Delivery Wars In Retail Logistics - MercuryGate Blog

How the Delivery Wars are Altering Retail Logistics for Good

Two-Day…. Next-Day… Same-Day

For today’s shopper there is perhaps no bigger incentive that drives purchases than free shipping. In fact, 80 percent of U.S consumers cite free shipping as a factor that would make them more likely to shop online, according to a 2018 Walker Sands Future of Retail Report. For most online retailers, free shipping is just table stakes in today’s competitive e-commerce environment. It’s a basic requirement to attract buyers and keep them satisfied.

However, free shipping is no longer enough. Consumer expectations continue to accelerate and faster is always better in today’s ‘on-demand’ economy. Giant online retailers, such as Amazon, have conditioned consumers to expect more, faster, and on-time.

On April 25, 2019, Amazon once again raised the stakes in the race for faster delivery. It announced free, one-day delivery for all of its Amazon Prime members. To put that in perspective, Amazon Prime has more than 100-million subscribers, according to a January 2019 report from Consumer Intelligence Research Partners. Each Prime subscriber pays $119 per year and spends an average of $1,300 on purchases through Amazon.
Not to be outdone, Walmart also has announced free, next-day delivery for orders of $35 or more. Walmart previously offered free, two-day delivery for the same order. Walmart has no subscription requirement for their deliveries. As the two behemoths go toe-to-toe, who is paying for all of this free shipping?

The True Cost of Free Delivery

While ‘free shipping’ continues to drive more people to shop online, it’s important to note the costs that go into providing free delivery. Most buyers probably understand that while they aren’t paying an additional fee for shipping, the cost of shipping is rolled into the cost of the goods they are buying. For Amazon, they are using the more than $12 billion in Prime fees to offset the cost of ‘free shipping.’ But it’s still a loss leader for the retailer. In 2017, Amazon spent $27.7 billion on shipping costs, according to GeekWire research.

Another factor impacting retailers and transportation operations are return shipments. E-commerce purchases are returned at a rate of 25 to 30 percent versus 9 percent of purchases at brick-and-mortar stores, according to the Office of the Inspector General (OIG) at the U.S. Postal Service (USPS). Just in the United States, return deliveries will cost $550 billion by 2020, according to Statista. The increased number of returns is driven by generous return policies.

Reverse logistics is the process of online purchases being returned to the retailer’s warehouse or distribution center. All of these returns cost retailers 4.4% of total revenue each year, according to the research firm IHL Group. To reduce costs, many retailers are encouraging returns to be taken to a store location, if they have a brick-and-mortar store. This can help reduce shipping costs and could lead the consumer to make additional purchases.

How Can Retail Shippers Keep Up?

Reducing freight costs in the era of free shipping and on-demand delivery isn’t easy. Creating an actionable plan for cost reduction begins with a TMS system designed to meet the omni-channel demands of modern retail. This means taking an omni-modal approach with a system that can manage all modes within a single platform.

To keep up with the volume of shipments and keep freight costs under control, it’s particularly important to use a TMS with strong parcel functionality. This can speed the rating process and automate some of the preparation process for parcel shipments.

Further, business intelligence tools can help assist with the growth of ecommerce. Using a TMS with strong BI capabilities, shippers can begin to strategically drive efficiencies from identifying cross-docking and zone-skipping opportunities to considering multi-move line hauls. The BI tools can also help build models that leverage demand patterns to maximize high-density areas with low-density regions.

MercuryGate understands the unique needs of retailers. As Frost & Sullivan noted in its recent report, MercuryGate “features an integrated logistics network, builds parcel capability natively on a single platform, and optimizes private fleets and common carriers, making it a true value provider in the retail industry.”

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