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UPS sees no rerun of glitch-marred December: CFO

By Nivedita Bhattacharjee

(Reuters) - United Parcel Service Inc has vowed to avoid a repeat of last year's Christmas holiday season when unexpectedly high volume and huge delays frustrated customers who wanted their packages delivered on time.

The No. 1 U.S. courier company is investing in new technology and expanded capacity so that the 2014 holiday season should go smoothly, Chief Financial Officer Kurt Kuehn said on Thursday.

"We'll be absolutely prepared to have a great peak season this December," he said in an interview. "We will be very prepared this coming December. I'm not worried about that."

Last month, the company known for its brown trucks was overwhelmed by the volume of holiday packages, delaying the arrival of gifts around the world and prompting customers to vent their frustrations on social websites.

Kuehn said an increase in last-minute shipping by retailers was also partly responsible for the glitches, and also made it difficult for the company to forecast volumes.

Retailers such as Amazon.com Inc guaranteed deliveries by Christmas Day on orders placed as late as December 22.

The unexpected rise in online shopping, combined with bad weather and a shorter holiday shopping season than in 2012, added to the bottlenecks. There were six fewer days between Thanksgiving and Christmas in 2013 than in the previous year.

"In years past retailers had a Web presence but it wasn't this critical a part of their market strategy," Kuehn said. "There was a big focus this year, with incentives that drove increased and late demand."

UPS warned on January 17 of fourth-quarter earnings well below market expectations due to the surge in online shopping that caught the company off-guard and increased its costs.

It said on Thursday that it expects full-year 2014 earnings to increase by 11 to 16 percent over last year.

UPS shares closed 0.5 percent higher at $95.78 on the New York Stock Exchange on Thursday.

Kuehn said the rise in last-minute shipping also made it more difficult for UPS to forecast volumes near Christmas.

UPS said global daily deliveries during the 2013 holiday period topped expectations by surpassing 29 million packages on five days, with peak volume exceeding 31 million on December 23.

"We did have a good strong cyber week," he said, referring to the week after the U.S. Thanksgiving holiday. "Typically the week after that tapers off but this year (2013) the numbers just kept going up till a point where we saw eight days during December U.S. delivery volume exceeded our previous company high which was set in 2012."

Cyber Monday, or the Monday after Thanksgiving, is traditionally the busiest day for online shopping as workers go back to offices but continue their holiday shopping on personal computers and other devices.

Once it became evident that demand was not going to slow down after Cyber Monday, UPS had to hire 30,000 more seasonal workers than expected, but package volumes had already built up by then, Kuehn said.

UPS has increased investments in capacity expansion by $500 million, a large part of which is a direct reaction to the recent holiday season's glitches, Kuehn said. Total capital expenditures in 2014 are expected to reach $2.5 billion.

The company is also going to focus on improving communications with key customers as part of the new strategy, while adding technology that makes it easier to estimate volumes.

Kuehn said UPS will implement systems that can track packages on the way from retailers — whereas at present it sometimes has no status updates on packages until they arrive at the UPS sorting lot.

"In some cases the customers hadn't given us details of how many packages were in certain loads. That was a frustration," he said.

(Reporting by Nivedita Bhattacharjee in Chicago; editing by Matthew Lewis)

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