UPS glitches could boost U.S. delivery competition

By Curtis Skinner

NEW YORK (Reuters) - UPS (UPS) scrambled on Thursday to deliver packages that had failed to arrive in time for Christmas as the No. 1 U.S. ground delivery service sought to limit the fallout from the delays.

The lag in deliveries - which triggered intense criticism on social media - could encourage eCommerce companies, like online retail giant Amazon (AMZN), to spread their shipping contracts across more companies to lower risk.

"I do think it creates an opportunity for companies other than UPS and FedEx to make some inroads here," said Anthony Gallo, a senior air freight and logistics analyst with Wells Fargo Securities LLC. "There's no downside to the retailers at this point to have more competition on the delivery side."

The bad press didn't seem to worry investors. UPS shares closed at an all-time high, hitting $104.67 per share by the market's close on Thursday. UPS shares are up 42 percent so far this year, outperforming the Dow Jones Transports Index (.DJT), which is up about 39 percent over the same period.

UPS said on Wednesday that a confluence of factors from bad weather, a shorter shopping season and a surge in online shopping were to blame. It stressed that only a small percentage of total packages were delayed.

All outstanding packages will be delivered by Friday, UPS spokeswoman Natalie Black said on Wednesday.

Neither UPS, nor smaller rival FedEx Corp (FDX), which appeared to have had more limited problems with late deliveries, would say on Thursday how many packages had been delayed.

FedEx said it experienced "no major service disruptions."

"It's mainly a UPS issue for this Christmas," said Wells Fargo's Gallo.

While the problems could open room for smaller rivals at the margins, ground deliveries in the United States are dominated by UPS, FedEx and the United States Postal Service. Shipping companies like Eastern Connection, a regional small package overnight transport company serving the eastern corridor, represent only about 2 percent of the market.

Eastern Connection's chairman, Ted Kauffman, said the glitches would not dramatically change the landscape of deliveries in the country. But he said UPS' woes could help a trend of companies relying on regional providers.

"We're beginning to see more and more of that around the country. I don't know if this incident opens that up, but it doesn't hurt," Kauffman said.

Amazon, which has benefited from an overall surge in online shopping, acknowledged on Thursday that it had to limit new members of its next-day "Prime" delivery service in the run-up to Christmas to insure that current members would not be affected.

Online sales rose 22 percent between Thanksgiving and the following Monday, for example, even as Americans spent 2.9 percent less over that weekend overall, according to figures from the National Retail Federation.

Amazon spokeswoman Mary Osako said in an email that orders were sent to delivery companies on time for holiday shipping and that the company was "reviewing the performance of the delivery carriers."

Osako said shipping charges for late packages would be refunded and affected shoppers would receive $20 gift cards, though she did not provide a number of how many shipments were delayed.

Reactions on social media were still fiery on Thursday. A Twitter user who identified herself as Amanda Perry tweeted to UPS, "Christmas didn't come for my fiancé & his father because of your issues - I am thinking I might just pull my wedding registry."

Another user who went by the screenname, Greg Bueno, tweeted, "@UPS ruined my Christmas!!!!!".

Going into the shortened holiday shopping season, senior UPS officials anticipated possible problems.

"If weather is bad, it will be a challenge for us," UPS Chief Executive Scott Davis said during a conference call in October.

FedEx did not provide the number of delayed packages, saying in a statement only that, "it's believed to be very few," that didn't make it in time.

(Additional reporting by Nivedita Bhattacharjee; Editing by Tim Dobbyn)