Shoppers are seeking a new way to get their essentials while social-distancing and online businesses have answered the call. As more companies pivot sales online, operating costs in terms of fulfillment have begun to rise in response to the surges in delivery requests and staffing reductions making productivity more challenging.
Carriers UPS and FedEx have recently introduced a peak delivery surcharge for their services. These new fees, around 30-40 cents per package, mainly target large organizations that ship 40,000 parcels a week, as the levies on regular packages have volume thresholds that spare smaller retailers. However, for many companies, this blow comes at a difficult time.
In an exclusive interview, Matthew Furneaux, Global Commercial Director at Loqate, a GBG Solution, explains why it is important for companies to do everything they can to reduce failed deliveries considering the additional costs involved - and how Loqate can help.
1. When you first read the Wall Street Journal article, “UPS Adds Peak Delivery Surcharge to Manage E-Commerce Demand Amid Coronavirus,” what were your initial thoughts around the delivery surcharges?
I’m not surprised is the short answer.
Although we try not to view this pandemic through the lens of winners and losers, quite clearly some eCommerce businesses have performed spectacularly well. And it’s these brands that have become the targets of this price increase. The impact on UPS, FedEx, and other carriers has been substantial as they've had to operate at virtually Black Friday, Cyber Monday levels day after day.
Retail is adapting their infrastructures to support this surge in demand. Whether it's improving their online sales strategy or places like Target using their stores as fulfillment centers, these changes have been driving far greater demand than UPS or FedEx probably ever anticipated when they put their pricing structures into place.
Global retailers like Amazon have enjoyed a spectacular financial performance over the course of this period, both in terms of stock price and their growth. Up until this point, carriers have borne the load of fulfilling all of that growth while maintaining pricing models that probably weren't appropriate for this level of demand and search. In essence, this change was inevitable.
2. UPS cited the coronavirus in its implementation of the surcharges. How else have you seen online businesses adjust to COVID-19 with regard to deliveries and the buyer journey?
These new surges are less of a COVID-19 story and more an element of what has become the "new normal." The pandemic is not the sole reason behind all of these changes. Instead, we are seeing the rise in eCommerce that experts have been predicting for the last few years – COVID-19 has just accelerated that trajectory.
These revisions to charging policies are coming in later than we would have imagined. Online sales are surging and cohorts are coming in, particularly older people, who are new to eCommerce. If you look at data from PayPal Australia, they’re experiencing a surge in new users - including a 65% year-on-year increase in Aussies 50 or older. The expectation is that many of them will continue to shop online because they find it convenient, even after brick-and-mortar stores reopen.
Upon seeing this rapid shift, simplifying the purchase journey - making it as straightforward, intuitive, and as friction-free as it can be - is vital to keep these shoppers engaged.
3. How can Loqate’s address verification help retailers lessen the financial burden of these fees/surcharges?
Online businesses want to deliver to their customers first time, every time. However, when failed deliveries occur, someone always carries the cost. While sometimes the carrier will adopt any additional costs, that responsibility will often pass onto the retailer in the form of fees and redelivery charges. If the onus falls on the retailer, they're liable to experience increased delivery correction fees from the carrier, damage to their brand reputation, and weakened customer relationships.
We know through our own research that most retailers are getting it right most of the time, and you may think that 96% of orders being delivered first time is good enough. But, we also see that the 4% of deliveries that need to be repeat delivered due to poor-quality address data are stripping away a lot of profitability.
Loqate’s address verification makes sure that 100% of customer addresses are accurate, including the problematic 4%. We make it easy for a customer to correctly enter their address. With our type-ahead address verification, a customer can typically complete an address capture with as little as six or seven keystrokes. By helping consumers input an accurate address at the point of entry during checkout, retailers affected by these new surcharges can manage and maintain some degree of control over any ongoing, extra costs incurred by failed deliveries.
4. A majority of the businesses affected by this surcharge are global retailers such as Amazon and Best Buy. How will increased operating costs in terms of fulfillment affect international and cross border commerce?
Not every retailer is Amazon and Best Buy. So many are going to be smaller businesses that are more sensitive to increases in shipping costs. For international and cross border commerce, we may find that as costs are being disproportionately levied at the largest retailers, some smaller, more agile brands may be able to gain traction more quickly in new markets and start trading cross border at lower relative costs to the larger retailers.
The availability of location data from Loqate and other technology, like payment systems that enable you to trade cross border without extensive investment, will make it easier for some of those smaller, more socially-aware brands to expand.
One popular brand in the UK called Gymshark has essentially written the playbook on this. They manage to compete against large players like Adidas just by being incredibly nimble, moving into new markets quickly, and doing so in a way that strips away some of the behaviors we've seen from larger, more established retailers.
In my opinion, brands that have broad shoulders, and who have become even more profitable during this period of increased online shopping activity, should be paying more of their fair share in operational carrier costs. While they're worrying about that, we may see a fair amount of disruptive activity happening beneath that picture.
5. Looking out into the "new age," what aspects of the delivery journey do you think eCommerce businesses should focus on next?
If we're going to look at the new age, I’d say we've all got our eye on delivery methods. We’ve seen drone deliveries become a reality in some parts of the world. We’ll likely need to wait to see how commonplace they become in larger cities, but we are keeping our eye on that.
Location data looks very different to a drone than it does to a delivery driver. Resellers need to be working with technology partners who are ready to help them reach customers, whether it's providing drone-friendly geo coordinate updates or supplying the type of data that you might need for an autonomous wheeled delivery vehicle.
I think that on the consumer side, we'll see shoppers become more impatient about doing something as simple as typing an address. But, they'll still expect to get deliveries in as little as one day or even one hour. The increased demand for service coupled with the lower tolerance for inputting information will make it more critical for retailers to have technology in place where they can derive location data from customer wearables and mobile devices. To stay on top of that, retailers will need to have plans to support that type of consumer demand - not five years from now, but in the near future.