Are we heading toward 24/7 logistics services or are we already there?

In April, Amazon announced the standard shipping speed for Prime purchases would transition from two days to one. Walmart responded within three weeks with its own next-day shipping transition. Two weeks after that, FedEx announced it would extend its ground service from six to seven days per week in 2020. And less than two weeks ago, FedEx COO Raj Subramaniam announced Target has joined Rent the Runway in taking advantage of FedEx’s “extra hours” late pickup service for e-commerce orders.

E-commerce fulfillment and delivery is stretching — extending into hours and days it has historically not touched. Individually, each of these moves may seem like a small shift. In fact, Supply Chain Dive reported Amazon’s two to one-day shift for Prime orders requires little operational change. But together, these service changes lead to the question: How long before the last mile of the supply chain runs constantly?

“Non-consumer-facing transportation, whether it’s ocean containers and airplanes traversing continents or full truckloads over the road moving between distribution centers — those operations have been 24/7 for a long time,” said Rob Taylor, CEO of Convey, a last-mile visibility tech provider. Consumer expectations, Taylor said, and automation are causing that “always on” mentality to bleed into the last leg of the journey too.

“The only thing that’s missing is, are we gonna start delivering packages to people’s doorsteps at 3am?” Taylor asked. “While that capability certainly already exists today, the question is how necessary is that and do we sort of enter the land of the creepy when people are coming on to your property at 3 a.m.?”

The framework is already here

Tray Anderson, logistics and industrial lead for the Americas at Cushman & Wakefield, told Supply Chain Dive delivery timelines have relatively little to do with the speed of logistics services. Shippers can ship on Saturday for Monday delivery or even arrange Sunday pickups, depending on their contracts with 3PLs and proximity to 3PL facilities.

“It’s all possible but it’s not going to be at a one-off demand basis. This is going to be planned demand where you’re giving committed volume for the capacity you’re asking for,” said Anderson.

Essentially, a near-constant logistics framework is already here. The logistics services are out there to deliver at almost any time — for a price. Mondays are still a bit dicey for standard service, but at this point, the calendar for last-mile logistics has few blackout dates. Anderson argued it’s down to the retailer to get the order out the warehouse door in time to take advantage of these services.

“As a shipper, I’m in complete control of my cycle time — the time my customer clicks to the time it actually ships from my building. If I can take my cycle time down to two hours or even 20 minutes, versus a day from the time the customer clicks til it ships, that is time I’m taking out of the total delivery time,” explained Anderson.

“I can have a single ship point and provide early morning service to the vast majority of the U.S. population.” (Tray Anderson: Logistics and Industrial Lead, Cushman & Wakefield).

Beyond cycle time, speed of delivery also comes down to starting location. Anderson said a retailer can offer two-day shipping to the entire U.S. with just five locations — if the right product is in the right warehouse and demand sensing is tuned.

“I can have a single ship point and provide early morning service to the vast majority of the U.S. population. It’s a premium cost to do that, but there are companies today in areas that have big inventory value, like pharmaceutical, choosing that,” he said, adding that what’s physically possible isn’t necessarily profitable.

When it comes to delivery time, Amazon and Walmart dominate the narrative, Tom Enright, vice president of consumer and retail supply chain research at Gartner, told Supply Chain Dive, but they don’t represent most retailers. Most retailers deliver e-commerce orders in about four business days, according to Enright — down from six days two or three years ago, but still nowhere near one or two.

Speed isn’t everything

Amazon and Walmart may be the professionals in the e-commerce marathon, but the rest of the runners are still living in a world governed by business hours and consumers sleeping (as humans tend to do). In fact, it’s retailers, and to some extent, consumers that are keeping a floor under e-commerce order delivery times, according to the experts.

“The vast majority of fast deliveries are not free. All the evidence is people are willing to wait longer because free shipping is the thing… this hysteria around having to pay for shipping is still very strong,” said Enright. In fact, a recent survey by BigCommerce, an e-commerce software vendor, found four in 10 U.S. consumers refuse to pay for two-day shipping — this, according to the survey report, is where Amazon has left its mark. The survey found consumers are much more comfortable paying for overnight shipping.

Enright believes the future of e-commerce fulfillment is about nudging consumers toward the most preferable option for the retailer — especially for items with no real urgency. A 5% discount for in-store pickup or Amazon’s digital video incentives for choosing a “no rush” shipping option are examples.

“Very often companies will have a mandate from the boardroom … but not a clear signal from the consumer.” (Tom Enright: Vice President, Gartner).

A Hanover Research and LaserShip survey published earlier this year indeed found 50% of 1,000 consumers surveyed would abandon their carts due to high shipping charges. BigCommerce, which surveyed nearly 3,000 global consumers, got the same result.

The research shows a free shipping option is paramount, even with conditions. LaserShip’s consumers expected delivery within three days or fewer — this is a far cry from one or even two days, but it must be noted the survey was completed before the Amazon Prime one-day announcement.

Still, in a world where the fastest standard shipping speed is next-day, three days is starting to sound long. What’s clear is shipping fees and shipping time expectations present a reasonable trade-off in the minds of consumers — meaning they may be more malleable than the “speed at all costs” narrative propagated by Amazon and Walmart suggests.

“When we talk to retailers who say ‘I want to do same-day or next-day,’ our next question is, show me the mandate from your consumers,” said Enright. “Very often companies will have a mandate from the boardroom … but not a clear signal from the consumer,” he said.

Anderson said he sees brands sticking to their slower delivery times with confidence and providing a great post-purchase experience as a clear sign that speed is not everything.

The limit does exist

If the marketplace isn’t demanding the break-neck gauntlet Amazon is throwing down, then why would 3PLs create new services and spread out their package volume across more hours in the week? Anderson speculated FedEx, with its new days and hours, may be looking to take advantage of less congested driving times, like evenings and weekends.

For FedEx, Anderson said the carrier likely has drummed up the business to support the extra service day already. Extra hours pickups may be added on a client by client basis as pickups come up in any service contract negotiation.

“Instead of if you build it they will come, you’re going to want to have that lined up,” said Anderson.

Enright echoed that sentiment: “If I was running a 3PL, I would be super cautious about going quicker or providing a quicker service unless I had two things in place: one is my retail customers clamoring for it and two, that they are getting a clear signal from consumers that this is what they want.”

When the carrier announced the change, Subramaniam pointed to fast-growing overall package volume as the primary justification. The carrier also said “increasing utilization of existing assets” was another explanation.

When asked about the interest in these extended services expressed by FedEx customers, a company spokesperson told Supply Chain Dive, “We are in discussions with a number of customers who are excited about this enhanced service, including the overall acceleration of the ground network.”

FedEx may also be looking to give Amazon competitors a leg-up on next-day fulfillment with later pickup hours and more days on the road. The experts agreed, however, that a little extra wiggle room from a carrier can rarely make up for a slow or disorderly fulfillment process in the warehouse.

“Expanding FedEx Ground operations to include residential deliveries every day of the week further increases our ability to meet the demands of e-commerce shippers and online shoppers alike. The move advances the company’s commitment to continued superior service and increased efficiency in handling all e-commerce packages- small and large- within one ground network, seven days a week, year round,” the FedEx spokesperson said.

UPS has so far not followed FedEx to seven-day service. Though the carrier’s new labor contract, approved amid controversy in May, did make full Saturday and, more notably, Sunday service an option since the overtime required before the new contract was prohibitive.

When asked if UPS is considering seven-day service, a company spokesperson told Supply Chain Dive: “UPS provides a variety of shipping options to our customers, including next day services for critical delivery, especially for customers in the healthcare industry. We will continue to adjust our portfolio to the needs of our customers.”

Right now, 3PLs move as quickly and as often as they need to, to meet consumer demand within current retailer practices, according to the experts consulted for this report. Unless the vast majority of retailers step up their game, or consumers develop a predilection for midnight deliveries, FedEx’s recent service changes may be the last of their kind for a good while.

 

Source: Supply Chain Dive. “Are we heading toward 24/7 logistics services or are we already there?“. (https://www.supplychaindive.com/news/247-logistics-services-ecommerce/558246/).  Emma Cosgrove. July 11, 2019.

 

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