The explosive growth in e-commerce in recent years has left the road transport industry struggling to provide enough capacity. MT looks at the implications of this change.
Today (3 December) is Cyber Monday, where consumers in the full swing of crazed Christmas-gift buying are expected to set a record and make 115 million visits to online retail sites.
If Experian’s prediction is realised, it will represent a leap of 36% on the same day last year. For December as a whole, consumers are expected to spend 375 million hours shopping online, rather than braving the high street.
The game has changed, and it has left many of the UK’s largest delivery names scrambling to respond.
A source close to the parcel industry told MT that this Christmas would be a testing peak for carriers, as the internet had effectively removed the cap on volumes. He said the volume of parcels that could be ordered online was limitless, but the amount of warehousing space and delivery vehicles that parcel operators could provide was not.
If the threshold of online orders on the internet exceeded the total capacity the industry could provide, delivery dates would be missed and clients would be making delivery slot promises they could not keep.
Yodel, which suffered negative publicity after delayed Christmas deliveries last year, is all too aware of this. Last month it said that it would cap the number of parcels it handled during the peak to avoid a repeat, having said earlier this year it would be increasing its rates. “We didn’t realise there was no ceiling to an online Christmas,” explained outgoing chief executive Jonathan Smith to MT in October.
“What hurt Yodel was the difference between the peak and non-peak volumes, which is why we made changes,” said Smith.
Those changes include a shift to using self employed-couriers to handle last-mile deliveries, an area that was a particular pinch point. The carrier, which will deliver 4.25 million parcels during its busiest week of the Christmas peak, has also set up four temporary depots at Billing-ham, East Kilbride, Newbridge and Basildon, as well as creating an additional 15 contingency warehouses.
The price isn’t right
City Link chief executive Dave Smith said: “The buyer trend to go later is causing us operational difficulties.
"It won’t be a meltdown but we are getting close to the point where unless there is a change in pricing model, or change in attitude as to who is going to pay for this additional activity, we are reaching peak capacity.”
Smith said a switch back to a two- or three-day delivery service would enable City Link to use existing
capacity more efficiently. However he concedes the genie is out of the bottle, and no customer would accept a three-day service when rivals are offering a next-day option.
Of course, with Amazon and other retailers making free delivery one of their selling points, the average consumer perceives it to have little true value. “This is part of the reason why everybody has bought so much stuff online. It’s the success of the delivery model. But the other side to this is that the customer doesn’t necessarily value the fact that it has really cost the near end of a fiver to deliver,” said Smith.
Winners and losers
While those at the B2C sharp end may be suffering from nervous exhaustion by the end of this month, the significant growth in e-commerce volumes presents new opportunities.
Amazon for example still needs somewhere to store the goods it sells online. It has DCs in Milton Keynes, Doncaster, Peterborough, Rugeley in Staffordshire, Dunfermline, Gourock in Scotland, Swansea and Hertfordshire’s Hemel Hempstead, and there are three more planned to open in the next two years.
By extension, it needs to work with a range of logistics partners to ensure its fulfilment centres are stuffed to the rafters with stock.
Pallet-Track MD Nigel Parkes has seen his haulier members – in keeping with other networks – enjoy a steady build in B2B volumes travelling into the DCs. “Generally speaking, everyone’s a winner,” he said.
While Pallet-Track members have seen an increase in B2C deliveries, albeit from a low base (single-digit figures), it is nothing that will concern the parcels carriers. It remains the B2B stream where the greatest growth has been seen. “It’s an opportunity,” Parkes said. “It takes effort on all sides but e-commerce does cascade down to the pallet sector.”
Ultimately, despite the challenges, there are still those that see the e-commerce behemoth as an opportunity to define and showcase their company.
Hermes chief executive Carole Woodhead said: “We have been preparing to ensure we have the infrastructure and processes in place to deliver the most successful peak trading period to our customers.”
Hermes will handle an estimated 45 million parcels during the peak and has opened new sites, expanded its Bridgend facility and opened a temporary hub in Nuneaton to cope. “This has required considerable investment and planning to ensure we are best placed to handle the predicted surge in volumes,” said Woodhead.
But short-term capacity increases are not a long-term solution. Ultimately, the relationship between retailers and their delivery providers must be redefined, with a new commercial agreement that accurately reflects the demands of a retail landscape that has changed more in the past few years than the past 50.
Age of the online retailer
Last year’s Cyber Monday saw the UK make 84.6 million visits to online retail sites. Amazon and eBay were responsible for 28% of those visits. Unsurprisingly, 2011 as a whole was a record breaker, with UK consumers making 2.18 billion visits to retail websites. However, the demise of the high street may have been exaggerated. Peter Fuller, ND retail business unit director at Norbert Dentressangle UK, said of the high street: “We expect similar volumes to last year, although it will be later [in terms of the build up of the peak].” Fuller said there had been a notable increase in e-commerce volumes in recent years, in a Christmas period that sees about a 30% to 40% volume uplift for the 3PL. “There is a dilemma ahead for retailers regarding how you retain the ‘theatre’ and the shop window [high street stores provide] as an increasing number of sales are made online,” Fuller said.