E-commerce is booming, and so are parcel deliveries. According to the Pitney Bowes Parcel Shipping Index, which covers 13 world industry nations, more than 74 billion parcels were shipped in 2017. This volume represents around $279 billion in revenue, of which 38% is generated in the US. The index estimates that the volume will continue to grow in double-digit rates and surpass 100 million parcels in 2020 – most of them sent by retailers to their customers.
The increase in volume coincides with an increase in delivery speed. In 2015, the click to door speed for an average retailer was around a week – in 2018, it’s 4.5 days. With many customers now expecting same-day delivery for some goods, retailers and their shipping partners are under pressure to become even faster.
Unfortunately, this high speed of delivery comes at a great cost -– especially in the last mile, which makes up more than half of the overall delivery costs. Who is going to pay for this?
Research has shown that customers do almost anything to avoid shipping costs – including not buying at all – so most retailers have decided to absorb the additional cost with the hope to outlast their competitors. This is not a sustainable business model. What we need are new ideas and concepts to delight customers while optimizing costs.
As already mentioned, customers want to avoid shipping costs. In most cases, they do not always need their purchase on the same day. This situation has led to some retailers offering a so-called “multispeed” model for deliveries. Customers can choose at checkout when and where they want their purchase to be shipped. If they choose to have it delivered a few days later or pick it up at a physical store nearby, they don’t have to pay shipping costs, and they might even get a discount. Prominent examples of this model are Walmart’s Pickup Discount and Kohl’s Store Pickup.
In addition to saving money, customers can also be educated that being flexible with deliveries is good for the environment as multiple shipments can be grouped together and delivered by one vehicle. An increasing number of consumers are concerned about sustainability, which also impacts their decisions when shopping online. The possibility to wait a few days for a delivery in order to reduce the overall carbon footprint of the parcel can be a deciding factor for a lot of consumers.
When customers can wait a few days for delivery or are willing to go the last mile themselves, retailers and their shipping partners suddenly have a lot more room to optimize costs. Customer deliveries to physical stores can, for example, be bundled with regular inventory deliveries. Plannable delivery dates and times allow for technology to optimize routes and safe fuel and labor.
Multispeed delivery is a win-win-situation. The customer can choose from a wide range of fulfillment speeds, still has a convenient delivery window, might even get a discount, and supports the retailer’s sustainability efforts. The retailer can improve his routing and save on delivery costs through customers that pick up their order at a physical store (where they could make additional purchases).
Smart Ideas for the Last Mile
Sometimes you can’t avoid the costly last mile. Fortunately, increased adoption of technology by retailers and shippers alike has produced innovative and cost-saving solutions. One promising example is the progress in delivery technology, especially autonomous driving. A use case that has already been approved in some US states is truck platooning. Multiple trucks drive in a convoy, but only the truck at the head has a driver. The other trucks are self-driving and use connected vehicle technology to follow the leading truck. Studies have shown that this model can reduce fuel costs and CO2 emissions significantly.
Another benefit of autonomous trucks is the reduced transit time. Pilots have shown that on certain routes between cities, transit time can be reduced by half or more by using self-driving trucks that can drive for long hours and only need to stop for fuel.
For B2C shipping, logistic leaders work with vehicle manufacturers to develop autonomous delivery vehicles. Those usually contain several sealed compartments that customers can open via an app to access their goods. Several leading logistics providers have announced pilots with urban delivery robots that deliver packages right to your door.
E-commerce is here to stay, which means a lot of opportunities for retail and parcel shipping organizations alike. However, customer expectations are high and need to be managed to avoid a cost explosion.
Retailers must work with their shipping partners to develop a delivery model that makes both the customer happy and is as cost-effective as possible. This can on one hand be achieved by rewarding the customer to wait longer for a delivery or pick it up at a physical store. On the other hand, technology and innovation in the automotive and trucking sector will provide further opportunities to optimize routes and improve the cost efficiency of parcel shipping.
Bart de Muynck is Vice President Analyst, Gartner. In this role, he conducts research in the supply chain area focused on the delivery processes: transportation management, fleet management and yard management. He will be speaking on this topic at the 2019 PARCEL Forum; join him on Tuesday, October 29 at 11 AM.
This article originally appeared in the September/October, 2019 issue of PARCEL.