Redrawing the Battle Lines for Last Mile Delivery

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October 28, 2013 at 8:23 am  •  Posted in Emerging Trends, Featured, Points of View by  •  1 Comment

We are entering an exciting period for the US small parcel market. Driven by double digit growth in eCommerce, Business to Consumer (B2C) shipping is approaching 50 percent of the market, up from just 20 percent just 10 years ago. There are several major changes in the market.

Shared Parcel Delivery Networks

The dominant providers, FedEx, UPS and the Postal Service, are all benefitting from this growth. The traditional carriers have relentlessly improved delivery service performance and associated features such as tracking and returns service. The Postal Service has recently refreshed its product line around its successful Priority Mail product, and has a unique “last mile” arrangement with FedEx, UPS and some other consolidators to deliver many of their small B2C packages. However, this “oligopoly” has not been driving change.

“The Amazon Effect”

Amazon spent over $5 billion on shipping in 2012, and its drive to become ever closer to its customers through superior services has led to significant changes in the distribution market. Amazon introduced same day delivery in 2007, Automated Parcel Lockers, services such as Click and Collect, Prime, and many other services. It is opening regional warehouses throughout the US, and intends to reduce friction points in eCommerce and improve the customer experience. Amazon is growing at three times the market, and now sells a wide range of products.  The recent acquisition by Amazon CEO Jeff Bezos of the the Washington Post, of course includes a local delivery service in one of the most upscale, traffic-ridden metropolitan areas in the US.

Major eCommerce Service Providers

Google has also entered the delivery market as a response to Amazon’s expansion. Concerned that consumers may search products directly on Amazon, it intends to protect its core advertising business and relationships with major retailers by providing delivery services. It has pilot operations in the San Francisco area, Shopping Express and Buffer Box. Shopping Express provides same day delivery service for partner retailers, such as Walgreens. Orders are fulfilled at a local store and delivered. Bufferbox , is an automated parcel locker company acquired by Google. Google is exploring a variety of partners to provide final delivery service.

Not to be outdone, eBay is also experimenting with alternate delivery services. It recently acquired Shutl, a UK based same-day delivery service that entered the US market, and has developed a number of services that make it more than just an online auction site for consumers.

Retailers

Parcel Post from the Post Office and UPS both grew from the brick & mortar retail industry. Retailers want to leverage their legacy physical locations to compete with online services – something the online providers are racing to create. Many retailers also have excellent logistics systems – WalMart’s logistics capabilities played a powerful role in the growth of the company. They have significant incentive to “re-invent” themselves.

Brick and mortar retailers are rethinking their formulas and many are developing integrated “omni-channel” strategies where customers can enter an immersive experience whether they interact with the retailer at a physical location or online or with different variations of both. Consumers can shop online and pick up merchandise in the store. Or vice versa. They can examine merchandise, try it on, and then – if the desired size or color or whatever is not available, be connected with other stores in the area and have it delivered to the store or to their home. Some are considering placing parcel lockers in the store to avoid lines at pickup, and several are partnering with one or more delivery services. Consumer response to some of these services has exceeded expectations – Wal-Mart’s “Ship to Store” option for online orders has resulted in items being stored in containers in the parking lot. The Gap’s “Reserve in Store” concept has also been very successful.

New Delivery Services

PeaPod was once the coming thing in delivery, focusing on grocery delivery to the home. It is still in business – now owned by Royal Ahold, and is being joined by other services such as Shop Runner, which offers a subscription delivery service similar to Amazon’s Prime. Some traditional services, such as dairy delivery, are making a comeback. Restaurant delivery services, serving several restaurants in a local area, are joining the delivery game. It should also be noted the local courier services are moving from expedited documents to package services in many areas, and regional Less Than Truckload firms also have some capability to enter the market..

Observations from Europe

Europe was quicker to adopt many of these innovations, spurred in part by differences in the way people traditionally shop and by the unsettled state of competition in the parcel market. There are in excess of 10,000 parcel lockers operated by postal services, carriers, retailers, and even locker manufacturers. Amazon has been among the most vigorous supporters of this initiative.  Preliminary (and anecdotal) data suggest that alternative delivery could gain as much as 30 percent of eCommerce deliveries.

Responses from the Traditional Carriers

We can expect to see a vigorous defense by the traditional carriers, but Amazon, Google, eBay and others have considerable financial resources and a history of disrupting markets. UPS and FedEx are offering alternative delivery to lockers in their stores. The Postal Service is experimenting with Same Day Delivery and is testing advanced, free-standing and in-store parcel lockers, and has announced a major strategic initiative at a recent Parcel Shippers Association meeting.

Emerging Trends Table

By Patrick Bartlett

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One Comment

  1. Bryan Klepacki / October 29, 2013 at 11:29 am / Reply

    Looks like eBay is picking up on the ‘Ship to Store’ option for Toys R’ Us and Best Buy. I wonder how much this concept may expand. If it creates a more efficient and convenient experience for the consumer than it certainly has its applications. I am tempted by the prospect of completing my Christmas shopping while minimizing my actual time spent at a mall so I will be keeping this option in mind when Cyber Monday comes around. Check out the eCommerce Bytes post on this: http://www.ecommercebytes.com/C/blog/blog.pl?/pl/2013/10/1383012905.html

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