This article originally appeared in the September/October issue of PARCEL.
When it comes to same-day delivery, the expectations of consumers have dramatically changed within the last few years. As a result, those in the customized logistics and delivery industry have had to embrace some big changes. Retailers, too, have had to find ways to adapt.
We asked two members of the Customized Logistics and Delivery Association (CLDA) to share their thoughts on same-day delivery today and tomorrow.
· Nick Rozakis is the Managing Director and founder of Spartan Worldwide Logistics. Spartan is a same-day/final-mile logistics company servicing the Philadelphia, PA and Trenton, NJ metro areas. Nick has been involved in the delivery industry since 1978.
· Sam Hosseini is Director of Operations & Supply Chain, VMW Express LLC. The company is involved with all aspects of the supply chain, including trucking, driver and vehicle leasing, distribution services warehousing, asset recovery, and convention and art programs. They have serviced Virginia, Maryland, DC, and the Mid-Atlantic region since 1987.
QUESTION: Talk about the evolution of consumer expectations for timely delivery. Not so long ago, consumers were okay with five- to seven-day delivery, then two-day, and now same-day is what they expect.
Rozakis: I think it helps if we look at the history of this industry. Home delivery of consumer goods began in the late 1800s. Sears Roebuck was the first to market. Sears sent catalogues to consumers who ordered everything from food to cameras, clothing and tools. Sears specialized in delivering to rural areas where Americans had difficulty accessing goods. By 1912, companies like Spiegel developed catalogues for women's fashion. In the 1970s, Sharper Image delivered gadgets. With the advent of the internet in the new millennium, Amazon became the early leader of what we now call e-tailing or e-commerce.
The earlier methods of consumer delivery strictly depended on the postal system (aka “snail mail”) as well as UPS ground service. Both competed to fulfill the delivery of parcels.
In the nineties, Federal Express, which had been exclusively an air express carrier, entered the arena of e-commerce when it expanded into the ground delivery segment of the industry. FedEx went from strictly B2B to B2C. This was accomplished by the acquisition of RPS (Roadway Package Systems). These three carriers — USPS, UPS and FedEx — controlled the lion’s share of the e-commerce market when it was in its infancy.
Early consumers of the e-tail phenomena were satisfied with a slower delivery. They had no objection to paying for delivery because of the convenience. It saved them time from their time-starved days, so they were willing to pay for that and to accept the delivery times shippers prescribed for them.
By 2005, e-tailers began testing lower cost delivery methods of combining FedEx and UPS ground service with direct injection into the local postal system. This saved consumers a considerable amount of money on delivery. E-tailers started offering free shipping on designated days to attract new customers.
This is what set the stage for the members of our industry to provide same-day delivery. Today, members of the customized logistics delivery industry provide that necessary component to e-commerce delivery.
Hosseini: The change in the delivery culture and the rise of customer expectations in same-day delivery is a result of a "revolution" that Amazon started. The concept of “customer-centric” approach is a core part of the Amazon philosophy with its customers. They define this approach as “… a way of doing business with your customer… that provides positive customer experience before and after the sale in order to drive repeat business, customer loyalty, and profits.” Amazon has changed the expectations of the customers in general. Other corporations such as Walmart, Macy’s, and Google are following the same approach in order to be able to survive in such a competitive market. Today, we have heard and seen new trends in the delivery business that will be used in the near future (things like drones) that provide more efficient and faster ways of delivery. This means that we will continue to see [a] rise in customer expectations. Along with such growth, we can expect that companies like Amazon and others will also provide additional free-of-charge services to be able to continue to keep their customers and gain a larger portion of the market.
QUESTION: How have changing consumer expectations in terms of delivery changed due to the growth of e-commerce?
Rozakis: As consumers have begun to enjoy the hassle-free simplicity of ordering goods via e-commerce, stronger demand has grown for faster and cheaper delivery. E-tailers that can deliver faster and at a lower cost have been able to vastly increase their market share. Companies have been expanding their warehouses from central distribution points to regional warehouses. Many new 3PL and 4PL companies have been born since 2005 because of this high consumer demand.
The concept of regional distribution centers allows shippers to directly receive orders from consumers, stage them at nearby DCs, and direct shipments to local courier companies for same-day delivery. CLDA members have been a major reason this is being accomplished.
Hosseini: According to the eMarketer forecast for 2016, the overall global e-commerce sales of products and services ordered on the internet was about $1.9 trillion. The report also projected that such growth [will] continue every year. In North America alone, e-commerce sales reached $423.34 billion, which makes this continent the second largest regional e-commerce market after China. This continued growth in total retail sales drives every corporation to invest heavily in e-commerce. Because of the convenience e-commerce offers to customers, every company will continue to focus on improving their customer experience. Eventually, this trend will result in higher expectations on the customer side.
QUESTION: Same-day delivery expectations have had an impact on the whole customized logistics and delivery industry. Let’s talk about that.
Rozakis: The consumer has created a high demand for delivery same day. In just a few short years, local and regional customized logistics and delivery companies have been greatly impacted by these rising same-day delivery expectations. Customized logistics and delivery companies have had to make the most of logistics to increase delivery density, increase driver production, and raise their investments in technology. These advances will allow those of us in this industry to respond to this challenging task. Profitability can only be maintained with higher efficiencies if we are to succeed in same-day.
Hosseini: Same-day delivery is changing the consumers’ habit in shopping due to increasing convenience, and this will result in rise of demands in the same-day delivery services. Such expansion of customers’ demands will increase volume in freights/goods delivery for UPS, Amazon, DHL, and others. Consequently, fulfilling the logistics needs will require multiple methods and larger capacities by retailers, shippers, and delivery and logistics companies.
In addition, opportunities for logistics providers will grow and, therefore, they must adjust themselves for the upcoming expansion of needs. One of the main impacts in such situation is the expectation of larger capacity and volume with lower and more efficient costs. In other words, three factors are integrated to each other: volume, capacity, and cost. Additional volume requires additional capacity with a cost-effective method.
QUESTION: How can smaller retailers respond to the increased consumer expectations?
Rozakis: Smaller retailers can benefit by partnering with 3PL companies that have built their infrastructure by providing warehousing and distribution services to other larger retailers. Many 3PL companies will give anchor retailers such as Walmart inexpensive pricing, hoping to make up the difference with smaller retailers. Because of this, smaller retailers can get the benefits that were formerly only available to their larger counterparts.
Hosseini: Their only way of survival is to find innovative ways to provide services that are in line with the current trend of e-commerce, including free shipping and free returns.
QUESTION: How can smaller shippers respond to the ramped-up consumer expectations that the large shippers have created?
Rozakis: Smaller shippers need to be niche players. They need to focus on the absence of personalized services that larger shippers may lack. They need to establish a unique selling position. They must differentiate themselves. Bigger is not necessarily better. Instead, think: "Small is beautiful.”
QUESTION: What changes do you foresee that will impact couriers when it comes to same-day delivery?
Rozakis: Here are my predictions:
· The Uber effect - The tracking of shipments in a real-time map environment will be forced upon couriers. Shippers will demand and expect a definite time in which their deliveries will be made and expect to view the status as it progresses. This recent GPS and mapping technology was first introduced by Uber and now has spread into the food delivery market. Look at the Domino’s new pizza delivery app. When you place your order, the app not only tells you who is baking your pizza but displays a bar with a progressive timeline until it reaches your door.
· Higher prices - Delivery prices will eventually have to increase to keep up with the expectations that shippers and e-tailers demand. The consumer, shipper, and e-tailer cannot demand these high levels of service and accountability without passing some of the costs back to the end user.
· R&D plays out – Expect to see the products of the research that’s been going on come to life. These will include expanded use of drones, driver-less vehicles, and robots that make deliveries.
These may seem unbelievable now. But believe me, they won't be for long!
Andrea Obston is Director of Public Relations for the Customized Logistics and Delivery Association (CLDA). Visit www.CLDA.org for more information.