Digital transformation is destroying markets for some physical goods, ranging from photographic film to CDs and books. So there is some irony that it is also providing massive upside for companies tasked with delivering physical goods to consumers.
Online retail sales hit a new high in July, with National Australia Bank noting in an industry analysis that total sales had grown 8.6 per cent to $15.6 billion. While many of these purchased goods were digital, whatever remained was new spoils for Australia’s parcel delivery services.
The majority of that traffic is handled by Australia Post. Its parcels business was the bright spot in its latest financial results to June 30, showing 20.8 per cent growth for the year to produce earnings before interest and tax of $337.5 million, thanks to a 12.8 per cent jump in parcel volumes.
That rapid growth also has created opportunities for Australia’s supply chain companies, many of which have previously focused on moving parcels between businesses.
Divisional director for Toll Transport, Shane O'Neill, estimates the addressable market for consumer deliveries at between $750m and $800m annually and that it’s growing much faster than business-to-business deliveries.
“Older thinking is that home deliveries, by their nature, have a lot more supply chain inefficiencies than business-to-business deliveries and create a lot more challenges than delivering into office towers,” O'Neill says.
One of the biggest changes is cultural. O’Neill says both online sellers and consumers have very different expectations of customer service than business clients.
“(Sellers) are looking for solutions from their supply chain experts that will allow them to give as good a customer experience to their consumer as they would get in their shop, because if you are doing a home delivery you are an extension of the brand,” O’Neill says.
“When that delivery goes wrong people get on social media and the brand takes a beating. And when the delivery process goes well you can start seeing the consumer influencing the choice of transport partner.”
Hence, Toll has put significant effort into determining what constitutes a good customer experience, and implementing systems to deliver it. It’s a project that began 18 months ago and may take up to three years to implement.
One of the key problems is what to do if the recipient is not at their nominated premises when the parcel arrives. Traditional service would have seen a card left with instructions to drive to a depot or contact a call centre to reorganise delivery.
“One is cost-ineffective for us, [while] the other is a terrible experience for the customer,” O’Neill says.
To handle this issue, Toll has set up a network of 1300 collection points around the country in conjunction with online parcel pick-up service ParcelPoint. These are mostly through newsagents that have agreed to accept and hold parcels for Toll clients.
“They are open in the evening, they are open Saturday and, in some cases, Sunday,” O’Neill says. ”And these owners are very motivated, as they see declining traffic around their more historic product lines and they want more foot traffic coming through.
“We put approximately 180,000 parcels through that network in the last financial year. So that is 180,000 parcels that historically we would have had to bring back to the depot or redelivered.”
Rival Fastway Couriers also has tackled the recipient-not-present issue through partnering with small businesses, in this instance forming a company called Parcel Connect. Fastway’s chief executive officer, Richard Thame, says 150 locations have been established in venues ranging from newsagents to video rental outlets and fruit shops, with another 650 planned for the financial year.
Thame says Fastway also recognised that many consumers are themselves microbusinesses, selling goods through eBay or other services. Hence, the Parcel Connect locations also accept parcels for collection by Fastway.
“What we are offering those businesses is a solution where they can print the label at home and have all of the benefits of full online track-and-trace capability, but then go and drop the parcel off at one of these locations on the way to their day job,” Thame says.
Fastway also has partnered with eBay so that sellers can list it as a delivery option.
In addition, both Toll and Fastway have partnered with Mark Bouris’ company TZ Limited to test out its locker-based collection system.
“In built-up areas we think there is a tremendous opportunity for lockers, and we’ve seen that in other markets including busy European cities,” Thame says.
While both companies agree that keeping consumers happy is essential, so too is the need to do so cost-effectively.
O’Neill says Toll has reorganised many aspects of its backend operation, including implementing new high-speed sorting facilities in Sydney and Melbourne and trialling a dedicated fleet for business-to-consumer deliveries.
But it is the cultural change which has been the biggest adjustment for Toll, and this has required getting managers to buy into the changes from the outset. O’Neill says that change has touched everything from how drivers are trained, organised and rewarded, to examining the uniforms that they wear.
“It’s a cultural change that takes time and that we need to build,” O’Neill says. “We are focused on what ‘good’ looks like for the consumer. And we are building our capability across the next 12 to 36 months to deliver against that.
“We will get there on cost efficiency, and the one who had has the better customer solution is going to win out.”
The massive volumes of data that logistics companies produce may also provide a key to unlocking greater efficiencies.
Research teams at NICTA have been working with logistics providers to determine better ways of organising their assets, using advanced data analytics to create dynamic schedules that change in response to traffic conditions and customer priorities.
NICTA’s director for infrastructure transport and logistics, Rob Fitzpatrick, describes this as “sense and respond” logistics.
“You want to be able to predict where demand comes from and where you need to deliver to,” Fitzpatrick says. “And that means you need to be able to position your fleet within a metro area so that they can be well positioned to pick up and sense where demand will be coming from and to, and respond to that.”
Fitzpatrick says NICTA has been able to help its trial client Tip Top to maximise profitability and improve customer satisfaction.
“And we’ve been giving them a tool so that, as the sales force brings on new customers, they know exactly which routes to put the customers on and where that fits into the overall customer profitability map,” Fitzpatrick says.