Final-mille delivery is becoming more challenging as consumers’ expectations soar
Purolator president and CEO John Ferguson recently announced a $1 billion investment package for the next five years that includes building a national super hub in Toronto (Purolator)
Purolator courier vans, already a ubiquitous sight on Canadian streets, are now in action seven days a week in big cities. Following trials in Vancouver, the company unveiled its ‘QuickShip’ service on July 11, providing daily deliveries in Vancouver, Toronto, Montreal and Ottawa. Other locations may follow.
FedEx and UPS have also announced plans to shift to a seven-days-a-week delivery pattern.
“In the next five years we anticipate that 50 per cent of the delivery market in Canada will be direct-to-home, with consumers expecting quick and reliable deliveries at times that are convenient for them, like evenings and weekends,” commented Purolator president and CEO John Ferguson at the time of the announcement.
Two weeks earlier Purolator had unveiled a $1 billion investment package for the next five years to “future-proof” its business. The company’s national super hub in Toronto, a 430,000 square-foot facility due to come on stream in 2021 that will handle about 60 per cent of its business, is the biggest ticket item at $330 million, but a considerable amount is geared to final-mile activity, from new vehicles to e-bikes and an expansion of the access point network.
The final mile is particularly challenging. “Delivery density has consistently been a challenge with e-commerce,” acknowledged FedEx COO Raj Subramaniam when his company announced its plans for Sunday deliveries.
“Delivering smaller items to residences does eat into our yields,” adds Steve Vitale, director of communications of UPS Canada.
The pressure on costs is set to rise further as the industry moves to accelerate deliveries. Amazon, which had previously set the standard for ‘free delivery’ at two-day windows, announced in April that it would deliver next day to its Prime service subscribers. With Walmart and other heavy hitters announcing plans to follow suit, next day is expected to become the standard.
“Amazon are setting the bar,” remarks Imtiaz Kermali, vice-president of sales and business development at Toronto-based eShipper.
“I don’t think everyone moves to next day, but everybody’s looking to next day. It has to be in everyone’s repertoire at some point,” comments Brian Bourke, vice-president of marketing at SEKO Logistics.
It is going to be a costly transition. Amazon set aside $800 million for the initial outlay on going next-day. The company does not break out the cost impact of this step, but its second quarter balance sheet shows a 36 per cent increase in shipping costs to US$8.13 billion.
John Haber, CEO of Spend Management, an Atlanta-based transportation consultancy, notes that Amazon was in a position to cover next-day deliveries for over 70 per cent of its shipments with its existing network when it announced next-day shipping. Morever, it has deep pockets to subsidize the development of its delivery network to support the new standard across the U.S. market.
“This will be difficult for others to match,” he says. “For brick and mortar stores it’s much more difficult to offer the same service levels at a competitive price. Consumers expect free shipment.”
Online shoppers have high expectations. They expect same-day or next-day delivery, variable last mile options, high visibility, flexible or free returns policies and always available stock. (DHL Supply Chain)
Online shoppers have high expectations, according to a study published by DHL in June. They expect same-day or next-day delivery, variable last mile options, high visibility, flexible or free returns policies and always available stock.
“It’s all about the customer experience and enhancing the customer experience,” comments Brett Williams, vice-president of sales at Trimble Visibility.
Consumers are also an unforgiving lot. A survey of 1,508 shoppers published in 2018 by Convey, a delivery experience management software firm, found that 83.5 per cent were unlikely to shop with a brand again after a poor experience. In addition to free shipping, they demand more self-service delivery features, and a growing number expect to be able to make some routing changes, Convey found.
Add to this the rapid proliferation of new delivery service elements, from improved visibility to the tectonic shifts caused by the moves to next-day and seven-days-a-week delivery, and it’s easy to see how merchants feel under siege.
“The e-commerce and parcel landscape is changing so fast it feels to retailers that the ground is shifting under their feet. They have to constantly re-evaluate their providers and their set-ups,” explains Bourke. Instead of reviewing logistics on an annual basis, they have to look constantly at new options and partners, he adds.
The shift to next-day delivery has a severe financial impact on merchants and carriers. “Most people charge premium for next-day delivery at the moment,” observes Haber.
He adds that the large integrators have been able to move a lot of second-day traffic through their ground networks, even if customers pay charges associated with transportation by air. Shifting to next-day significantly reduces the amount of traffic they can move on the ground.
Purolator hired 150 new staff and rolled out a new mobility platform for its QuickShip service. Achieving the necessary volumes to make the Sunday operation viable has not been an issue, according to Ferguson.
“We have enough existing clients to allow the minimum density that we need,” he says. Interest in the new service has been lively, and Purolator expects more shippers to embrace it once they have primed their own operations for seven-days-a-week schedule.
Not surprisingly technology is expected to play a huge role in efforts to achieve lower costs. Research published by DHL Supply Chain shows that 67 per cent of the retailers surveyed expect artificial intelligence and big data analytics to be essential for their 3PLs to muster.
Vitale points out that measures to reduce final mile costs kick in long before a delivery van pulls out of the yard. “It starts when we receive a package, how it flows through the system,” he says.
UPS is going to invest $500 million in Canada over the next few years and deploy new technology, which will optimize operations and improve yield per package, he adds
Not every firm has a few hundred million dollars to spare. “How do smaller companies compete? Through partnerships. It’s about creating a network that lets you scale,” says Bourke.
He sees a new era emerging where collaboration is the norm. “Nobody can do it alone any more.” SEKO itself has teamed up with a number of players over the past year, such as ShipStation, a provider of web-based e-commerce shipping software.
“We look at collaboration,” says Kermali. His company is renting warehouse in Vancouver from a competitor, which has its Toronto warehouse about five minutes from eShipper’s facility in Brampton. “They’re full here, so now they refer customers to us,” Kermali reports. “We all have to work together and be smarter.”
This is one factor that makes better information flow essential. The shift to a standard next-day delivery should begin with improved communication, both with suppliers and customers, argues Williams. For one thing, the various parties have to be notified in a more proactive manner, he says.
Integrating couriers with merchants who adopt Trimble’s platform to streamline operations and provide visibility has become much easier over the past four or five years, he reports.
The Wild West
However, the quest for better and faster information flow faces challenges. One recent study found that 46 per cent of the retailers surveyed were reluctant or unable to share e-commerce sales forecasts with manufacturers. DHL Supply Chain’s research revealed that 70 per cent of the B2C companies surveyed had not implemented an e-commerce strategy, despite recognizing its importance.
The rapid evolution of the market may be one factor behind this. Most logistics providers would argue, though, that a shifting landscape is no excuse for failing to formulate a strategy, and that such a strategy should allow for a good deal of flexibility.
“The final mile landscape in North America is the wild, wild west. Anything goes. Nobody’s built out the optimized routes yet,” comments Bourke.
He relishes this scenario. “It’s a great opportunity to create solutions, and it’s an opportunity for retailers to leverage supply chain networks for final mile delivery.”
A vital element in this is the establishment of multiple delivery channels—both for the sake of consumer convenience and to reduce final mile costs through elements like access points and parcel lockers.
“Mobile outlets on wheels, locker networks—all these help with cost,” remarks Ferguson. He adds that Purolator is planning to boost its access point network through partnerships with various companies.
UPS has about 40,000 access points around the globe, Vitale notes. Delivering in bulk to these instead of individual residential deliveries helps with cost containment. Also, a growing number of consumers don’t want to wait at home for a delivery, he says.
Still, home delivery is far and away the preferred option, Ferguson points out. “The future is: people want convenience,” he says.
Purolator has seen 25 per cent growth in its delivery volume over the past three years. It now moves a million parcels a day at peak times. According to Vitale, UPS today delivers more residential than B2B packages.
Bourke anticipates accelerated growth in e-commerce shipments crossing the border into Canada once the new NAFTA agreement finally comes into effect, as this calls for an increase in the de minimis threshold for duty free personal imports into Canada.
U.S. Customs and Border Protection (CBP) have struggled with the tidal wave of parcels flooding into the country after the U.S. raised the de minimis to US$800 a day. CBP does not have the resources to handle these volumes. It is currently planning a voluntary pilot project to collect advance data for e-commerce shipments with import values below the US$800 de minimis.
If their e-commerce shipments get stuck in customs, shippers are unlikely to react with empathy, research shows. They expect online merchants to take ownership of the delivery.