How to Plan a “Boring” Peak Season in E-Commerce Logistics

Imagine your creative advertising campaign went completely viral on TikTok. E-Commerce orders start pouring in. First 10,000 orders, then 20,000, then 50,000, all in a weekend. Will it be your company’s wildest dream come true? Or your biggest nightmare? The answer will likely depend upon how your supply chain is built to handle the strain, both operationally and financially.

For Jim Herman, Chief Commercial Officer for Maersk E-Commerce Logistics in North America, the goal for any company looking to successfully master the e-commerce channel is to plan the most predictable supply chain possible where nothing comes as a surprise. In other words, blissfully “boring.”  

"A company’s e-commerce capacity is a months-in-the making exercise,” said Herman. “Contracts should have been negotiated well in advance to ensure the right supply chain partners are working in lockstep, from the factory to the customer’s door.”  

For Herman, the e-commerce planning basics include 1.) having multi-carrier strategies in place that mitigate the risks to your operation, 2.) a deep understanding of the costs of your e-commerce operation, 3.) the ability to pivot and implement a new strategy quickly when needed. 

“When you think you have cared for every detail, you will still need to be ready to pivot if your assumptions don’t quite match reality, which they rarely do,” said Herman. “By its very nature, supply chain management is a fluid exercise that needs to be continuously monitored, measured, and fine-tuned to control the flow of goods through the pipeline.” 

Preparing for “Carrier Caps” with a Multi-Carrier Parcel Strategy 

One of the e-commerce planning assumptions Herman speaks to is the wildcard of “carrier caps.” These are shipping volume limitations set by United Parcel Service (UPS), and FedEx. To make matters more complex, businesses won’t really know their cap until a month or so before the ever-critical November/December shopping season is upon them. Even though the combined capacity of the United States Postal Service (USPS), UPS, and FedEx, (or even Amazon) to deliver goods to consumer doorsteps is nothing short of amazing, it is very short of “limitless.” At some point every fall, limits may come into play when some last mile carriers send out notices to the shippers of the world that their cap is going to be “X” even if their order volumes are “Y.”  

That said, according to Herman it’s always prudent to consider some key questions that every supply chain manager should be asking themselves as well as their supply chain partners when it comes to caps:  

• What caps could be put on my business? 
• What would the impacts be? 
• How will the business close the gap if there is one? 

“Q4 is a tough time to begin hunting for additional capacity with another last-mile provider, whether one of the big label providers or regional players,” said Herman “In fact, you probably won’t even be able to sit down with anyone until at least January or later, because everyone is working flat out to meet the holiday shopping season peak demands.” 

Depending on the scenario, there can be dozens of surcharges applied to the cost of getting your parcel to a customer’s door. Some of the common surcharges include:

• Residential surcharge – A fee applied to the base rate of a shipping label for an order being delivered to a home, home business, or any location deemed residential by a carrier or carrier driver.
• Delivery Area Surcharge (DAS) – a fee carriers add when your shipment is going to a less-populated area because it takes the driver more time between deliveries. There can also be an Extended Delivery Area Surcharge (EDAS) when your shipment is going to an even more remote location.
• Additional Handling Surcharges (AHS) – a fee carriers add when the size or shape of your parcel is outside of a set standard.
• Fuel surcharges – fees established to help carriers cover the rising cost of fuel, which has been significant in 2022.
• Peak season surcharge – a variable fee that some carriers may apply during times of peak demand.

To build the best cost model for you, your e-commerce logistics provider needs to consult with you on all your parcel costs by size, shape, and weight, plus the impacts of carrier location, as well as your unique company data. Access to AI-powered software is particularly helpful for managing the myriad of factors that go into cost models and developing a parcel strategy that balances efficiency and cost effectiveness.

No parcel strategy review is complete without a thorough assessment of the relative strengths of the various last-mile carriers. For example, some carriers ship different parcel types better and more cost effectively than others. Other carriers can get the job done faster. While others can get the job done no matter where the packages are heading or how many are in the funnel, even if it takes a little longer. Determining the carrier that ultimately delivers a particular parcel you’re shipping is a criteria-based business decision that affects the outcome and the bottom line.

Watch for Volume Commitments

Sometimes sales forecasts come in lower than expectations. This poses an altogether different risk for some shippers when their costs are tied to last-mile carrier revenue tiers.

“While businesses can be enticed by an attractive parcel shipping base rate in return for single source commitments to final-mile carriers, there’s usually a tradeoff,” said Herman. “Base rates are typically tied to volume commitments. If the volumes shipped don’t reach the levels expected, the cost equation can change depending upon the agreements in place.”

For example, if a shipper’s holiday sales volumes are significantly less than the business had expected, their unit price for shipping each package might go up dramatically. This can result in a double jeopardy scenario where not only does the shipper fail to achieve the revenue they had hoped for, but their unit costs go up as well.

One way to mitigate this risk is to leverage an e-commerce logistics firm like Maersk with existing carrier contracts, where Maersk maintains the pricing integrity with the final-mile parcel carriers. As a result, the burden of the shipping volume requirements gets removed from the shipper’s cost equation.