pyne, UPS's senior vice president of corporate marketing. "There is going to be an element of people buying disks, buying books, buying scarves ... but most of the consumption is going to be by businesses -- buying stationery, buying supplies, buying parts."
In the meantime, FedEx and UPS are spending heavily on information systems and jockeying for position as the most technology-savvy company. Earlier this month, FedEx rolled out new software written to allow any businesses in 58 countries to conduct electronic transactions via the FedEx Web site. UPS said inquiries about its electronic-commerce services have spiked up sharply in recent months.