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Same-daydeliverywhitepaper

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Same-daydelivery:Thenextevolutionarystepinparcellogistics

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Same-daydeliveryhasthepotentialtofundamentallychangethewayweshop.Itintegratestheconvenienceofonlineretailwiththeimmediacyofbricks-and-mortarstores.

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Onlineretailersareexpectedtobenefitfromreduceddeliverytimeasalmostimmediateproductaccessimprovestheirpositionversusstationaryretailers,andmakesthegreaterchoice,higherconvenienceandoftenlowerpricesofonlineshoppingevenmoreappealing.Bricks-and-mortarretailersinturnhaveauniqueopportunitytocombinetheirexistinglocalinfrastructurewithane-commercechanneltooffersame-daydeliveryonabroadscale.Amultichannelapproachcouldenablethemtowinbackcustomerswhoarebecomingincreasinglyfocusedononlineshopping.

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Themajordriversatworkinthecurrentlandscape

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1. Same-daydeliverycombinestheconvenienceofonlineshoppingwiththeimmediateproductaccessofstationaryretail

Imagineorderinganewpairofshoesorgroceriesfordinnerinthemorningandreceivingthegoodswhenyoureturnhomefromwork.Theworld’slargestretailers,includingAmazonandWalmart,arenurturingthisvisionandexperimentingwithinnovativedeliveryconcepts.Butcansame-daydeliveryreallybecomeastandarddeliveryoptionforthemasses,orwillitmerelyremainanoptionforalimitednumberofimpatientconsumerswithdeeppockets?

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Same-daydeliveryasthenextevolutionarystepinparcellogistics

The“lastmile”—thefinaldeliverysteptotheconsumer—isgainingimportanceduetotherisingshareofonlineretail.ThelatterhasturnedintoamajordrivingforceofB2Cparcellogisticsandtriggeredintensiveevolutionoftheserviceofferingtowardsgreaterconvenience(Exhibit1).Alongsidealternativepickupanddeliveryoptions(e.g.,locker-boxesandparcelshops),speedisthemainpushinthisevolution.Next-dayortwo-daydeliveryiscurrentlytheindustrystandardinalldevelopedcountries,butthenextevolutionarystepisaffordablesame-daydelivery.

Withsame-daydelivery,ordersaredeliveredwithinafewhoursafterpurchasingthem,orinachosentimewindowonthesameday. “Same-daydeliveryisagamechangerbecauseitcombinestheimmediateproductavailabilityofretailwiththeconvenienceoforderingfromhome.”

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Strongfundamentaldriverssupportthegrowthofsame-daydelivery

Themarketforsame-daydeliveryisfueledbyunderlyingmacro-trends,includingincreasingworldwideGDPpercapita,rapide-commerceadoption,urbanisation,andchangingconsumerexpectations.

Same-daydeliveryrequiresacriticalmassofconsumerswithsufficientfinancialresourcestopayforsuchapremiumservice.RisingGDPpercapitabecomesevenmorecriticalwhenitappliestolargemetropolitanareas.Accordingly,therelevanteconomicunitsaremetropolitanareasratherthannations.Yettheexistenceofdenselypopulatedareaswithextensivebuyingpowerisnotenough.Ahighlevelofe-commerceadoptionisaprerequisiteforsame-daydeliverytoactuallytakeoff.

Thesedevelopmentsareaccompaniedbyrisingconsumerexpectations.Consumersaredemandingevermoreconveniencewhentheybuyonline,particularlywheredeliveryisconcerned.Theywanttohavemultipledeliveryoptionstochoosefrom,andtoreceivetheirproductsasfastaspossible.Onceconsumershaveexperiencedasuperiorservicelevel,theyareusuallyreluctanttoreturntothepreviousinferiorlevel.FewpeoplewouldbewillingtowaitfourdaysforadigitalcameratheyhaveorderedonlineiftheycangetAmazontodeliveritthenextday(assumingbothoptionsarefree).Judgingfromrecentsurveyresults1 ,youngergenerations(e.g.,millennials),peoplelivinginsmallhouseholds,thoseworkinglonghours,andconsumerswithhigherincomesareamongthoseparticularlywillingtopayformoreconvenience.

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1. S

2. ConsumerPerspective:Willingnesstopayforsame-daydelivery– attherightprice

Consumersseemtoperceivesame-daydeliveryasattractiveifitcostslessthan7to8percentofthebasketvalue.

Anactualconversionrateofmorethan30percentoncedeliverycostfallsbelow7percentofthebasketvalueorthevalueoftheentirepurchasemade.Theconversionrateappearstobethesameforallproductcategories.Thosewithhighaveragebasketsizes,e.g.,consumerelectronicsareeasiertopenetratesincethedeliverycostsasapercentageofthebasketvaluearenotassignificantasthoseforclothingorder.

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1. S2. e3. RetailerPerspective:Same-daydeliveryasacatalystforonline

sales

Same-daydeliveryisabigopportunityforallretailerstoimprovetheirservicelevel,butrequiresahighdegreeofsophistication.Majorchallenges,suchasreal-timeproductvisibilityacrosswarehouses,veryshortfulfillmentlead-timesandflexiblelast-miledelivery,havetobeovercomewhilebringingcostdowntoalevelthatconsumersarewillingtopayfor.LargeretailersgeneratingmostoftheB2Cshipmentscouldtheninstitutionalizesame-daydeliveryasafast,localised networkdistributionmodeindenselypopulatedareaswithacriticalmassofonlineshoppers—butwouldthenalsoneedtohaveanextensive,accessible,andstandardizeddistributionnetworkthatoperatesatanacceptablecost.

Retailersareexpectedtoreapadditionalbenefitsfromofferingsame-daydelivery.ExperienceatAmazonshowsthattheoptionofsame-daydeliveryaloneactuallyincreasespurchaseconversionduringthecheckoutprocessby20to30percent,althoughnoteverycustomeractuallyoptsforsame-daydelivery.Thesurveyresultssupportthisclaim:morethanhalfofrespondentswouldbuyonlinemorefrequentlyiftheywereofferedasame-daydeliveryoption. “Agooddeliveryexperienceisakeypartofkeepingourcustomershappyandencouragingrepeatpurchasesaswellashelpingtobuildbrandwarmth.”(NickRobertson,CEO,asos.com) Theavailabilityofenhanceddeliveryoptionshaspositiveeffectsoncustomerloyaltyandreducesthegoodsreturnrate,accordingtoAmazon.Areductioninthereturnrateisveryappealingtoonlineretailerssincethecurrentshareandattributedcostofreturnsisasignificantburdenontheiroperationsandfinancialresults.

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1. S2. e3. RetailerPerspective:Same-daydeliveryasacatalystforonline

sales- CONTINUED

Tocapturethebenefits,retailerswillhavetosubsidizesame-dayservicesfortheforeseeablefuture.Same-daydeliverycostschargedtoconsumerscurrentlyrangefromaboutAUD$15uptoAUD$50pershipment,butthewillingnesstopaysuchhighpricesislimitedaccordingtothesurvey.Consumersareusedtosubsidizedshipping,andarereluctanttopayextraforit.CompaniessuchasAmazonshapedthee-commercemarketbyeducatingcustomersthattheydon’thavetopayforshippingatall.

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1. S2. s3. 44. LogisticsPerspective:Incumbentlogisticsproviders,new

entrants,andretailersthemselvesaredevelopingsame-daydeliverysolutions

Same-daydeliveryisaconsolidationplay.Alargenetworkwithsufficientvolumewillbenefitfromsignificanteconomiesofscaleandoutperformsmallernetworks.

Thecomplexchallengeofprocessing,fulfilling,anddeliveringanorderwithinafewhoursrequiresnewtypesofnetworks.Thecurrentprocessesusedbyparcellogisticsprovidersarenotsuitedtosame-daydeliveryatscale.Moreflexiblecitycouriers,ontheotherhand,aretoosmalltodealwithlargeretailervolumes.

Thecreationofasame-daydeliverynetworkcomesatahighcost.Largevolumesineachdeliverydistrictneedtobeachieved,whichisdifficultinthebeginningand—dependingontheoperatingmodel—mayrequireextensiveupfrontinvestment.Inaddition,thespeedatwhichthedeliveriesaremadenecessitatesamoresophisticatedassetandcapabilitybasethatinevitablyresultsinahigherpricepointforthelogisticsservice.

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Parcellogisticsprovidersarerethinkingtheirtraditionaloperationalmodelstoenablesame-daydelivery

IncateringtotheneedsofthegrowingB2Csegment,parcellogisticscompaniesareincreasinglyfocusingonconveniencefeaturessuchasalternativepickupanddeliveryoptions(e.g.,parcellocker-boxes),flexibledeliverytiming(i.e.,scheduleddelivery),anddeliveryspeed(i.e.,same-daydelivery).ThesecompaniesarethenaturalsuppliersofB2Cparceldeliveryservices.Theyderivetheirstrengthfromlast-miledeliveryviaahub-and-spokesystemwithovernightsortingandfixeddeliveryroutes.Theirinfrastructureandprocessesareoptimizedfornext-daydelivery,sooneofthekeychallengeswillbetoenhanceexistingassetsandcapabilities.Parcellogisticsprovidersstruggletooffersame-daydeliveryasitrequiresflexibleintradaypickupanddeliverywithamaximumofonetransitionpoint.

Fromatheoreticalstandpoint,themostpromisingapproachistheintroductionofaneveningdeliverywave.However,anytimewindowneedstobelargeenoughtoensurethatsufficientparcelvolumeiseconomicallyviable.ProviderscanbuildontheirexistinginfrastructureandfeedinshipmentsfromMultipleretailerslocatedtogetherclosetocustomershomestoincreasethecapacityutilizationoftheadditionaldeliverywave.

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Brokersofcouriercapacityareenteringthemarkettodevelopplatformstoorchestrateexistinglogisticscapacity

ConventionalB2B-orientedcitycourierscandeliversame-day,buttherearethousandsofthemandtheyaretoosmalltobeanadequatepartnerforretailers.Anewtypeofplayerisenteringthemarkettomakeexistingcouriercapacityaccessibleforretailersinascalablemanner.Technologystart-upssuchasShipit,aggregatelocalcouriercapacityonabrokerplatformtoformflexiblecouriernetworks.Retailersthatareintegratedwiththisplatformcanoffersame-daydeliveryasanadditionaloptioninthecheckoutprocessoftheironlineshops.Singleordersaredynamicallyassignedtoacourierwithfreecapacityfromthenetwork,whichpicksupanddeliverstheorderwithinacoupleofhours.Theirareclaimsthatpoint-to-pointdeliveryusingaflexiblecouriernetworkislesscostlythanhub-and-spokesystemsfordistancesoflessthan15km.Themaincostdriversfordeliveryviasuchanetworkarevariablecostperhourandthedistancebetweenstops.Withsufficientliquidityinthesystemandanincreasingpickupfactor,deliverycostsdecreasetoalevelbelowthatofjustusingthecheapestsubcontractors.

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2. C3. C4. c5. Economics:Same-daydeliveryisascalegame

Largeshipmentvolumesarecrucialforallformsofdelviery providersbecausetheycanreducecostssignificantly.Whilecouriernetworkscanonlyreachhigherconsolidationonavehiclelevel,parcellogisticsproviderscanalsoreducecostsviaprocessautomation.However,last-mileproviderscanonlyscaletheiroperationsiftheretailerhasadequateinterfaces.

Onlytechnologicallyadvancedretailersandlogisticsproviderswillbeabletooffersame-daydelivery

Inthecurrentmarketenvironment,fourprerequisitesneedtobefulfilledtoenablesame-daydelivery:productavailability,real-timeproductvisibility,fulfillmentcapacity,andflexiblelast-milecapability.

First, productsneedtobelocallyavailable. Dependingupontheoperationalmodel,regionalproductavailabilitycouldbesufficient,especiallywhentherespectiveretailergeneratesenoughvolumetojustifyfrequentpickup/deliveryroutestothemainurbancenters.Thatsaid,same-daydeliverystillremainsaservicelimitedtourbanizedareas,andisrarelyavailabletotheentirepopulationofacountry.Multichannelretailersalreadyhavelocalproductavailabilitybecausetheymaintainanetworkofstores.Onlineretailers,ontheotherhand,willfirstneedtoinvestinbuildingupanetworkoflocalurbanwarehouses.Second, retailersneedtohaveareal-timeoverviewoftheirinventories acrosstheirwarehousesandoutlets,otherwiseitwillnotbepossibletodeterminewhetherthegoodsareavailableforsame-daydeliveryduringthecheckoutprocess.Manyretailersstillstrugglewiththishurdle,whichrequiresthattheyinvestmoreintheirITinfrastructures.Thelogisticsproviderneedstobeinformedofwhereandwhentopickuptheshipmentviaareal-timeinterface,withtheinformationpreferablybeingfeddirectlyintotherespectivetransportationmanagementsystem.

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Third, thepickingandpackingprocessesneedtobefast, andfast-trackedoverregularorderswherevernecessary.ExperienceatAmazonhasshownthatsignificantinvestmentinthelogisticsinfrastructureisnecessarytoreduceleadtime.Retailersplanningtoshipfromtheirstoresfirstneedtodevelopthecapabilitytoefficientlyfulfilltheordersin-store.Theintroductionofclickandcollectservesasaprestagetotheintroductionofsame-daydelivery.Fourth andfinally,last-miledeliveryneedstobeflexibleenoughtopickupanddeliverordersadhoc ormultipletimesthroughouttheday. Dynamicreroutingusinggeo-fencingallowslogisticsproviderstoinstantlyrespondtonewshipments.Forlogisticsprovidersusingatransitionpoint,theabilitytofast-tracksame-daydeliveryshipmentsinsortingstationsiscrucial.

Oncethesefourprerequisiteshavebeenfulfilled,same-daydeliveryturnsintoapuregameofscale.

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2. C3. C4. c5. E6. Parcelnetworkscanbeatcouriernetworksonvariablecostper

shipmentoncetheyreachedsignificantscale

Theeconomicsofsame-daydeliveryaremainlydrivenbythedegreeofshipmentconsolidation.Variablecostsperunitdecreaseasthenumberofshipmentsperdayandcitygrow.Aretailerfleetoperatingseveraltimewindowsduringnormalbusinesshourshasconsistentlyhighervariablecostspershipmentthanmulti-userplatforms.

Inaddition,itismuchmoredifficultforasingleretailertoreachsuchscaleinasinglecity.Aparcelnetworkofferingsame-daydeliveryusinganeveningwavecanconsolidateshipmentsfrommultipleretailersandismuchmorelikelytoachieveprofitability,assumingthatretailerspayanaveragepriceperdelivery.

Variablecostsdeclinemuchmorequicklybecausedeliveryroutescanbeoptimizedandcapacityutilizationisexpectedtobehigherthanwithretailerfleets.Acouriernetworkoperatingtheentiredaystartswithsignificantlylowervariablecostsatlowervolumes.Increasingshipmentvolumeshaveamuchweakereffectonvariablecostssincethecourierscanmainlyachieveconsolidationonavehiclelevel.

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2. C3. C4. c5. E6. P7. Outlook2020:Same-daydeliverycouldbeagamechangerin

retaillogistics

Thedevelopmentofsame-daydeliveryisdrivenbythetrendsoutlinedinthisreportaswellasthesophisticationofretailersandlogisticsproviders.Asthesefactorsdiffergreatlydependingoncity,same-daydeliveryisboundtodevelopatvaryingspeeds.

Marketdevelopmentdependsone-commerceadoptionandgeographicalpopulationdistribution

Same-daydeliveryislikelytobecomeavailableatmostretailerswithanonlinechannelonabroadscaleinurbanised areas.Itisfullysubsidised onceacertainbasketvaluehasbeenreached.

Economiesofscaledrivedownthecostofsame-daydeliveriessignificantly,reachingalevelstillhigherthanregulardomesticshipmentsbutmuchlowerthantoday.Multi-usersame-daydeliverynetworksrunbyparcellogisticsprovidersreachenoughscaletoincreasetheconsolidationfactortoabout10to12dropsperhourandoperatemultiplepickupanddeliverywavesperday.Standardnext-daydeliveryispartiallycannibalized,butthebroadavailabilityofsame-daydeliveryfurtherpropelstheadoptionofe-commerceasnewusecaseslikespontaneousonlinepurchasesemerge,andthusincreasestotalmarketsize.

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Same-daydeliveryofferslargeupsidepotentialforretailersandlogisticsprovidersalike

Theintroductionofsame-daydeliverywilltaketheonlineshoppingexperienceofcustomersinthemetropolitancitiestoanewlevelofconvenience.Theproductvarietyavailableonlinefromspecializede-tailers combinedwiththepricetransparencythate-commerceoffers(e.g.,viaproductsearchmachines)andsame-dayproductavailabilityisapowerfulcustomervalueproposition.However,giventheincreasedcomplexityofsame-daydeliveryacrosslogisticsoperations,pricesforsame-daydeliveryarelikelytoremainatalevelwellabovethecurrentpricelevelforstandardnext-daydelivery.

Retailershaveasame-daydelivery“sweetspot”withtheirexistinglocalinfrastructure,particularlyshopsandwarehousesinorclosetometropolitanareas.Theproximitytotheendcustomerenablesthemtoprovidecustomerswithdeliveryonthedayofthepurchase,ideallycombinedwithanoptionforatimewindow.Mostretailershavealreadyaddedane-commercechanneltotheirtraditionalbricks-and-mortarsalesapproach.Thecombinationwithsame-daydeliverycouldhelptowinbacksomeofthecustomersthathavebeenlosttoonlineshoppingoverthelastdecade.

Theunderlyingtrendsofincreasinge-commerceadoptionandurbanizationwillcreateastrongurgeforevolutionfromthecurrentnext-daystandardinB2Cparceltosame-day.

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Stateofplay– Australia2018

ü 48%ofonlineconsumerswantSame-daydelivery

ü 22%want3hourdelivery

ü 60%wantweekenddelivery

ü 52%wantafterhoursdelivery

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Game

Changer

GarryYovichNationalSalesDirectorDirectCouriersP:028437777M:0419228021E:garry@directcouriers.com.au

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