Looks like Santa's sleigh will be a little lighter this year.
Delivery of packages and mail has been down with the rest of the economy, and the shipping industry is counting on this week — expected to be the busiest of the year — for a final boost to lift it out of its slump before Christmas.
FedEx lowered its annual earnings forecast this month as the recession gripped the globe. UPS decided it would not even try to estimate how much mail it would deliver this holiday season because of "unpredictability in the economy," spokesman Malcolm Berkley said. And the U.S. Postal Service said it expects its holiday mail to fall by 1 billion pieces.
"Christmas as best we can tell has more or less been canceled," FedEx chief executive Fred Smith said in a recent interview. "There's just no two ways about it. The economy is extremely slow."
Reindeer: You've been put on notice.
Holiday shipping typically peaks the week before Christmas as shoppers scramble to make sure packages arrive before the big day. Retailers are also trying to encourage customers to send gifts soon, with more than 100 companies agreeing to a coordinated effort to offer free shipping today.
Weakest in decades?
Retail experts are predicting that sales this season could be the weakest in decades as consumers keep a close eye on their wallets. Sales at stores open at least a year — a key indicator of a retailers' health — fell 2.7 percent in November, according to one industry trade group, the worst performance in at least 30 years. Online retail sales are also expected to remain flat after several years of explosive growth. That's bad news not just for stores but also for shipping companies. Fewer gifts mean fewer packages mailed — and less revenue for shippers.
UPS reported average daily volume was down by 2.6 percent during the third quarter but did not release estimates for the holiday season. However, the company has said that today will likely be its busiest day of the year while air packages will peak on Dec. 22. Holiday traffic will largely determine the company's performance this quarter.
"It's anybody's guess exactly how that comes out, although frankly we do think that people will be conservative this year," UPS Chief Financial Officer Kurt Kuehn said during a conference call with investors in late October.
FedEx said its busiest day was Monday. The company plans to release second-quarter earnings today, and last week lowered its annual earnings guidance to a range of $3.50 to $4.75 a share from $4.75 to $5.25. Although fuel prices have dropped sharply in recent months, the decline has not been enough to offset slowing demand, the company said.
The U.S. Postal Service estimated that it processed about 960 million cards and letters on Monday. It anticipates handling 19 billion pieces of mail between Thanksgiving and Christmas, down from 20 billion last year. For the fiscal year ended in September, the economic downturn drove a $2.8 billion loss for USPS.
Most retailers have deadlines this week for guaranteed delivery by Christmas, according to Shop.org, a trade group for online retailers. But nearly half of retailers said that express orders placed on Dec. 23 will still arrive on time.
Aggressive promotions
Many stores and online retailers have stepped up efforts in recent weeks with aggressive coupons, discounts and other promotions to get consumers in the holiday — and spending — spirit.
"This is an unusual year because the economy really shook up retailers, and they have no choice but to offer steeper discounts," said Dan de Grandpre, editor in chief of DealNews.com. "Shoppers have all the cards right now."
One of the most popular promotions among online retailers is free shipping. The Shop.org survey found that nearly 78 percent of retailers plan to offer it this holiday season, albeit sometimes with minimum purchase amounts. Others, such as Wal-Mart, don't charge a fee when merchandise is shipped to a local store for pickup. Though free shipping can eat into a retailers' profit, the service seems to have become a necessary evil.
"It is a burden, but right now it's becoming a cost of doing business," said Luke Knowles, who runs the Web site FreeShipping.org, which lists retailers' free shipping promotions.
Knowles has organized the first Free Shipping Day today, in which more than 100 retailers agreed to provide the service for at least 24 hours. Stores include Macy's, JCPenney, Dell, the Container Store and Target. The site has attracted more than 75,000 visitors in the two weeks since it launched.
"Let's face it," said Helen Malani, online shopping expert for Shopzilla, which helped conduct the Shop.org study, "some people only get motivated to shop when the pressure is on."
