Can parcel operators deliver the eCommerce Boom?

Christmas saw continued rapid e-retail growth, with no sign that of a slowdown in the foreseeable future. The BRC-KPMG Retail Monitor reported on-line non-food sales grew 19.2% in December whereas like-for-like grew only 0.4%. Those retailers that have performed, such as John Lewis and Next, are seen to have robust e-retail supply chains, whilst those that have been slow to develop, Morrisons and M&S, have had a bad year.

Parcel operators announced record volumes; Yodel with 14 million parcels in December, Hermes has grown 53% in three years and, according to PwC, UK parcel volume will grow 35% to 2.3 Billion items by 2023. Although, given the accuracy of forecasts for eCommerce, even this could be short of reality.

Is this sustainable, given the UK’s congested road network; where Londoners spend 80 hours per year in jams. And can the parcel companies respond to new, faster, time definite, home delivery services. If the US experience is an indicator, the answer may be no; after UPS and Fedex appeared unable to cope with the annual Christmas peak.

So what are the challenges faced by parcel operators. The obvious one is congestion which will inevitably get worse. Parcel growth rate of 35% far out-strips the underlying growth in journeys which in London, by comparison, is estimated to be 14%; so get used to seeing more of ‘White-Van-Man’.

Secondly, overnight ‘Hub-&-Spoke’ parcel networks will be challenged by same-day and timed home deliveries which do not fit a ‘one-size fits all’ model built for the B2B market. Seasonality; we have mentioned Christmas, but don’t forget St. Valentine’s Day and Halloween where volumes will vary exponentially overnight. Hubs are machines with optimum operating capacities; already there is evidence of operators refusing to sign new customers ahead of Christmas. Often overlooked is parking; in cities and suburbs alike trying to park outside a specific building is already impossible. 

And then there is us, ‘the consumer’, at work, at the shops or friends, anywhere but ‘at home’ for the delivery. Finally, ‘cost’; currently retailers still see the delivery charge as a loss-leader, it is either free or below cost. Is this sustainable – the retailers will pressurise the parcel companies to hold or reduce costs; but that is not realistic longer term in a world of increased minimum wage, congestion, parking fines, taxes and fuel costs. Someone has to pay for the delivery.

So the smart retailer isn’t putting his ‘eggs in one basket’; we see the rise of ‘click & collect’ and the emergence of collection consolidation centres such as Collect+ and Doddle from Network Rail. These initiatives work by allowing delivery consolidation, mitigating many of the problems associated with B2C deliveries. But they require the customer to leave home to collect the goods; sort of defeating the point of eCommerce. Nevertheless, these innovative approaches, not only to delivery but also returns (which is the bigger challenge), will be essential for the eCommerce boom to be maintained. 

However, they do not solve up-stream problems at the fulfilment centre. Smaller B2C orders mean fewer items picked per order with proportionally more packaging; meaning more people and cost for each item sold and reduced margins. Indeed, proving the law of ‘unforeseen consequences’, we now see problems with car parking at warehouses handling high eCommerce volumes.

Some retailers are even starting to talk about supply chain ‘collaboration’. What form collaboration will take is uncertain and it can be argued that multi-user warehousing and parcel operations already deliver many of these benefits. And as the pressures to deliver better customer service grow that service is likely to be seen as a key differentiator. 

The conclusion is clear; the eCommerce boom is here to stay but the need for well thought out flexible supply chain strategies will be the difference between retail’s winners and the losers.

Where will we find the innovative supply chain professionals to meet this challenge… well, that’s another story!