There's been lots of conversation about guaranteed deliveries and a shipper's ability to file for credits in 2020 and this year. And if that doesn't quite make sense right now, it will.
UPDATE March 29, 2021: Shippers still do not have the ability to file for refunds for late deliveries. Both UPS and FedEx have given no indication or timeline for when delivery guarantees will be reinstated. Keep reading to see how that impacts you.
What Are Guaranteed Deliveries?
As you probably know, when you select a UPS or FedEx service — with the exception of their parcel hybrids, SurePosts, and SmartPosts — there is a delivery guarantee that comes along with that service.
If you ship an overnight package, for example, it's guaranteed to be delivered by a certain time tomorrow, depending upon the level of overnight service that you select. And if you select a ground service, that is also guaranteed to be delivered on a certain day and time, depending on the zone that that ground shipment is going to.
Both UPS and FedEx offer guaranteed services. They sell that guarantee to their clients, and it gives their clients the ability to file for a refund if that guarantee is not met.
How do Guaranteed Deliveries Affect Shippers’ Costs?
If you ship an overnight package with UPS and/or FedEx, for example, and it arrives in three days, two days, or quite frankly, five minutes late, it didn't meet that service guarantee commitment. You didn't get what you paid for.
At that point, you can file for a refund credit for the transportation charge on that particular shipment. And that factors into shippers' costs because shippers are selecting services based on the guarantees.
Let's say you’re paying a premium to ship an overnight package. You’re paying because you know that it's guaranteed to arrive or be delivered by a certain time. And you’re going to pay more for that.
Also, guaranteed deliveries impact shipping costs if the carriers don't meet that commitment. As the person paying to ship that package, you can request a refund from the carriers.
That said, you have to know that it was delivered late first. Second, you have to go through a certain amount of rigamarole to actually get that refund applied. But it can reduce shipping costs or offset shipping costs when the carriers don't live up to what they've committed to.
Why Shippers Rely on Credits
With that in mind, there could be a drastic fluctuation in how much you pay.
Typically, the carriers are very good at delivering packages on time. And out of a hundred packages, maybe one will be delivered late. But if you multiply that across thousands and thousands of shipments every day, and depending on service characteristic types, that number can fluctuate a little bit.
All that said, though, a lot of shippers do rely on the ability to file for credits when a shipment is delivered late. And as a customer expecting a package that's not delivered when you're expecting it, you're gonna call the company that you ordered it from or send them an email to follow up.
And if you paid for that shipping cost and it's delivered late, you may even request credit for what the merchant charged you, or the shipper charged you, for that particular package. So it really can be a very big deal for shippers to file for late shipments.
Why Was 2020 So Different For Service Guarantees?
As we all know, in March 2020, when things started to escalate with COVID, both UPS and FedEx decided that they were going to pull that service guarantee. Basically, they said that if a package wasn't delivered on time, there would be no repercussions.
Essentially, they gave themselves the ability to deliver packages late because of everything that was going on with COVID and businesses closing down. And it made sense to some degree. They were making deliveries to now-empty commercial buildings because everyone was sent home. Their delivery density was shifting from commercial buildings to residences. So it was understandable.
What they ended up doing, however, is saying that none of their service guarantees would apply.
Now, let’s say you select a next-day-air package and it's supposed to be delivered sometime tomorrow depending on the overnight service level that you select. If they deliver it late, five minutes late, five hours late, five days late, there are no repercussions.
And it's been like that ever since March 2020.
So where shippers were expecting to be able to recoup the costs associated with late shipments, they haven't had that ability since March 2020. Basically, UPS and FedEx are just keeping that money. Otherwise, it would have gone back to their clients when a package was delivered late.
And it’s easy to see the correlation between that change and the record profits they’ve both posted this year.
Despite the numerous requests and pleas from shippers, UPS and FedEx have yet to budge. As of March 2021 - a full calendar year after the waiver went into effect - shippers still cannot file for late shipments. This comes after back-to-back-to-back record quarterly profits posted by the carriers.
Adjusting to a World Without Guaranteed Deliveries
This is a really big deal for shippers. For the sake of argument, let's say that shippers never have the ability to file for late shipments again. Is there something that they can do to reduce their costs? Is there a way to find savings where there may not have been any in the past?
In other words, shippers won’t be motivated to pay a premium for a service that no longer has a guarantee.
Because why would you continue selecting expedited services if that guarantee doesn't exist anymore? At that point, there are no repercussions. There are no consequences for the carriers if they deliver a package late.
So what can shippers do? They can choose to ship with a more deferred service, a ground service, a three-day, or a two-day. If shippers don't get the ability to claim refunds back, we expect to see fewer expedited services in use.
Shippers will start to move some of those expedited packages to more deferred services. Because if you’re in a position to select a certain level of service, but there was no guarantee, you would immediately opt for the more cost-effective option.
Once those guaranteed deliveries are reinstated, or if they are, then we'll certainly do an update on that. We'll see the lay of the land at that time. But that timeframe is still up in the air. If you're looking for cost savings opportunities to offset your inability to file for late shipments, create a free Lojistic account.