Big headaches will come in small packages for retailers and manufacturers in the next few years as delivery companies grapple with a surge in demand. Stores, catalogers, online retailers and companies working on just-in-time production schedules will need to minimize the risk of small-parcel delays that can increase costs or tarnish a firm's reputation.

Alternative delivery services such Universal Express, Ground Express, Lone Star Overnight and City Performance Logistics can help. They're targeting the needs of small-parcel shippers. These delivery upstarts are hungry for business and charge as little as half what big carriers such as FedEx and UPS charge. Most of the smaller services don't provide nationwide delivery, but many of them plan to enlarge their service areas in the near future.

The smaller firms usually are more flexible about when they make deliveries. UPS, for example, won’t deliver packages during eight federal holidays and Sundays and won’t attempt re-delivery on weekends if recipients aren’t home on the first call. FedEx shares some of these restrictions, although it will deliver on holidays for a large price premium. In general, small operators are available 7/365 to get the job done.

The smaller delivery companies also tend to be less rigid on packaging formats and pickup times. Big shippers are moving more toward shipment standardization—as well as fixed pickup times—to lower costs.

You can try to lock in prices and priority delivery service with the national package carriers, but that is pricey. Keep in mind that the major carriers raised rates 3.9% on average this year and likely will do so again in 2004.

The robust growth of online sales is generating huge increases in small package shipments. Online sales rose 48% in 2002 to $76 billion and will jump another 25% or so to nearly $100 billion this year. Such sales are likely to reach $130 billion in 2004 as the economy picks up steam.

Apart from online commerce, delivery growth is being driven by two-career couples who don't have time to pick up or cart home the goods they want to buy, in stores or elsewhere. Many others want to spend more of their non-work time doing leisure activities rather than trolling through stores and lugging goods home.

Consumers are also becoming more demanding about timely deliveries. The ability to track a delivery's progress online has prompted consumers to put more pressure on vendors or shippers to live up to their delivery promises. Richard Hallal, a principal with Logistics Development Corp., a logistics consultant, warns that "consumers who buy products online, or through catalogs, absolutely expect delivery in two days or so... and if delivery is spotty—shows up a few days late—they’ll take their business elsewhere."

The bigger delivery firms will be slow to respond to the pickup in package volume because FedEx and others are more concerned right now with slashing huge fixed costs and bolstering their bottom lines. Heavily unionized UPS isn’t likely to get its employees to work holidays anytime soon, while FedEx is hoping to trim its staff by nearly 10% through buyouts and other inducements.

Enter the upstart competitors that keep overhead low by outsourcing and using tracking and logistics management software to eliminate the need for expensive in-house traffic dispatch departments.

Universal Express is typical of new delivery services moving fast to fill small-package shipping needs. Since the 1980s, Universal has provided logistics support to 9000 privately owned parcel and package stores, arranging volume discounts for them with FedEx, UPS and others. Now Universal is going directly into the primary delivery business.

"These [parcel] stores feed FedEx and UPS $6 billion a year for small-package shipments paid directly by customers, but we can do a better job," says Richard Altomare, Universal’s president and CEO. How? By holding down operating expenses. Universal claims that it charges 15% to 20% less than other overnight package carriers for second-day delivery used by most retailers and companies to ship customers’ orders.

Researcher/Reporter: Nikki Eyman