With annual volume growing at 15% to 18% in recent years, overnight parcels specialist APC Overnight has outgrown its national hub in Essington, West Midlands. The company is in the process of relocating to a purpose-built 120,000sq ft centre at Kingswood Lakeside just off the M6 Toll road, but due to the wet summer and longer-than-expected ground works the new hub will not be operational before spring next year.
But recently appointed APC chief executive Syed Ziaullah is relaxed about the delay, and confident that the existing facilities will cope with another pre-Christmas peak period.
“Christmas 2012 will be a challenge in the existing hub because we are still seeing 18% annual growth,” he says. “We recognised three years ago that we needed to do something, which is when we started planning relocating the hub, opening regional hubs and extending where we currently are. Ideally would have liked to be operational this year but the reality is we won’t be until next spring.”
APC had already opened an overflow facility near the M6 Toll road and it will be bringing in as much freight as possible as early as possible to maximise the hub’s throughput. Because APC uses 115 independent courier firms – 32 of which are shareholders - to handle local collections and deliveries, it cannot directly control the times that parcels are available for trunking to the hub.
“We are unique and so we have to encourage our depots to release freight early and then we can put on extra resources to bring it in,” says Ziaullah. “Like every network, we can only sort what we’ve got when we’ve got it, and we have to maximise the window of opportunity by getting in as much as we can earlier.”
He insists that despite remaining in the existing 60,000sq ft hub, sortation capacity will not be a limiting factor on volumes.
“The hub will never be full because putting extra resource on trunking means the vehicle comes on the door earlier and so the normal trunker departure time will still be met,” Ziaullah says. “There will be a lot more trunk movements in the busy period, not only to accommodate growth but to enable the depots to have the freight earlier. If we have the upsurge we are expecting the depots will need that time in the morning to sort the timed deliveries.”
Only once the business is settled in the new hub will we make any decisions on the future of Essington
“We are in fortunate position that we don’t need to release the asset value,” says Ziaullah. “The smooth transition of the business is key. We have already discussed several options for it but will wait until we are comfortable with the new operation before deciding what to do. The sorter isn’t new but it still works well and we are not taking any kit with us.”
Another challenge for APC is to “understand what the rest of the industry is doing,” he adds.
“Many of our competitors are putting caps on their Christmas peak volume,” Ziaullah says. “We are encouraging our network to say ‘no’ to the one-off companies that have had a cap imposed and want to use us for overflow just over the peak period. We want to protect service levels for the loyal customers we have had for a number of years.”
That means APC will not be imposing a cap on any of its existing customers this Christmas.
“We are encouraging the depots to think about the long term repercussions of taking quick wins over looking after our regular loyal customers,” says Ziaullah. “Everyone is aware now that capacity in the home delivery industry has shrunk – all our competitors except DPD have been closing depots to address their losses.”
Since he became chief executive in January 2012, Ziaullah has been on a marathon tour of the depots to meet each principal and “ensure each location is aligned with our growth ambitions”.
“We have a small central sales team and the challenge for smaller depots is finding the time to go out and grow their own business in line with the deliveries we are pushing through,” he says. “We are unlike the pallet networks, which do have a central sales resource but they charge the depots. We don’t charge the depots for sales support - we put that resource in ourselves to assist them. We all gain long term and it helps balance the trunking volumes.”
Another issue Ziaullah discussed with the depot principals was central hub accounts. APC does not yet take on central accounts, and every depot manages its own customers. APC does have two “strategic partnerships” but will not take on true central accounts until it has relocated to the new hub.
“The benefits of hub accounts will only be there if they are a good fit for us,” he says. “Unlike the normal thought process of ‘we need loads of volume’, our core function is to provide a quality service. We are being selective so when we choose a company to work with us as a hub account it will be a partnership rather than customer/supplier relationship. It will be B2B rather than B2C – that is one of my criteria. We do B2C deliveries and that will continue but for hub accounts we would only accept B2B.”
Despite rising demand and falling capacity, home delivery rates remain depressed for many UK carriers. The problem is being made worse by the high level of returns, especially in the fashion sector.
“The real challenge is marrying up the mindset of the consumer and what practically can be delivered for what they are prepared to pay,” says Ziaullah. “The mindset seems to be ‘I expect my front room to be the changing room of my local store. I used to go to the shop on a Saturday and try on four dresses and decide if I want any or none of them. If I want none I walk out and haven’t paid anything. I now want to do the same in my front room and if I don’t want any of them I shouldn’t have to pay anything’. Which is fine but someone has to pick up the cost of the back and forward movement.”
The issue of returns and who picks up the tab is becoming a growing source of tension between internet retailers and their carriers.
“The one thing the retailers can’t do is push all the problems onto the distribution companies and expect us to handle it for nothing,” asserts Ziaullah. “That is just not viable. It is a joint problem for us and the retailers. The cost of dealing with returns takes out a slice of the profit from the goods they have sold and if 25% of the order is returned that is a big hidden cost.”
The carriers already have to bear the cost of redelivery if the consumer isn’t at home on the first attempt. APC’s unique model of using local couriers means it achieves a high first time success rate, helped by the fact that recipients get an email informing them when their parcel will be delivered. They then have the option to rearrange delivery via the APC website or collect from the depot.
“My recommendation is that we encourage people to collect from the depot once they have had the first delivery attempt,” says Ziaullah. “With 155 sites we have a higher density of depots. Some also work 24/7 and many open a lot longer than the traditional 8 til 12 on Saturdays.”
APC currently does not offer the option of leave in a safe place or with a neighbour, preferring to get a proof of delivery from the recipient.
“Royal Mail has just launched ‘deliver with a neighbour’ and if that is received well then the rest of the industry may relook at it,” says Ziaullah. “There are problems with that though. As soon as you are not getting a signature from the recipient you are then open to all sorts of disputes. There are lots of challenges with the B2C market and we are concentrating on B2B because it fits our model better.
“We have 8% of the timed delivery market but only 4% of the overall parcels market. So we still have a lot to go after at the premium end.”
As well as having an impact on pre-Christmas volumes, changes taking place at competitors like the Royal Mail and TNT are also helping APC gain volume.
“We are seeing more enquiries because of the changes there,” confirms Ziaullah. “I wouldn’t see Royal Mail as a key competitor as we are looking more at the premium end. But as time goes on and they continue realigning their business model it will have an impact on us.
“We are also getting enquiries from TNT customers concerned about the impact of the UPS takeover. The timing is good for us – with our new facility onboard next year we can handle significant growth. TNT is a company I have long admired – if we are seen in the same light as TNT we have achieved something.”