As e-commerce explodes, online retailers and transport companies are racing to deliver a radical technology-driven change in home delivery.
The world has fallen in love with e-commerce. Global online sales rose by 20 per cent last year to almost US$840 billion. From China to Australia, from the US to Germany, shoppers are embracing the convenience of buying anything, anytime from pretty much any supplier. But one major problem remains – getting the physical goods into their hands.
Bridging this so-called “last mile” is today’s great conundrum of e-commerce. Consumers are usually not home during business hours or can’t receive deliveries at their workplace, and generally don’t like being pinned down to delivery times.
This leads to failed deliveries and the sort of bad experiences that can send buyers back to their local shops. And customers want goods fast. In PricewaterhouseCoopers’ 2015 report, Retailers and the Age of Disruption, more than half of shoppers said they bought in physical stores rather than online because they could get the in-store product immediately.
The resulting race to solve this last mile problem and put goods swiftly and securely in customers’ hands is driving a slew of innovative solutions – from drone and robot delivery to secure lockers in apartment foyers and even front gardens.
Amazon’s aerial ambition
For online retailers, the quality of delivery has become an integral part of their service. So e-commerce companies are leading the transformation of delivery.
One example is Amazon Prime Now, the global e-commerce giant’s rapid delivery service, which promises to deliver groceries, gifts and other items within parts of Manhattan and other selected cities in under an hour. The company is beating New York’s notorious traffic congestion by routing deliveries through the subway.
“We’ve been able in some instances to do deliveries in less than an hour." Steve Orenstein, Zoom2U
Think you’d never use a service like that? Remember the last time you ran out of washing powder at 10pm on a Tuesday?
Amazon is also looking to take its service proposition one step further by using autonomous aerial drone helicopters to cover the last mile. Sending goods through the air at the press of a button sounds a bit magical, although it faces plenty of hurdles. Amazon nevertheless seems entirely serious in its ambitions.
These devices have emerged from simultaneous recent advances in electric motors and batteries, guidance systems, machine vision and more. Last December, Amazon chief executive Jeff Bezos called the company’s latest drone models “truly remarkable”. Instead of flying cars, it seems, the future may be tiny flying delivery robots.
Drones are one of a slew of innovative technologies being used to get physical goods into the hands of buyers. One of the most visible examples is automated parcel lockers, which consumers can nominate as their preferred point of delivery and receive a text alert to their mobile when the package arrives. They then collect it at their convenience.
Amazon was also among first to have automated lockers. It led the way in Seattle and New York in 2011, and FedEx, UPS and the US Postal Service have followed suit, installing banks of lockers across the US. Deutsche Post’s DHL parcel subsidiary is also busily deploying lockers, with more than 2600 fully-automated Packstation facilities across Germany, and plans to install lockers in apartment buildings.
Australia Post has also put in banks of lockers in more than 180 locations across Australia, as part of an ongoing A$2 billion investment to transform its parcel delivery network.
Australian technology company TZ, which specialises in embedding computer intelligence into everyday objects, is another group in on the locker trend. It has rolled out banks of lockers in Australia and other locations around the world, including more than 100 in Singapore – dubbed POPStations – in conjunction with Singapore Post.
TZ chairman and executive director Mark Bouris has said he hopes that consumers will eventually buy their own TZ lockers to have out the front of their homes. Potentially, such lockers could include a refrigerated or insulated container to store groceries, for a cost of less than A$500. No on-sale date has been set for the devices, but Bouris has previously stated he hopes to have them in the market this year.
Another solution is “click-and-collect”, which enables customers to buy online, and then collect the goods from a nominated store. This service is offered by retailers such as Australia’s David Jones, Woolworths and Target. With its stores typically open from 7am to midnight and located all across Australia, Woolworths has also been chosen to act as a pick-up point for eBay goods in Australia.
This solution lacks the convenience of home delivery, but it’s easy to implement: Deloitte predicts that in Europe alone, click-and-collect locations will grow to half a million this year.
On the road again
Another potential solution to the last mile problem is the use of driverless vehicles, currently being pioneered by companies including Google and Tesla Motors in the US. This solution poses different problems: a driverless vehicle does not solve the problem of getting the parcel from the vehicle to the consumer’s front door, nor does it guarantee the consumer will be home when the vehicle arrives.
Unattended vehicles, however, may play another role in solving the last mile problem. Carmaker Audi is trialling a service with Amazon and DHL which uses a vehicle’s in-car communication system to give couriers access to the vehicle’s boot using a short-term access code, effectively turning the car into a drop-off point for goods.
But with these technologies still many years away from perfection and adoption, Steven Noble of consultancy Telsyte suggests we won’t be seeing the end of the deliveryperson any time soon.
The end point for anything that doesn’t require emotion or sensitivity is mechanisation, whether that is a drone or a self-driving car,” says Noble.
“But there are many, many steps along the way towards mechanisation. There are many other problems where I think we’ll get quicker gains on mechanising first, like task allocation.”
Meanwhile, solving the last mile is proving to be a significant but potentially lucrative conundrum for traditional courier companies. According to the chief executive officer of Fastway Couriers, Richard Thame, as little as five years ago only 10 per cent of the company’s business came from business-to-consumer pick-ups and deliveries.
“It would now be in excess of half the business that we do in overall volume terms, and in the next three years it will be in excess of 80 per cent of the business,” Thame says.
While Fastway is trialling delivery to lockers, it has also signed up more than 400 businesses as pick-up and drop-off points. It wants to have more than 1000 around Australia by year’s end. Rival Toll has built a network of more than 1300 collection points in conjunction with ParcelPoint.
Both firms know that if they don’t improve their customer service, they open the door for a new player to do so. The taxi industry learnt this lesson courtesy of app-driven Uber and its rivals.
In 2014 Uber entered home delivery with Uber Rush, a bicycle and foot messenger service.
And in 2014 Uber, too, entered the home delivery market with Uber Rush, a bicycle and foot messenger service that will pick up items and deliver items in the Manhattan area. It now also offers food delivery. Reports already suggest that Uber has been in talks with retailers such as Louis Vuitton, Hugo Boss and Tiffany’s to deliver items from stores to consumers.
Telsyte’s Noble says the potential Uber-isation of deliveries will be a revolution for the industry. He expects that a clutch of start-ups will be seeking to adapt the Uber model for last-mile delivery.
“That is going to mechanise the process of putting delivery jobs into the hands of lots of free agents,” he says.
One company looking to ride this wave is Sydney-based Zoom2u, set up by Steve Orenstein in June last year, which allows drivers to take on ad-hoc delivery jobs. The company made 250 deliveries in its first month, and is now closing in on 2000 per month. One of the key benefits of Zoom2u is speed: the person booking the courier knows how far away they are, and can track the goods to their delivery point.
“We’ve built a delivery platform allowing anyone to be able to go to our website and simply get access to a booking platform,” Orenstein says.
“We’ve been able in some instances to do deliveries in less than an hour, but usually within a three-hour period or same-day period.”
Fellow start-up Yello is looking to apply a similar model to the A$5 billion Australian meal home delivery market. Founder Steve Fanale says that the DriveYello app and service allows restaurants and takeaways to sign up drivers on an ad hoc basis from a pool of available drivers, while also managing their own regular drivers through the same app.
Fanale says the goal is to be a generic service provider to the many takeaway food chains across Australia. Similar models in the US have proven popular with investors, with the grocery-shopping InstaCart service raising US$275 million to fund its expansion.
This explosion of alternative logistics solutions will have ripple effects far beyond the traditional courier business. In a report at the end of 2013, for example, property firm Jones Lang LaSalle (JLL) predicted the rise of “a new class of logistics and distribution properties, including mega e-fulfilment centres, parcel hubs and delivery centers, local ‘urban logistics’ depots for rapid order fulfilment, and returns processing centres.”
Centralised store delivery, global sourcing and electronic tracking have already transformed logistics and distribution in recent decades. As JLL pointed out, most retailers are only now beginning to work out how their distribution networks must change again. But few in the industry doubt this will be one of the biggest transformations of all.
Not just droning on
In late 2013, Amazon made headlines when it announced it was investigating using aerial drone helicopters as a possible solution to last-mile delivery.
The promise of the planned Amazon Prime Air service is to get packages into customers’ hands in 30 minutes or less. The announcement immediately generated scepticism as to whether Amazon could practically or legally deliver, given the restrictions on the use of drones in civilian airspace that exist in many countries, including Australia.
However, in March, Amazon won US Federal Aviation Administration approval to run drone test flights at altitudes up to 400 feet (122 metres).
Myriad hurdles remain, however. It’s hard to navigate drones through dense and complex urban environments, they can fly only in fair weather, their batteries limit their range and they’re vulnerable to being stolen or damaged.
But this hasn’t stopped companies investigating the potential of this form of delivery. Google has already trialled using fixed-wing drones to deposit goods to farmers in the outback, while Chinese e-commerce giant Alibaba made headlines earlier this year when it used drones to distribute orders of tea.
In late 2014, DHL commenced a drone delivery service to the German island of Juist in the North Sea using a weatherproof helicopter drone, while Swiss Post has also announced that it will soon commence a pilot project in conjunction with drone company Matternet.
And Australian company Flirtey is currently conducting delivery trials in New Zealand – work that has attracted the attention of courier companies including Fastway.
“It’s very difficult in the Australian market where the Civil Aviation Safety Authority doesn’t allow it at present,” says Fastway chief executive officer Richard Thame.
“But we think we’ve got to be looking at all of those things.”
This article is from the July issue of INTHEBLACK