FedEx is limiting the number of items small businesses can ship during the pandemic-fueled holiday and retailers are calling it a 'shipageddon'
- FedEx is placing daily package limits on some businesses as its shipping network faces capacity issues during the pandemic-fueled surge in online holiday shopping.
- Carriers have taken similar steps before, but small business owners told Business Insider that FedEx hasn't been transparent about the current wave of quotas, which have been as low as 75 packages per day and hit them right before Black Friday and Cyber Monday.
- Shipping experts told Business Insider that smaller businesses are likely getting hit the hardest because of worse access to customer support, fewer resources to make alternative shipping arrangements, and less bargaining power with FedEx.
- The pandemic has also forced UPS, Amazon, and other major carriers to impose restrictions on businesses and scramble to add capacity during what experts have called "shipageddon."
Like many e-commerce businesses, Letterfolk held its annual holiday sale early this year - the week before Black Friday - in an attempt to get customers' orders to their doorsteps before the pandemic-fueled surge in online shopping overwhelmed mail carriers.
Letterfolk, which makes bespoke letter boards and other home decor and is based in Salt Lake City, Utah, has four full-time employees and five to 10 part-timers during peak season. But on the Saturday after its sale, co-founder Johnny Galbraith had gathered all hands on deck, even rounding up family and friends to help fulfill the flurry of orders.
"We were feeling great because we had done our holiday sale early, we had about 3,000 orders in the queue, and that was after already having shipped out a decent volume," Galbraith said.
But when he got home Saturday night, Galbraith got a call from his FedEx representative, who told him Letterfolk would be capped at its September shipping levels plus an additional 10%.
"The math on that worked out to be 110 packages a day," Galbraith said. That equaled out to less than 4% of the orders his company was waiting to ship that Saturday.
"We had been pretty loyal to FedEx, probably 75% of our shipping business has gone through them, the [remaining] balance going through USPS, and so we didn't really have any contingency plans," Galbraith said. He attempted to find a workaround, even offering to personally drive the packages more than 400 miles to larger FedEx hubs in Denver or Las Vegas, but was unsuccessful.
"I felt like this could really compromise our entire small business operation. We'll lose the trust of our customers," he said. "And then to apply it the week before Black Friday with no warning, it was just unbelievable. It was just crazy to have to adapt to that among all the other challenges that a year with COVID is presenting."
'Unprecedented surge'
Galbraith isn't alone, either in being capped by FedEx this holiday season or in facing challenges getting clear answers from the company about the quotas.
Business owners from Portland, Oregon, to Toronto, Canada, told Business Insider they've faced daily limits of just a fraction of their expected shipping volume - in one case as low as 75 packages per day - and in some instances weren't told about the limits by FedEx ahead of time.
"FedEx expected an unprecedented surge in packages during this season, and we implemented various measures proactively to prepare. This included hiring more than 70,000 seasonal workers, moving to seven-day operations and accelerating Sunday delivery capabilities, improving the efficiency of our delivery routes, and, as always, proactively working with our customers to understand their expected volume and identify opportunities to ensure the best possible service throughout the season," FedEx spokesperson Janna Hughes told Business Insider in a statement.
"In some cases, volume has significantly exceeded customer projections. We know how important it is to our customers that their packages are delivered on time, and we remain committed to working with them on ways to leverage our network flexibility," she added.
FedEx and other carriers have been forced to take extreme steps to prepare for the unprecedented holiday rush expected this year as COVID-19 exposure risks drive more shoppers online and more packages into carriers' shipping networks.
Scott Wingo, co-founder of e-commerce software company ChannelAdvisor and the host of an e-commerce podcast, coined it "shipageddon."
According to analysis from eMarketer, online shopping is expected to grow 35.8% this year, and logistics data company ShipMatrix recently told the Wall Street Journal that, between Thanksgiving and Christmas, it expects there to be an excess of about 7 million packages per day that the shipping industry won't have the capacity to ship.
Earlier this month, The Wall Street Journal reported that UPS imposed limits on major retailers, including Nike, Gap, L.L. Bean, Hot Topic, Newegg, and Macy's. Last week, CNBC reported that Amazon had capped the number of products third-party sellers can ship to its warehouses, causing them to lose out on some holiday sales.
Jason Goldberg, chief strategist for RetailGeek and co-host of the podcast with Wingo, told Business Insider that, while carriers have rolled out package limits and higher rates in past years in response to increased shipping volumes, rarely did they actually refuse to pick up packages.
Another key difference with companies like Letterfolk, he said, is that while FedEx has conversations with larger retailers months in advance in order to estimate how much they'll need to ship, many smaller businesses don't have that level of access to FedEx or the leverage to negotiate better prices and quotas.
"Nike or Gap were not surprised in the slightest that they hit their caps... they knew what their cap was, they were informed well in advance," he said. "It's more likely to be a surprise for the smaller shipper."
While it's possible a particular business owner may have missed communication from FedEx about the caps, Goldberg said that multiple businesses in an e-commerce group he belongs to reported being blindsided by FedEx's limits.
'Caught us off guard'
That was the case for Second Closet, a Canada-based self-storage company that began using its warehouse space to help businesses fulfill their e-commerce orders during the pandemic.
"We found out one day, about a week before Black Friday Cyber Monday, that FedEx was going to cap us at 80 shipments a day," Jarrett Stewart, senior operations manager at Second Closet, told Business Insider.
But Second Closet didn't find out about its own quota directly from FedEx - it only learned about the new caps from one of its own merchants. That business had received an email from a FedEx representative with instructions not to send more than 80 packages per day on Cyber Monday and the day after.
"Basically, if you have 100 packages on Monday, please have the warehouse hold back 20 packages until the following day. The volumes in the network are extremely high at the moment and will get even more crazy over the next week, so we just need to manage capacity," the FedEx rep said in the email, which was seen by Business Insider.
"Moving forward, I now have to submit and get approval when you are shipping 30 packages or more, which can take some time," they added.
That email implied the caps might only apply during Black Friday and Cyber Monday, Stewart said. But that Thursday, the merchant received another email from FedEx asking the merchant to remind Second Closet about its daily limits after they shipped 135 packages on Wednesday, suggesting the caps had been extended.
"Caught us off guard, and it wasn't for the lack of asking for a heads up," Stewart said, adding that while FedEx had warned Second Closet about possible delays this holiday season, it provided nothing beyond "generic statements" when he asked about the caps.
As a result, Stewart said, Second Closet couldn't "set expectations with merchants on a proactive basis," and has had to issue refunds in some cases.
'Highly chaotic and disorganized'
Multiple small business owners said they were similarly frustrated at the lack of clarity from FedEx around who would face shipping limits, how the limits were determined, how long they would be in place for, and whether they could help reduce some of the bottleneck by dropping off shipments at FedEx's hubs.
"The little guys are complaining that it's highly chaotic and disorganized and that no one's taking their calls and they're getting bad information... the communication is very spotty and ad hoc," RetailGeek's Goldberg said.
Stewart said FedEx has not been as responsive as other carriers in answering his questions about peak season challenges, adding: "They will always point you towards their different phone numbers, to different emails for customer support, so it's hard to have that one-to-one relationship with an account rep."
"It's really been inconsistent," another business owner in Portland, Oregon, told Business Insider. "The day after Cyber Monday, they called and said we were capped at 150 units. We brought everything else to our FedEx hub, and they were okay with that. Then the word from our account manager was we're capped at 150 unless there is more room in the truck."
Several business owners said they also tried to bypass their shipping limits by dropping packages at FedEx's distribution hubs, to varying degrees of success - but that also introduces other issues.
"There is a big loophole in this whole system... FedEx and UPS are not in the business of turning away packages," Goldberg said, "so they don't actually have a robust infrastructure to enforce those caps."
"If you drive those packages to a distribution center or a FedEx store and drop them off, they're highly unlikely to get refused because they don't even get scanned when you drop them off... they're going to get processed later," he said. "A lot of small sellers have bypassed their caps by just finding some alternative way to get them into the network."
'A small guy can't do that'
While FedEx declined to share details about how it determines daily limits, experts said smaller businesses are likely being hit the hardest.
"I've been particularly worried about the small merchant," Wingo told Business Insider. "The problem is, they don't have the ability to go and negotiate a quota."
Larger businesses can, as part of larger conversations around things like exclusivity and shipping rates, also tell FedEx what they expect to ship and negotiate higher shipping limits.
"A small guy can't do that. You just don't have the financial leverage," Wingo said.
"Think about who FedEx least wants to alienate for next year," Goldberg said. "It's a Walmart, right? It's not the mom and pop shipper."
Galbraith said he understood that dynamic, admitting Letterfolk is "a drip in the ocean of packages that FedEx is moving." But, he added, "I was hoping to hear more from FedEx about this issue... to make sure that you're not being singled out as a small business owner."
"I understand if it was being applied consistently," he continued. "But a couple hundred packages for a small business - it kneecaps everything that we're doing. And so for us to come out of this and then give FedEx all of our business again... I just don't see that happening."