This is a guest article from Parcelhub.
In all the hoopla surrounding the development and growth of eCommerce, delivery has always been seen as a prosaic utility: necessary, solid and unchanging.
Boy, is that wrong.
With retailers fighting each other – and everyone fighting Amazon – delivery has become one of the key differentiators among retailers and marketplaces.
Forget the price-based race to the bottom: today, delivery options are what distinguishes brands from one another.
Amazon, of course, has long championed the customer-attracting power of shipping – its whole Prime business model is based around it.
But others have also jumped on delivery as one of the key things to bring in customers. ASOS didn’t get to where it is today without cannily using free next day delivery as a hook to get customers to pay to sign up to being ASOS registered users.
They actually pay.
We'll leave that there for a moment to let it sink in.
With delivery now being such a vital part of the eCommerce business model and differentiator (and, in ASOS’s case, revenue and opted-in data generator), it too like eCommerce is seeing rapid developments both in services offered and the technology that makes it tick.
But it is the economics of delivery that really dictates its future, so what are some of the key changes we are likely to see in the – possibly very – near future in eCommerce delivery and what will be their economic impact?
Same day – and beyond
Amazon and ASOS, among others, have made next day delivery central to their customer proposition and have reaped the rewards.
Let’s face it, the one thing that always let down the convenience of eCommerce has been having to then wait for the goods to arrive. Now the battle has shifted to same day delivery – and even next hour delivery – for some goods in some locations.
The reasoning is sound: shoppers will pay, in certain circumstances, a premium to have things delivered ASAP.
You need a new office printer; you need a dress so you can stand in for your boss at the dinner; you want that new iPhone and you want it before everyone else – the reasons are myriad and sound for doing it.
But does it stack up business-wise?
Back in 2014 and 2015, McKinsey and research firm Stuart respectively found that 50% of shoppers were prepared to pay up to €7 on a €59 purchase to have it the same day and that 72% of shoppers would shop more and spend more if same day delivery was available.
But any ‘premium’ service that commands a higher price is always going to have limited appeal and, even if they say they want it, many shoppers will baulk at the extra charge. Same day or even more rapid delivery is always going to be a tough sell at checkout.
And this is a problem.
The cost of fulfilment, processing, despatching and delivering rapidly is very high – even in today’s ultra-competitive market – and so getting to tipping point between demand that covers the cost of doing it and actually offering it remains hard.
As we shall see, third party carriers and new technology may bring down this tipping point for more retailers, but it still remains something that isn’t necessarily for everyone.
According to a report by Brendan Witcher, Vice President and Principal Analyst at Forrester, same day delivery isn’t the be-all and end-all of eCommerce delivery and is only suited to very specific brands. Perhaps instead, he advises, retailers and merchants should focus on same day delivery for click and collect.
Drones and robots
One thing that could bring about a change in the economics of same day – and, in fact, all aspects of delivery – are drones and robots.
According to a note published by Deutsche Bank reported to Business Insider in 2016 when Jeff Bezos announced Amazon Prime Air, delivery automation, using drones and robots, present the "biggest cost reduction" opportunity for Amazon, with an estimated 80% cost savings coming to last-mile shipping, or the shipment between the final storage hub and the customer's home.
The bank at that time offered a stark cost comparison: for a typical shoebox delivery , premium ground such as UPS or FedEx cost $6 to $6.50; mid-tier carriers like OnTrac cost $4 to $5; USPS for last mile alone: about $2. Robots and drones? Less than $0.05 per mile of delivery.
Some are already starting to reap the rewards of this saving.
In London, Takeaway companies Just Eat and Pronto are taking delivery of some of the first robots to be delivered by Starship Technologies in a testing programme that will also cover cities in Germany and Switzerland.
Yet robots and particularly drones struggle to get off the ground, if you’ll pardon the pun.
According to Flexport, a global freight shipping company, drones are in a situation similar to the one faced by self-driving cars. Companies have demoed the technology, so the real obstacle is the legal and regulatory environment. In both cases, this means integrating the technologies into daily life could take a long time—or it could happen very quickly.
Current drone economics are good for deliveries that take less than 1 hour. One has to say that, as demand for delivery rises and if there is a rise in demand for more rapid delivery, then the economics of drones and robots makes them highly compelling – compelling enough to overcome the regulatory hurdles.
Are people willing to pay a major premium for the service?
In fact, it may not be too late to order Christmas presents on December 23, 2020.
With one’s feet more firmly on terra firma, there is another solution to the issues of economics of managing not only the need for rapid delivery, but also for delivery as a competitive tool.
Let’s not forget, most people don’t demand same day delivery, but most will choose your brand over another if you can offer them low cost or even free next day delivery, or delivery flexibility that suits them.
And this is where perhaps the biggest shift in delivery trends comes into play: the importance of having a multiple carrier solution.
The key here is that consumers want delivery options – be that drones or just to be able to choose what they spend and when they get their goods.
For retailers this means that they have to be able to offer all of these delivery options.
Stuart research finds, 79% of consumers would switch who they buy from online to get the delivery method they prefer.
This may seem a bit esoteric, but in such a competitive environment as eCommerce, these things matter. And that is why some forward-thinking retailers are looking at how to not only offer more choice in when things are delivered, but by whom.
Integrating data from third party carriers, or from carrier management solutions increasingly allows the retailer to offer a choice of delivery days, times and carriers – all priced accordingly.
It may seem counter-intuitive, but some people will pick a certain carrier even if it costs more as they have had a better experience with them in the past.
Similarly, in many non-urban areas certain carriers use the same driver and shoppers come to know them and like them, again affecting choice of carrier.
As eCommerce gets ever-more competitive, this choice of carrier option will become more widespread as retailers increasingly look to differentiate themselves with better customer service.
According to Accenture, selecting the right delivery partner has become a critical business decision for eTailers.
Their research – across more than 1000 online retailers in Australia, Brazil, Canada, China, France, Germany, Italy, Japan, United Kingdom and the United States – reveals how digital is dramatically blurring the boundaries between retailers, marketplaces and delivery providers.
This is already happening; in the same research 70% of retailers questioned use more than one parcel provider to ensure they get the best price (73%) and to mitigate the risk of relying on a single provider (68%).
Clearly, carrier choice leads to better and wider spread of delivery options for retailers to offer their customers – which should mean more revenue. Third-party management of a portfolio of carriers also leads to it being done as efficiently as possible and so this is perhaps the biggest trend in e-delivery right now – and one that has a huge economic impact on the industry.
Order Management Systems (OMS)
Another area where delivery processing and handling can be made more cost-effective is in investment in operations technology – and that means re-evaluating Order Management Systems (OMS).
Once the preserve of the biggest retailers, these IT systems that used to manage inventory and shipping have moved to the cloud, are available as Saas technology and are ever more affordable to smaller and smaller retailers.
They are also increasingly sophisticated, acting like a central nervous system in a retail business linking all the data from inventory, warehousing, stores and logistics to CRM, customer service and even marketing.
OMS offers a way to see where all your stock is, tie orders to stock that is near to the customer or that is with any one of your range of carriers, and bring about huge efficiencies in terms of knowing exactly what you have, where it is and how to most efficiently get it to where it needs to be.
This, in turn, feeds what delivery options, dates and times you can offer, as well as making your customer service agents even more effective at telling people where their orders are – especially useful during the Black Friday and Christmas peaks, when many retailers are bombarded with calls about eCommerce items in transit.
OMS goes deeper than that this though.
Understanding at a granular level your stock position and its location can also help promote items that you have many of – or under promote ones that are selling too fast – truly controlling how people shop.
Add Artificial Intelligence (AI) into the equation, and OMS systems can learn about consumers’ behaviour and what that means for stock control.
AI can also help OMS calculate the most efficient ways to move stock around, arrange deliveries and more. This, in many ways, is the future of delivery and eCommerce combined.
eCommerce is the brain, OMS the nervous system.
And having such intelligence will eek savings out of your processes as AI will be able to find the most efficient and effective way to combine deliveries and carriers to satisfy demand, in real time. And with a lot of this tech now being available as a service, capital outlay can be minimal.
However, there is one thing left in the future of eCommerce delivery that could well make all of the above even more effective and, as a result, make new delivery methods not only cost-effective to the few, but mainstream for all.
Think Blockchain and most people think you mean Bitcoin. In reality, Blockchain is the underlying technology that allows things like Bitcoin to work – but it has many other uses, one of which could be cutting costs in eCommerce delivery management.
In essence, blockchain is a shared, distributed ledger that can be used to record transactions and track assets in a tamper-evident, digital format. It allows multiple stakeholders to confidently and securely share access to the same information.
One of the key benefits of blockchain is that it can cut down on the huge amounts of duplicated documentation generated in a traditional supply chain.
And it could be the most revolutionary thing in eCommerce delivery alongside carrier choice as it makes the running of multiple carriers even more cost effective than it already is.
As reported in Post & Parcel, Accenture says that “the international shipment of goods for companies in areas such as the automotive, retail or consumer goods industries typically requires more than 20 different documents, many of which are often paper-based, to enable the goods to move from exporter to importer.
Across these documents, up to 70% of the data can be replicated. The document heavy approach limits data quality and real-time visibility to all parties involved in the trade and this can also delay the financial settlement on goods”.
Recently, an industry consortium comprising AB InBev, Accenture, APL, Kuehne + Nagel and a European customs organisation has tested a blockchain solution which could eliminate much of this documentation altogether and save the shipping and logistics business billions of dollars each year.
Accenture again: the new blockchain solution “can speed up the entire flow of transport documents, reduce the requirement for data entry by up to 80%, simplify data amendments across the shipping process, streamline the checks required for cargo and reduce the burden and risk of penalties for customs compliance levied on customers”.
Such a sea-change in shipping could have immense implications for retailers and brands, as well as carriers and others involved in the logistics of eCommerce delivery.
Shaving off that amount of fundamental costs suddenly makes all things look achievable. The economics of drones, same day delivery and more all then lie within easy reach.
Blockchain looks set to revolutionise many aspects of life – it is almost certain that shipping is next.
So, with retailers, marketplaces and brands all increasingly turning to delivery to beat each other to the sale, logistics has suddenly become a hot potato.
Delivering faster and more flexibly are two drivers from the customer side. And technologies clearly exist that can make these things happen – but it is the economics that slow it down.
In the competitive market that retailers now operate in, every dime is sacred and spending it is fraught. While investment in delivery could make you more money, nothing is certain.
However, the likes of Blockchain, SaaS-based OMS, AI and even drones and robots combine to offer game changing economies – especially if applied in harmony. The future of eCommerce delivery certainly looks exciting.