Same-day Delivery: The Next Evolutionary Step in Parcel Logistics
This article discusses limitations to the LCC model in the long-haul market
June 2014 | by Steve Johnson
Same-day delivery has the potential to fundamentally change the way we shop. It integrates the convenience of online retail with the immediacy of bricks-and-mortar stores. In recent years an increasing number of companies have started piloting and operating new models of same-day delivery, including incumbent logistics providers such as DHL, DPD, FedEx, and UPS. Demand is expected to increase significantly given the compelling value proposition of same-day delivery for consumers.
Online retailers are expected to benefit from reduced delivery time as almost immediate product access improves their position versus stationary retailers, and makes the greater choice, higher convenience and often lower prices of online shopping even more appealing. Bricks-and-mortar retailers in turn have a unique opportunity to combine their existing local infrastructure with an e-commerce channel to offer same-day delivery on a broad scale. A multichannel approach could enable them to win back customers who are becoming increasingly focused on online shopping.
Three operating models have emerged to fulfill the logistics need. The first consists of incumbent parcel logistics providers with an additional delivery wave. Second, retailers can use broker platforms that provide access to existing courier capacity to offer instant or scheduled delivery. And third, large retailers maintain their own fleet to handle same-day deliveries. In the long run, parcel logistics providers will be able to operate at the lowest cost while offering integrated logistics solutions ranging from orders through fulfillment to delivery and return.
The opportunities ahead are huge. Logistics providers need to position themselves for the upcoming transformation, and adapt their existing networks accordingly.
Same-Day Delivery Offers Large Upside Potential for Retailers
The introduction of same-day delivery will take the online shopping experience of customers in the metropolitan areas of Western Europe to a new level of convenience. The product variety available online from specialized e-tailers (e.g., redcoon for consumer electronics) combined with the price transparency that e-commerce offers (e.g., via product search machines) and same-day product availability is a powerful customer value proposition. However, given the increased complexity of same-day delivery across logistics operations, prices for same-day delivery are likely to remain at a level well above the current price level for standard next-day delivery.
Retailers have a same-day delivery “sweet spot” with their existing local infrastructure, particularly shops and warehouses in or close to metropolitan areas. The proximity to the end customer enables them to provide customers with delivery on the day of the purchase, ideally combined with an option for a time window. Most retailers have already added an e-commerce channel to their traditional bricks-and-mortar sales approach. The combination with same-day delivery could help to win back some of the customers that have been lost to online shopping over the last decade.
Finally, same-day delivery is both an immense opportunity and an operational challenge for logistics providers who are the natural partner for same-day delivery on a broad scale due to their existing network and scale advantages. The underlying trends of increasing e-commerce adoption and urbanization will create a strong urge for evolution from the current next-day standard in B2C parcel to same-day. Logistics providers need to position themselves for the upcoming transformation, adapting their networks from overnight sorting and next-day delivery to same-day capability. In addition there is an opportunity to expand into fulfillment services given the need for minimal pick and pack lead times to enable same-day delivery.