Alan Braithwaite (left), chairman of LCP Consulting, examines whether click and collect represents a threat or opportunity to the logistics sector
Joel Lewin painted a gloomy picture for the UK logistics sector in the Financial Times on January 18. He wrote, “The shift in consumer habits driven by e-commerce and increasing competition led to a record number of courier and haulier businesses collapsing last year… Logistics-sector insolvencies jumped 20% to 221 in 2014, more than double the 2010 figure, according to research by Moore Stephens, the accountancy firm.”
What was unsaid is that while e-commerce and omnichannel retailing has been growing at around 15% per annum compound, the growth in parcel volumes has been roughly half that rate. The growth in click and collect parcel volumes that bridges that gap should be a hot topic in the boardrooms of postal, parcel and courier companies; it is currently the number-one strategic threat.
It is a paradox of disruptive competition that e-commerce has come to the rescue of traditional postal services, driving huge growth in package volumes, but those services are now being disrupted by new collection models built around putting greater choice with consumers through their phones and tablets.
Retailers are keen to exploit this trend because it is cheaper, drives footfall in stores, and increases choice and customer intimacy. Commercially they are motivated to guide their customers in the direction of collection and have found that quite small changes in relative pricing and availability deliver remarkable effects. My experience is that customers quickly respond to those choices if they find them attractive. One retailer opened up an offer of click and collect from its south London stores and found a 40% uptake within three weeks. Another changed the terms of its delivery versus click and collect from store and saw a 60% swing within a month.
But customers will also change their buying habits based on their personal situation and can swing back to the delivery model for events such as Christmas or Black Friday. The impact for the postal and parcel sector of such short-term swings is that forecasting the increased volatility is verging on the impossible. The balance of capacity versus demand and the level of difference not only impacts the cost base but also the price levels available in the market. Excess capacity drives lower prices – a double hit.
The question for parcel and courier operators is how to respond to this threat to their volumes and its impact on profitability? There are two maxims for disruptive competition that can provide some guidance for boards as they plot their strategies for future sustainability.
The first is that competing through doing the basics really well can make a big margin difference. This is enough on its own to be a disrupter in many markets and in the parcel sector is the equivalent of either taking out excess capacity or adding capacity to enable highly competitive pricing. My experience is that there is often 5-10% of turnover to work with just by doing things better.
The second is that managing out the cost of complexity and eliminating margin erosion through unsound pricing and service commitments can be equally fruitful. All too often in logistics, the business specification and terms are not what actually happens when the work arrives. It is easy to underestimate the impact of additional complexity on costs and service. Having a strong commercial department that monitors customer compliance and pushes back on non-standard performance can be key to success in many industries – and parcels are no exception.
For customers that don’t like such 360º measurement and feedback, there is plenty of choice in the market. It may be better if they move rather than your logistics company join the Moore Stephens insolvency procession.
Alan Braithwaite is chairman of LCP Consulting, a specialist operations, supply chain and logistics consultancy that works with retailers and logistics providers on strategy and execution. LCP is a leading independent provider of these services. Braithwaite is also a visiting professor at Cranfield School of Management, where he contributes to teaching and research at the Centre for Supply Chain and Logistics Management.
Friend or foe? was published in the March 2016 issue of Postal Technology International. To read more from the magazine click here.
March 31, 2016