Postal operators should restructure their local sorting and delivery operations to help retailers speed up final-mile deliveries in competition with global marketplaces, according to a top industry consultant.
This would enable retailers to catch up with marketplaces such as Amazon which are already moving inventory closer to customers to enable ‘fast and free’ deliveries, Brody Buhler, Accenture’s Global Managing Director for the Post and Parcel industry, told The Delivery Conference (TDC Global) in London this week.
In future, 50% of all deliveries will come from “locally-based inventory”, he predicted to an audience of over 1,200 retail and delivery executives and managers.
According to Accenture research, offering ‘fast and free’ deliveries is not a ‘race to the bottom’ but rather ‘a race to the top’, Buhler explained. “Free fast delivery changes all the metrics. It improves buying frequency, conversion rates and order volumes,” he said.
Large marketplaces with more third-party sellers could ‘hyper-localise’ inventory in local facilities, thus transferring costs to other parties. “Somebody else is paying to build out this infrastructure,” he commented.
Amazon, for example, had quadrupled its number of same-day or next-day deliveries in the latest quarter after expanding its facilities, Buhler pointed out. The e-commerce giant now has about 100 locations in the UK and 270 in continental Europe, with about 30 more to follow, he said. Moreover, other large retailers in the US and in China are also growing rapidly by offering fast free deliveries, he added.
Automation enables cheaper local distribution centres
At the same time, property companies are investing “tremendously” in logistics facilities, including micro-warehousing locations to bring inventory closer to customers, Buhler continued. Blackstone’s Mileway, for example, now has a portfolio of 500 facilities in Europe with an average size of 10,000 sqm, while Prologis and other property companies are also investing heavily, he said.
(Property investor Blackstone launched its ‘pan-European last mile logistics real estate company’ Mileway last September. The new company owns and operates about 1,000 logistics centres totalling 9 million sqm, mostly in or close to major cities in the UK, Germany, France, Spain, the Netherlands and the Nordics, and focused on last-mile delivery operations.)
Moreover, warehouse automation, including robots, was “dramatically” bringing down the cost of local fulfilment to similar levels as the low costs of big warehouses, Buhler explained at the Metapack-organised conference. In parallel, inventory management systems using big data and AI could predict what goods would be bought when and where, enabling retailers to place SKUs in the right place at the right time.
“All this makes retailers more able to compete with marketplaces,” Buhler emphasised. “When this transformation is complete, retail supply chains will look very different than they do today. We estimate 50% of all deliveries will be local by 2023.”
Posts need to build the “other half of the bridge”
Importantly, these trends also mean that delivery companies – and postal operators in particular – need to restructure their network and local operations to respond to these changes, Buhler made clear. “The delivery companies have got to start making investments for local delivery,” he declared.
In terms of deliveries, postal operators “are already very local and can offer what retailers want” but their operational networks, with a mix of national and regional sorting depots, have a different structure for parcel flows, he explained.
In future, three issues will be “critical” in order for postal operators to “create the other half of the bridge” for local deliveries, he asserted. Delivery companies should:
- repurpose local delivery depots to accept parcels so that retailers can inject from local facilities instead of having to go via regional depots. “This is a no-brainer and is very feasible. Retailers are doing this, and we would expect carriers to be doing this to enable local delivery,” Buhler commented.
- consider ‘continuous local delivery’ by collecting from retailers as part of a delivery route. “This would dramatically change costs,” he claimed.
- redefine their ‘role in the ecosystem’ by opening up their underused own facilities or considering models to “scale up and down” local fulfilment activities.
Finally, “localization” of deliveries could also be “one answer” to environmental issues and urban congestion generated by e-commerce, Buhler suggested in a reference to a recent World Economic Forum report about the potential future impact of e-commerce deliveries in urban areas.
