Where's My Parcel Refund? Don't Hold Your Breath

In late March 2020, with the country and much of the economy in lockdown as the coronavirus took hold, FedEx Corp. and UPS Inc. suspended long-standing programs to refund shipping charges for late or missed deliveries guaranteed to arrive at specific times. The carriers explained they could no longer guarantee on-time deliveries given the unexpected avalanche of e-commerce delivery demand they were struggling with.

Nearly 21 months later, only a subset of the carriers' refund programs has been restored. In early April, FedEx and UPS reintroduced refunds for their domestic next-day air deliveries and for certain international express products. At the time, UPS gave itself some wiggle room by setting an 11:59 p.m. delivery deadline for avoiding refunds on its next-afternoon air service. The pre-pandemic deadline was 3 p.m.

As 2021 progressed, the carriers moved the goalposts. 

In October, UPS UPS pushed back the deadline for next-day residential air delivery service to noon from 10:30 a.m. Later that month, FedEx FDX said it would suspend all refunds between Nov. 1 and Jan. 16, covering the entire holiday shipping cycle. FedEx has not publicly committed to reinstating the program once the cycle ends, saying only it is evaluating all its options.

Notably, neither carrier has said it plans to restore refunds on late or missed ground deliveries, by far the largest part of their domestic delivery businesses. FedEx and UPS added refund programs to their ground-delivery services in 1998. Before that, refunds were reserved for air services, which typically involve urgent, high-value shipments.

It is the customers' responsibility to file refund claims — even though FedEx and UPS, which control two of the business world's most powerful information systems, could automatically generate customer refunds because their systems track the outcome of each delivery to determine if and why it was late, according to industry experts. Customers wouldn't even need to be invoiced for shipments that failed to meet the guaranteed service commitment, experts said. 

FedEx and UPS "just simply don't want to do it," said Dean Maciuba, a FedEx executive for 25 years and now managing partner-North America at consultancy Last Mile Experts LLC.

It is impossible to quantify the sum of guaranteed service refunds paid out through the years, though even a fraction of late deliveries out of 30 million or so combined daily U.S. shipments would translate into a lot of money. 

Nor is it possible to determine how much customers have actually collected. Millions of dollars in refunds go unclaimed because shippers aren't aware of their post-delivery options, see the process as too time-consuming and resource-draining, or worry that the carriers will dispute the claims and add to their angst, experts said.

The parcel-delivery market is adjusting to the possibility that FedEx and UPS may never restore money-back guarantees on their ground services, at least in their pre-pandemic form. In the near term, FedEx is not in a position to do anything because its ground-delivery performance over the past few months has been wanting. UPS' service levels have been better, but that metric alone is unlikely to move the needle. 

Both companies are operating in the best macro environment for parcel carriers in years, if not decades. Neither faces any competitive pressure to reinstate programs that take dollars out of their pockets, and nothing is likely to change unless a customer's groundswell or a competitor forces their hand, experts said.

The competitive push may come, not surprisingly, from Amazon.com, Inc. AMZN. The e-tailer behemoth has huge backhaul capacity in its ground network. It has also expressed an interest in a door-to-door service aimed at small to midsize shippers, a segment coveted by FedEx and UPS because they typically will require more services and will pay higher prices. Satish Jindel, founder and president of consultancy ShipMatrix, said he wouldn't be surprised if Amazon offers money-back guarantees and delivers the funds automatically to the payer. Should that happen, FedEx and UPS will find themselves "searching for a response" to such a move, Jindel said.

For now, however, FedEx and UPS customers chafe under the burden of having no financial recourse in the event their deliveries are late, a scenario that has become more commonplace since the pandemic. 

"We hear daily complaints from shippers" about losing the guarantees and then not having them restored, said Josh Taylor, senior consultant at Shipware LLC, a consultancy that works exclusively with parcel shippers.

The absence of service guarantees skews the way the carriers operate, said Tom Nightingale, CEO of parcel consultancy AFS Logistics. Facing no financial consequence, the carriers are free to deliver a shipment not when it was promised to the shipper and consignee but at a different time that was more efficient for the carriers' network, he explained.

Many AFS clients are already dissatisfied with the carriers' erratic service levels and their lack of accountability, Nightingale said. The grumbling intensifies when they realize there may be no reimbursement for late deliveries of very costly shipments, he added.

Taylor said he was told by shippers that even after the next-day air guarantees were reinstated, both carriers were blaming avoidable service failures on acts of God to avoid making payouts. 

"It's disappointing to hear stories about FedEx or UPS holding a shipper to a tight volume commitment, failing to ensure enough capacity to carry it all, then blaming God when the packages arrived days later than guaranteed," he added.

The refund programs had actually been diminishing in importance in recent years, due in part to the carriers' improved service levels and structural changes in the programs themselves, said Nate Skiver, founder of parcel consultancy LPF Spend Management. Until four to five years ago, shippers could receive a 1% rebate off their base rates if they agreed to waive late-delivery claims, Skiver said. However, the carriers ended the give-and-take ended around mid-decade, he said. 

Today's contracts include the waiver but exclude the rebate, Skiver said. Only very large shippers can negotiate a rebate into their contracts. Otherwise, the carriers have adopted a "take it or leave it" approach to the issue.

If carrier refund programs are ever restored for ground services, it may be in the business-to-business (B2B) segment, added Taylor. B2B deliveries are more efficient and predictable, which reduces the chances of carrier error and subsequent payouts, he said. At some point, the guarantee could become another in an ever-growing list of accessorial charges tacked on to the base rate, Taylor said. Shippers may be willing in contract talks to waive the guarantees in exchange for some carrier incentives, he said. 

"It would be very easy to default to no guarantee," Taylor said, "with the option to add it through negotiation."

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