The recent announcement by FedEx and UPS to deliver parcels on all seven days has made e-commerce delivery war official. This step is seen as a direct retaliation to Amazon’s same-day delivery rollout. While duopoly of UPS and FedEx have been contouring the last-mile delivery landscape, Amazon has been slowly pulling in the reins.
Ever since Amazon’s foray into last-mile delivery space, there has been an uptick in customer’s delivery expectation. Let’s take a look at this graph:Source: My Total Retail
The graph shows that there is a wide gap between what customers expect and what they actually get.
In fact, 43% of online shoppers prefer same-day delivery. With such unattainable delivery expectations, retailers are floundering to keep customers happy.
The new delivery reality for small parcel industry
In a way, FedEx and UPS have been forced to step up their final-mile delivery game. The e-commerce market is no more a luxury. It is everyday life. In the US alone eCommerce sales is expected to hit 582 billion dollars this year. In a shocking turn of events, many a brick and mortar stores namely Toys-r-us, Barnes & Nobles that had dominated the retail market in the last decade filed for bankruptcy.
The message is loud and clear. Ecommerce is here to dominate the retail market. Among online-stores, buyers flock to those that offer free and fast order deliveries. The speed of order-fulfillment dictates who wins or loses the e-commerce battle. And Amazon has been leading the pack setting unbelievably high delivery standards for its competitors.
Seven-day delivery a white whale?
In an attempt to outbid the looming threat posed by Amazon, FedEx and UPS have been cranking up their service offerings. More expedited deliveries, air services, and additional time-definite services. Not to forget they are constantly beefing up their logistics network.
Of course, this means baking in the costs in the form of higher base shipping charges, accessorial charges, residential surcharges. It is no brainer to figure out that year on year General Rate Increase is targetted towards e-commerce markets.
Even so, the real question is can FedEx and UPS pull it off? It’s a definite maybe!
Let’s see what we can conclude from the past UPS and FedEx shipping data. An unexpected surge in the e-commerce shipping volume has led to innumerable instances of service failures.
Here’s a snapshot of retrospective on-time performance data of UPS and FedEx:
The picture is quite appalling. In the past, UPS and FedEx have been barely keeping their on-time delivery promise. As a result, retailers are constantly subjugated to loss of customers, negative brand impact while still paying a premium for shipping. Let’s not forget the data is limited to 5-day delivery. A 7-day delivery will involve a major overhaul of the distribution strategy, stretching employee capabilities and reworking their delivery networks. Undoubtedly, FedEx and UPS will impose these charges on retailers to offset the impact on their bottom line.
The real cost of convenience
It is true that buyers find it convenient to have their orders delivered on Saturday or Sunday. But retailers are forced to pay a hefty fee to offer this convenience to end-users. Saturday delivery also known as special delivery warrants an additional fee. For this reason, most retailers refrain from opting for Saturday delivery.
Here’s the list of services that offer Saturday delivery
- UPS Next Day Air
- UPS Next Day Air Early
- UPS 2nd Day Air
- UPS Ground
- UPS 3 Day Select
- FedEx Priority Overnight
- FedEx 2 Day Service
Will Sunday delivery come at a high price? From frequent and unpredictable changes in the shipping costs incorporated by both FedEx and UPS, it is almost certain. Retailers have to wait for GRI 2020 to know the real cost of offering Sunday delivery to their buyers.
Finally a silver lining
The entire narrative about the current state of FedEx and UPS last-mile logistics is far from fantastical. But on the flip side, there are bound to be many advantages. For starters, FedEx and UPS will stop cramming deliveries on Monday. To understand what this means for retailers, let’s dig deeper. Check out the shipping volume during Holiday 2017 categorized by days of the week :
UPS Shipment Volume During Holiday Season 2017
FedEx Shipment Volume During Holiday Season 2017
It is quite telling that Shipments delivered on Monday are likely to have a higher incidence of service failure when compared to those delivered on Tuesday or Friday. Including an additional day ( Sunday delivery), can ease the burden on Monday deliveries.
And another thing, in order to rise up to 7-day delivery challenge both FedEx and UPS will be compelled to expand their workforce. Be it augmenting their fulltime employee strength or employing temporary staff. Either way, the additional workforce will only improve the overall delivery performance for both FedEx and UPS.
In conclusion, the 7 day – delivery is a natural progression in the evolution of last-mile logistics. But will it be an enabler or an impediment for retailers? An accurate cost-benefit analysis can only be made when the price associated with the convenience is announced. Until then retailers will eye this development with great caution.