Online Santa Needs More Elves, Sleds and Reindeer

Megan McArdle is a Bloomberg View columnist. She wrote for the Daily Beast, Newsweek, the Atlantic and the Economist and founded the blog Asymmetrical Information. She is the author of "“The Up Side of Down: Why Failing Well Is the Key to Success.”
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Like many of your Christmases, ours was light a few presents. I didn't wait until the last moment to order, but several of my packages got caught up in the general logistical meltdown that afflicted our nation's retailers and shipping companies in the week before Christmas. One company abruptly informed me that the roaster I'd ordered hadn't shipped, and it wasn't going to, either. The truffle honey meant as a stocking stuffer for my husband has been in transit to the shipper for the better part of a week. Books ordered well in advance simply didn't show up, or they arrived the day after Christmas.

What happened? In a word, capacity: The retailers and shippers were out of it. And unlike a manufacturer, a shipper such as United Parcel Service Inc. can't simply say, "Sorry, we're out" when it hits its limits; it has to do something with every package that's given to it. So when shipping increased by almost 20 percent, instead of the 12 percent that the post office had been expecting, things got out of control pretty quick.

Capacity on a network is a funny thing. As long as you're under it, everything is perfect; once you get over it, everything goes completely wrong with surprising rapidity. You can think of it as akin to people talking in a small room. When five or 10 people are trying to talk at once, it's manageable. But add another five, and people start having trouble hearing their own conversation. So they raise their voices and then suddenly no one can hear anything; you've gone from nearly perfect comprehension to the Tower of Babel.

Obviously, what happened to shipping this holiday season was not quite so dramatic; most packages still got delivered. But the pain of lost delivery seems to have been widely distributed, at least judging from news reports and social media. UPS reportedly hired the same number of seasonal workers as it did last year. Maybe that was reasonable, especially with Hanukkah coming so early this year. But it wasn't enough.

I suspect this is a harbinger of things to come: People were reporting that the malls were empty this year and speculating that worried consumers were cutting back. But I'm betting that they weren't so much cutting back as moving online. On Christmas morning I realized, with a bit of a shock, that it didn't even occur to me to go to a store this year, and I bet I'm not the only one.

But as the New York Times article points out, the shift toward the convenience of online shopping may ironically undermine some of that convenience; if we're going to do our Christmas shopping online, we may have to get used to doing it earlier. Inc. handled its capacity problem by massively overbuilding its computer infrastructure, then renting out that capacity during the other 11 months of the year. But UPS and FedEx Corp. can't just add extra planes that get used five days a year. If people keep shifting their online shopping later and later, shippers are going to have to start charging extra to use that last-minute capacity. People will complain -- but probably not as much as they'll complain if their gifts don't make it under the tree.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

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