Do Consumers Have the Last Word in Last Mile Delivery?

Posted on August 20, 2018 by mcomstock@comstock-consulting.com

The “Last Mile” in eCommerce delivery has been a constant discussion topic over the last several years. The challenge of putting goods in consumers’ hands when and where they wish has produced a plethora of attempts find the right solution but the search continues.   The Last Mile discussion includes a number of issues including speed of not only delivery but end to end order fulfillment, security, cost, visibility and reliability.  These factors plus the fact that consumers have different and changing preferences almost guarantees that no one solution is ideal.  Indeed, startup companies in the last mile delivery business have found the issues daunting and a number of them, such as Doorman and Shyp have failed. Others such as, ShipBob, have altered their business model to find a profitable approach. Still some efforts, at least to date, appear to be viable such as Deliv where their business model properly considers the economic and market forces at work.

Let’s take a look at some of the key factors that currently have an impact on the key stakeholders in an effort to identify the best consumer delivery experience.

  • The Consumer – Consumers’ desire for convenient, secure delivery remains elusive for many. Package theft and re-delivery notices are only partially mitigated by locker boxes and alternative delivery locations. Creative approaches such as alternate delivery locations, unattended deliveries to car trunks and inside residences may improve the experience for some consumers but hardly the answer for most.  Time/day specific delivery available through UPS’s My Choice and FedEx Delivery Manager are available but at additional cost to the consumer. In some multi-tenant residences, digital access lockers have been installed which provide secure, convenient delivery.
  • The eCommerce Merchant-The eCommerce retailer controls and pays for shipping of consumer’s orders. Consumers want free shipping, which is actually shipping subsidized by the merchant and is generally a slower service such as a ground delivery service. Consumers demand for faster, date certain delivery may result in an upcharge, but even those rates are subsidized.
  • The shipping/delivery carrier – Delivery density, measured by delivery stops per mile and packages per stop, are the primary metrics for carriers when calculating cost. Major parcel carriers have surcharges for residential delivery and remote areas. The US Postal Service is the carrier that enjoys the highest delivery density. Amazon, with its own delivery services, has taken steps to increase delivery density by expanding the products it carries and building Fulfillment-By-Amazon and Shipping With Amazon to generate more deliveries.

So, what might the best consumer delivery experience look like?  It needs to combine convenience, reliability, flexibility, security, and economical cost. Since consumer needs and wants vary, there probably is no single solution that will meet everyone’s needs. 

The evolving delivery solutions in the marketplace today tend to improve the delivery experience for some customers but largely cater to the ecommerce merchants who pay the carriers or benefits the carriers as a means to lower cost. For example, FedEx and UPS leverage the density of the US Postal service to handle the last mile delivery.  This results in lower shipping cost for the merchant and potentially expands free shipping for customers but does little to improve the consumers’ delivery experience. Another example, Deliv provides a benefit for retailers that can fulfill from local inventory thus creating added sales and convenience for shoppers albeit from a narrow group of merchants.

The challenge remains to provide a superior delivery experience which can be cost effectively provided. It has been well demonstrated that providing such a delivery experience generates added online shopping.  Doorman proved that their customers shop online twice as much within 6 months of signing up. Doorman’s service offering was to be the delivery point for all their customers’ shipments and then make a consolidated delivery to the customer in a specific delivery window, often in the evenings.  Doorman’s failure was to generate the required delivery density efficiencies and failed to generate revenue from merchants, instead of relying exclusively on consumers to fund the business.

Enabling the consumer to determine the specific delivery date and time unquestionably improves the delivery experience. Consolidating all deliveries to a consumer increases packages per stop density.  The challenges of gaining merchant participation and increasing delivery stops per mile density remain. However, there are strategies to address each of these challenges.  One startup, Milkman, is attempting to bring this to reality initially in Italy. We will watch (and consumers will tell us) to see how this goes.

Posted in Delivery Carriers, Ecommerce | Comments Off on Do Consumers Have the Last Word in Last Mile Delivery?

The Return Trip – How Returns Impact Online Shopping

Posted on January 18, 2018 by mcomstock@comstock-consulting.com

Online ecommerce sales increased 14.7% this past holiday season. This in turn ratcheted up returns activity for all eCommerce sellers. UPS reports that it handled over 1 million return shipments in the month of December and expected more than 1.4 million packages on National Returns Day, January 3, 2018. In a CBRE report, it was estimated that this season’s online holiday returns could top $32 billion.  Where return rates for traditional retail average around 8%, online purchases are returned at a rate of 15%-30% depending on the category of merchandise.

If you are a typical online ecommerce consumer, chances are you have returned at least one purchase in the last year. According to the 2017 UPS Pulse of the Online Shopper™ study, 75% of consumers have shipped returns back to the retailer in the last year.  Clearly, returns are a significant issue for both consumers and retailers.

Although retailers would certainly prefer not to have returns and, in the past, had frequently implemented restrictive return policies, they have come to realize that consumer-friendly return policies and procedures boost sales and generate customer loyalty.  The UPS Pulse of the Online Shopper study found that 79% of those surveyed said free shipping on returns is important when selecting an online retailer and one of the top elements includes an easy-to-return online experience and a no-questions-asked policy.

Tobin Moore, CEO and co-founder of Optoro, a reverse logistics solution, says “Retailers are moving from an ‘avoid and prevent’ to an ’embrace and solve’ approach to retail returns. It’s true that some retailers are taking steps to prevent returns with better online descriptions, images and sizing guidelines. However, by and large, retailers have shifted from writing returns off as a necessary cost of doing business and have moved to investing in optimizing the returns process from a customer experience and logistical perspective.”

Many of the recognizable ecommerce players are taking innovative steps to improve the customer experience of returns.  Amazon, for example, has expanded options for in-person returns this year, with 2,000 “locker” locations, including 400 at Whole Foods stores, where customers can drop off items to be returned. Amazon also partnered with Kohl’s Corp. stores in several locations that accept returns of Amazon goods bought online.

Wal-Mart has launched its Mobile Express Returns, a program that requires just 2 steps utilizing a mobile app and cuts return times from 5 minutes to 30 seconds. For some items, such as beauty or personal care product, Wal-Mart will offer immediate refund with no need to return the item.  Wal-Mart and Target offer free return shipping in addition to drop off returns.

UPS and FedEx have greatly expanded access for consumers that ship online returns back to retailers.  FedEx now offers 10,000 drop off locations, comprising Walgreens, Kroger’s, Albertson’s and its own FedEx office locations. UPS accepts packages at its 4,500 UPS stores plus Staples and most private Pack & Ship stores and other access points.

Equally important to ease of returning is the speed and means of the refund credit.  A Bizrate Insight study found that 72% of online customers expect a refund credit within 5 days of returning merchandise. In the same study, 88% of customers would limit or stop shopping with a merchant that took too long to credit the refund. Beside the immediate refund on a very limited selection of items Wal-Mart offers, Amazon is a leader in quick refunds with credit often being issued when the return shipment is turned over to UPS or the returning carrier.

Also, high on the list of customer preferences is the method of credit, with 34% of consumers citing a full refund (rather than exchange or store credit) as the most important feature of a refund policy according to a survey by Promocode.com

While these efforts improve the customer experience and tend to lower costs for the eCommerce retailers, other aspects of returns pose an expensive problem for retailers. According to Optoro, only about half the merchandise is repackaged and resold.  Merchandise that requires repackaging or repair is often liquidated at 5%-20% of retail prices.  The remainder is likely to be considered waste and is recycled or sent to landfills.  It is estimated that returns sold at discount or not resold cost retailers 4.4% of total revenue each year and, in a low margin industry, that is very significant.

For all the recent developments in return processes, both consumers and retailers have a great interest in continued improvement.

Posted in Ecommerce | Comments Off on The Return Trip – How Returns Impact Online Shopping

WANTED: Paradigm Shift, Not Tactical Shipping Rate Increases

Posted on October 27, 2016 by mcomstock@comstock-consulting.com

Among the myriad of articles, purchase posts and blogs regarding the UPS and FedEx rate increases for 2017 is the fact that residential and delivery area surcharges, as well as large package surcharges, are increasing more than the freight rates. Of particular impact is the recently announced change in FedEx’s dimensional weight divisor which has the potential impact of increasing billable weight by as much as 19% + and the change in oversize rules.

Large, low density packages, residential and rural deliveries are the most inefficient segments of carriers’ volume.  With more consumers purchasing household staples and oversize items online, this segment is growing.  The September 11, 2016 article in the Wall Street Journal, “Ecommerce Is a Boom for Rural America but it Comes with a Price”, cites an example of a UPS driver in Oklahoma who…” delivers dog food, fruit snacks and Kleenex, among other things. His business has increased 30% during the past couple of years”.   To handle this growth, FedEx and UPS have provided incremental improvements in service, but is it enough to handle the rising tide of e-commerce?

The carriers’ rate increases are a tactical response to this trend. FedEx’s dimensional weight divisor change reflects the impact of increasing large packages on vehicle utilization. The oversize change was prompted by the increase in oversize items purchased online that cannot be handled by automated conveyor systems but instead must be handled manually at a much higher cost. These increases put pressure on merchants who are compelled to offer free shipping to their customers which in turn requires them to subsidize these higher carrier costs.

FedEx and UPS have invested in route optimization technology and improved delivery interface through programs such as FedEx Delivery Manager and MyUPS wherein customers may schedule alternate delivery times or locations. These offerings are intended to not only make deliveries more convenient for customers but reduce costs for the carriers by eliminating repeat delivery attempts. While this technology has strategic importance, the implementation of these offerings is quite tactical and fall short of the needed strategic leverage. In fact, both FedEx Delivery Manager and MyUPS which provide notification of impending deliveries, entail additional cost to the recipient to alter or tailor the delivery window.

Both carriers have addressed low density, dispersed delivery routes by handing packages off to the US Postal Service for lower cost delivery through FedEx SmartPost and UPS SurePost (tactic #3). Again, while this is an incremental improvement in cost, it cedes some shipment visibility and control and is not appropriate for larger items.

Both UPS and FedEx are expert operators and each has devoted significant resources to analyzing and engineering solutions for their respective operations. They clearly understand that the parcel industry has changed due to the rapid growth of e-commerce but they have offered no paradigm shifting moves to date.  The question is, “can they?” For all their efforts, there remains a great deal of opportunity for improving the service to the consumer. Consider the numerous companies vying for a share of the last mile delivery space. Some of these approaches may have a legitimate chance for success but many will fail as they control an insufficient segment of the value chain.

What comes about in the next several years will be of great interest. Will incremental improvements really work, or will either FedEx or UPS make paradigm shifting moves to sustain and grow business? Will the Amazon paradigm shift already underway begin to dampen their growth?  Or something else entirely?

Posted in Delivery Carriers | Comments Off on WANTED: Paradigm Shift, Not Tactical Shipping Rate Increases