In my first blog on the trends reinventing the post and parcels industry in the wake of the pandemic, I examined the accelerated shift from mail to parcels – and the equally rapid move towards same-day delivery. In this follow-up blog, I drill down into two related shifts: the shortening of parcel supply chains, and the rising focus on sustainability over the “last mile”.
The background to all these trends? Rising consumer expectations, reset by services from the largest online merchants/marketplaces. When retailers offer faster delivery on online purchases, their sales conversion rate increases. This reality is now driving radical change in retail supply chains, with retailers looking to locate their inventory ever closer to consumers.
This strategic shift includes rising usage of local fulfillment and micro-fulfilment centers to enable faster, cheaper eCommerce deliveries. Shortening supply chains in this way can also reduce environmental impacts – a growing priority for CEOs across all industries, as underlined by recent joint research by Accenture and the UN Global Compact.
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Fast delivery is getting faster…
As retailers navigate this multifaceted journey, the competitive stakes are rising – led once again by Amazon Prime. Having pioneered free two-day delivery a decade ago, then free next-day, Amazon has now raised the bar still further with free same-day delivery. It’s a far cry from the early 2000s, when consumers would pay for shipping and wait days for their goods.
The impact for retailers? To stay competitive, they are required to deliver fast. And fast is getting faster. But while consumers now expect high speed, they don’t want to pay extra for it. Which means retailers are required to keep down the cost of rapid delivery: a “fast fashion” retailer selling a shirt for US$15 can’t afford to spend US$8 ensuring it arrives that day.
…meaning it has to be local…
So, delivery has to be both fast and low-cost. The best way to achieve this? By locating the inventory as close as possible to the customer, with multiple fulfillment centers and delivery stations near centers of population. Again, Amazon has exemplified this trend, building out large networks in the US and elsewhere.
How can other retailers compete? For many, the answer is by using the assets they already have: their local stores. As well as being shopfront for walk-in sales, a store also holds inventory. And many retailers are now using their retail stores as fulfillment centers, delivering eCommerce orders locally next-day or same-day. Other strategies include using traditional warehouses and “dark stores” – retail locations such as megastores dual-purposed to deliver locally.
… and can also be more sustainable
Locating inventory closer to consumers also creates opportunities to make the last mile more sustainable – by having shorter but more frequent delivery loops at less congested hours, using smaller, less carbon-emitting vehicles or even eBikes. As sustainability becomes a competitive differentiator with consumers, there’s an increasing focus on reducing the environmental footprint of deliveries.
Evidence? Take the UN Global Compact-Accenture CEO Study on Sustainability. It finds that CEOs believe the window of opportunity to address climate change is closing, but that key actions can help – with reducing supply chain impacts a priority. And data is key: 63% of CEOs globally say difficulty in measuring ESG data across the value chain is a barrier to sustainability in their industry.
Post and parcel operators are required to reinvent the last mile…
The message for post and parcel operators is clear: shifting to local-to-local delivery makes sense from both the commercial and sustainability perspectives. But while they’ve done well in picking up a lot of the expanding volume of eCommerce parcels during the pandemic, this change presents them with a structural problem. Essentially, most post and parcel operators have been set up as distributed national networks geared to carrying items across large distances. So, a parcel posted to a recipient within the same town may well be moved out for sorting elsewhere before being brought back in for delivery.
This is inefficient in both cost and environmental terms. Combined with posts’ large and expensive base of assets and infrastructure, and the cost and inflexibility of their union-organized workforces, it means small local entrants can easily undercut them for local deliveries. And the big target market up for grabs? The fast-growing local B2C segment that is fueled by retail companies moving to faster and even same-day delivery to stay competitive – especially smaller and medium-sized retailers that can’t set up their own national fulfillment center networks.
To service these business customers effectively, posts are required to rethink their last-mile delivery, and pivot their local depots to provide low-cost, local-to-local micro-fulfilment options alongside their national service. This could include offering spare space in the depots to smaller retailers to store inventory, giving these players the same reach and speed of fulfilment as their larger competitors. This would also turn posts’ local depots into a more important strategic asset, with improved efficiency and capacity utilization.
…and major on the advantages they offer around sustainability
The implications for sustainability are equally profound. By capturing a large slice of the local fulfillment market in each city or region, posts will be able to realize the environmental benefits of shorter, more frequent delivery sorties with smaller, lower-carbon vehicles. The sustainability benefits could be used both by posts and their retailer customers to promote their brands and attract environmentally-aware consumers.
The overall result? The future of the last mile for post and parcel operators is taking shape: faster, greener and cheaper than ever before. The opportunity is there. Now is the time to start realizing it.
In my next blog, I’ll look at more of the trends reshaping the postal industry, by examining the issues around urban congestion – and how autonomous vehicles may help. So stay tuned. And if you’d like to drill down into anything in these blogs, please contact me — and we can discuss how the postal industry can reinvent itself for the future.
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