Integrators see opportunity in e-commerce logistics while consumers are driving increased use of drop-off locations
In early December, Canada Post sounded the alarm when some of its depots were overwhelmed by parcel traffic, which caused delays. As flows built up to a record parcel season, concerns mounted that an avalanche of shipments might bring the system to a breaking point.
Consumers’ penchant for online shopping is keeping parcel carriers on their toes, with no sign of easing off. “We continue to see more B2C traffic. It doesn’t seem to be levelling off,” says Steve Vitale, director of communications, UPS Canada.
In the event, the postal service as well as private parcel carriers managed to deliver the Christmas surge. “For us it’s been challenging but manageable,” reports Ramsey Mansour, vice president of corporate strategy and marketing at Purolator Courier. The company registered a 40 per cent rise in delivery stops in December.
Mansour stresses the importance of early preparation—hand in hand with clients. “Working with our customers was key to manage the volume of flow and capacity,” he says.
A lesser challenge has been the rise in online purchases of larger items like mattresses and snow blowers. “This is about three per cent of our total volume,” remarks Vitale.
Thanks to special handling fees and oversize charges, this traffic does not affect the bottom line—unlike the cost of additional labour and equipment to cope with the Christmas spike in traffic. Mansour says that the peak season drives up cost, which has to be compensated through the year, chiefly through optimizing the volume mix and improving productivity.
A more crowded field is putting pressure on rates and squeezing margins, observes Phil Cahley, vice president customs brokerage and regulatory at BILSI. “Margins are razor-thin,” he remarks, adding that more people see opportunities in e-commerce logistics.
“Our margins are dropping, but we look more at strategies, at things like drop-off locations,” says Imtiaz Kermali, vice president of corporate strategy and marketing at eShipper. He adds that it is crucial to build a portfolio that gives customers choice and generates savings, and to think ahead of the market. Vitale agrees that is it both a challenge and an opportunity to stay ahead of the growth in volume as well as evolving customer expectations.
In the battle to contain costs, access points have emerged as a key strategic plank.
“Business is warming up to the idea of drop-off locations,” remarks Mo Datoo, director of strategy and planning at eShipper. Kermali adds that their company is importing drop-off locations into its online platform, which will allow its customers to create drop-off networks as they see fit.
Vitale points out that consumer preferences are a major driver of the growing focus on drop-off points. Harnessing local variety stores as well as its UPS Stores, his company currently has over 1,100 access points across Canada, and it intends to add more.
“We do it to increase density but also because that’s what people want,” he says, pointing to a survey that UPS conducted in Canada, which indicated that 42 per cent of respondents preferred dropping off packages to waiting for a UPS van to show up. If this trend continues, the company estimates that it will be doing 2 million fewer pick-ups in a year.
Purolator, which has over 700 shipping centres and agents, is currently evaluating what its retail network should look like. “There is no one size fits all solution,” remarks Mansour.
He is wary of putting too much emphasis on access points. “Retail presence is a very important piece of the puzzle, but it’s not the entire picture,” he comments, adding that 50 per cent of online shoppers prefer that shipments are left outside their home. “Our first focus remains delivery at first attempt,” he says.
“Consumers are looking for more solutions, not less,” he continues. This requires an array of multiple solutions to fit their schedule, he concludes.
By the same token, online merchants need a choice of options how to move their goods to the consumer, notes Kermali.
“We must also factor in the consumer. They look for instant gratification in a seamless and frictionless way,” agrees Mansour. “Your model has to be more nimble and more agile. It’s not like in the past, when the peak season was mainly a matter of making sure you had your inventory in place. Now it’s more sporadic, more fluid.”
Technology is a key element in this, both to manage assets and to support clients. “We need to have the tools in place to help our customers—not just to deliver their goods,” says Vitale.
Cahley stresses alignment with the merchant’s system. “We look to connect with the e-commerce provider at the shopping cart level. For example, if the vendor uses Shopify, there are opportunities for us to connect with that,” he says.
UPS is looking to leverage its Marketplace Shipping package, which combines shipping with order management functionality and can be integrated with popular platforms. “It’s not in high demand right now, but I think that will change,” comments Vitale.
eShipper, whose cloud-based shipping platform hosts all top-tier courier firms in Canada, has set up programs for merchants to manage their imports and their vendors, and it also offers comprehensive shipping solutions as well as consulting. Over the past three years the focus of conversations with clients has shifted from how to cut costs to education, notes Kermali. “Education is a big part in the growth of this industry,” he says.
Arguably this applies particularly to the company’s clientele, which consists of small and mid-sized firms. Their need for advice is even more pronounced when they venture into the international arena, which is beckoning ever more. Over the past couple of years, the momentum in cross-border online shopping commerce has eclipsed the rate of e-commerce growth in most domestic markets.
Canadian consumers venture confidently across borders, points out Vitale, with 83 per cent of the people who participated in the UPS survey having ordered goods from outside Canada.
Working with merchants from overseas who want to sell to Canadian online shoppers often involves more than simply delivering their goods. In the initial stage many require a lot of hand holding to navigate through taxes and customs regulations, notes Cahley.
A recent UPS Canada survey indicated that 42 per cent of respondents preferred dropping off packages to waiting for a pick-up.
While Canadian shoppers increasingly look outside the country, the outbound momentum is less strident, although there is definite interest, according to Mansour. BILSI handles the odd international shipment, remarks Cahley, but this traffic does not amount to much yet, especially when it comes to overseas markets. “Canadian companies have not been big on offshore exports.”
For UPS most of the deliveries are domestic shipments and imports from the U.S. At this point approximately five per cent of SME merchants sell internationally, notes Vitale. He reckons that the free trade agreement with the European Union will spawn some B2C traffic in this trade lane.
“We are not seeing the growth yet,” says Cahley.
For eShipper the U.S. is the biggest trade lane, while Britain and Australia have come on strong, notes Kermali. The latter market has a high duty free threshold, which should eliminate concerns about such charges, he adds.
For small businesses with limited capital shipping to international markets is challenging, observes Datoo. If the customer overseas rejects the shipment, the costs—including duties and taxes—are their loss, he points out.
To begin with, novices in international trade are not familiar with duties and tax rates in overseas markets. eShipper is looking to include a duties and tax calculator on its website.
Returns pose another headache. Given the value of the goods shipped, in most cases a return to origin would be prohibitive. eShipper has a returns polity for the U.S. market and is building up a returns portfolio, but when it comes to overseas shipments being rejected, nine out of 10 companies do not want them back, says Kermali.
In some cases re-imports face hurdles, points out Cahley. If a U.S.-based merchant wants to bring back a rejected garment that was originally manufactured in a third country, they will need the original manufacturer’s name and address, he notes.
He adds that the clearance process and tax regime for e-commerce flows into Canada are too cumbersome. “The CBSA needs a streamlined option for B2C e-commerce coming into Canada,” he argues. At this point the agency has two streams—for low value and commercial shipments. Adding a dedicated e-commerce stream to this would facilitate flows and help avoid congestion.
Such a step is bound to boost the flow of data. “Customs want to address risk. There is exposure to importing drugs, especially fentanyl,” reflects Cahley. An advance flow of data would be the logical step to address this.
Courier companies will not run out of reasons to update their technology, both to manage their assets better and boost productivity and to keep the interfaces with clients, consumers and government agencies humming. Any disconnect threatens to derail the online shopping process and kill a transaction, plus subsequent visits to the merchant’s site.