(Reuters) - United Parcel Service Inc (UPS.N) on Tuesday reported a disappointing peak holiday season and warned that U.S. online shopping habits are hard to predict and getting it wrong will slice into profits.
“It (forecasting E-commerce) is both hard for our customers and for us,” Chief Financial Officer Kurt Kuehn told Reuters on Tuesday after UPS reported that fourth-quarter profit fell but forecast earnings within the range of estimates.
Aside from two major peaks around Black Friday, the biggest U.S. shopping day in terms of sales, and just before Christmas, UPS ended up with what Kuehn called a “U-shaped peak season,” as demand fell off between those spikes. The troughs meant higher costs for UPS, the world’s largest package delivery company, which mobilized more workers and equipment for a more evenly spread holiday season.
This year UPS plans to “right size” operations on a daily basis to react to short-term forecasts and reduce costs, Kuehn said.
The Atlanta-based company will also begin applying surcharges to deliver residential packages. UPS said it costs three times as much to deliver packages to a home than to a business, which receive more packages in a single stop.
UPS’ poor 2014 holiday season followed a disastrous peak season in 2013, when a late surge in online shopping demand caught UPS and main rival FedEx Corp (FDX.N) off guard. According to shipment-tracking software developer ShipMatrix Inc, some 1.3 million packages were left undelivered by UPS on Christmas Eve and more than 600,000 by FedEx.
After that bad Christmas, 2014 was all about what UPS Chief Executive Officer David Abney described as “protecting the brand” on a conference call on Tuesday.
Both UPS and FedEx worked closely with retailers last year to forecast holiday season volumes.
While UPS preannounced in January that its fourth-quarter profit would be lower than expected, FedEx reaffirmed its earnings outlook for fiscal 2015 ending May 31.
John Haber, CEO of Spend Management Experts, which helps clients manage logistics costs, said UPS’ planned surcharges will make it harder for e-commerce companies to offer free shipping - a feature U.S. consumers have come to expect.
“Companies need to continue to explore all viable options from a carrier standpoint and should be evaluating them now,” Haber said. “It’s clear that cost increases are on the horizon in 2015.”
Reporting by Nick Carey in Detroit; Editing by Jeffrey Benkoe