The end of 2014 saw another record breaking Christmas for retailers, yet the parcel delivery sector felt an immeasurable squeeze that for some proved too much. More recently, Whistl (formerly known as TNT) had to send home 2,000 staff and suspended its household deliveries, highlighting the difficulty of making money in a postal market dominated by Royal Mail. So what needs to happen for this crucial element in the process to survive?
City Link (and competitors) should have been reaping the benefits of a busy peak period during last Christmas rather than struggling through it. They prepared well enough with the addition of more capacity and automation to handle the increased volumes from the previous year. It appears that the industry, their retail customers, plus consumers all need to take a different view on how this is going to work. We are in uncharted territory here without actually realising it – the retailers certainly can’t accurately forecast volumes to the daily level that carriers need, and to be honest, although this will improve over time they never will get this right as customers will never beat to the same drum.
Perhaps the most dangerous aspect of this industry is the charging model
Now we have reached large volumes it’s time for the industry as a whole to stop winning business based on the lowest price and retailers demanding more; here we see parallels to the milk industry where the retailers have in the past dictated the price rather than achieving a delivery cost which is fair to all parties. We need to agree rates that are sustainable in order to support all customers. As an industry we have to ask ourselves who we’re competing with as we pledge delivery volumes and spiralling low delivery costs with increasingly high penalties for non conformance.
Is it time to ask customers to pay for what they receive?
We have all become used to free or low cost deliveries, with next day delivery pretty much the norm and it was understandable that a heavily discounted home delivery option attracted customers.
The reality is that the additional service required to pick, process and deliver an item to a home address has a real cost which the customer doesn’t have to carry. Instead, it is effectively ‘discounted’ from the purchase, providing the retailers with the challenge of keeping this discount to a minimum which then puts fierce pressures on the profitability of parcel delivery companies. Alan Braithwaite, Chairman of LCP Consulting noted that customers “put a lot of negotiating pressure on the carriers, the carriers respond to it, but of course when they fail the carriers get vilified. It’s all a bit of a vicious circle”. The answer must therefore lie in the way this message is communicated to them – the savings in bus fare / fuel and parking plus the convenience of staying at home has to be worth a couple of pounds?
The challenge then is to unite as an industry to provide a service that is equitable and fair to all of those involved. Customers need to be aware, and retailers need to take a moral view in supporting the carriers, otherwise, if we see another couple of City Link situations we’re all in a mess aren’t we?
13th May 2015