E-Commerce Delivery: What a 3PL needs to know before they deliver

With retail e-commerce sales projected to hit  $4.058 trillion in 2020 and Asia-Pacific‘s retail e-commerce market accounting for more than 65% of which, the e-commerce boom presents a myriad of opportunities, for retailers and logistics providers alike. The demand for logistics services, particularly door-to-door delivery services, is already increasing in tandem with the e-commerce boom. One such example is that in Singapore, with Amazon Prime, the stakes for other e-commerce players has become ever higher and the demand for e-commerce logistics rapidly increasing. Whether to jump right on the bandwagon of e-commerce delivery has become a question that third-party logistics providers would find themselves asking, in a matter of time. Here are some essential points of considerations that 3PLs should be taking into account before diving headfirst into e-commerce delivery:

The Need for More Consolidation and Coordination

It is highly likely that a 3PL would be receiving assignments from multiple e-commerce firms at a go, each with some volume of parcels to be delivered. A 3PL could leverage on the fact that e-commerce deliveries typically are of greater volumes but with relatively small package sizes, one could consolidate assignments from the different e-commerce firms based on areas, allowing them to perform multiple deliveries on a single trip. However, the independent information flows, and possibly in a haphazard and dispersed fashion, means that one would need better consolidation and coordination capabilities.

The traditional method of relying on an operational manager to manually keep track of and plan the various assignments might be greatly insufficient, to meet the demands of fast and efficient deliveries. Sufficient automation technology should be in place to aid operators in order consolidation, which would help to significantly lower transportation costs and ensure that truck loads are fully utilised.  Having transport management software that enables the 3PL to schedule deliveries dynamically for drivers and track fulfilment statuses can greatly improve one’s efficiency and fulfilment rate.

Changing Demands: Communication Is Key

In e-commerce logistics, 3PLs are expected to deliver large volumes of parcels quickly, and in some instances, within a specific or narrow delivery time window. This is due to meet the demands of e-commerce customers who want timely deliveries that accommodate their schedules, and even a guaranteed delivery date. Many expect to be able to track the delivery status of their parcels or have the fulfilment progress communicated to them.  Being able to know when they can expect the package to arrive gives them assurance as well as ensures the necessary arrangements for receiving the incoming parcels. Thus, frequent and concise communication with the end customers is crucial in minimising delivery failure, preventing order cancellations and maximising chances of successful first-time deliveries.

Unlike deliveries for businesses, delivery failure rate for e-commerce deliveries is significantly higher, commonly due to the absence of the receiving party or wrong addresses given.  This would translate into additional trips to be made for such cases, increasing costs. One has to be ready to take on such risks and put in place protocol for the management of them. Having systems that allows for quality customer communications, such as sending SMS reminders prior to start of delivery or platform where customers can obtain real-time updates on the delivery status, are examples of steps to minimise delivery failure rate. For more tips on reducing delivery failure rate, do check out this article that we have previously written.

Lack of Consistency in Assignments

E-commerce customers’ purchasing behaviour is highly dependent on seasonality, changing consumer trends, flash sales and other external factors. This would result in fluctuations in the volume of parcels, which would potentially lead to losses, if not properly managed or prepared for. Different approaches could be adopted, depending on budget and resources available. One could choose to hire drivers on a contract basis to deal with the large influx of assignments during the peak periods. Alternatively, one could choose to diversify and opt to deliver for industries that have greater consistency of assignment volume concurrently to maintain an overall more consistent assignment volume and better utilize resources.

Financial Capability

3PLs who also wish to enter into the e-commerce logistics also needs to consider their financial capability before doing so. Unlike the other kinds of deliveries in the market like bulk delivery, business-to-business or retail distribution, the pricing per delivery/drop for e-commerce is significantly lower. This is so as e-commerce players would often offer a very low delivery fee to the shopper to encourage them to continue visiting their platform or sometimes even “Free Delivery”. This means that the e-commerce platforms cannot afford to hire 3PLs whose prices are too high per drop as it would mean absorbing a bigger cost for their shoppers.

As such, in order to make a profit from the e-commerce deliveries, the 3PL needs to do a lot of drops in order to make up for the low price point per delivery/drop. So unless the 3PL has a significant enough volume of parcels to deliver, doing e-commerce logistics may not be worth it as the profit margin may be incredibly slim or it may even be a loss.

Another method to enter e-commerce logistics is to do door-to-door delivery for e-commerce players who are more time-sensitive and have special handling or delivery requirements. Some of these include groceries and fresh produce which are time-sensitive or the delivery of ice cream or cakes which require fragile handling and a refrigerated truck. These types of e-commerce logistics that have strict time constraints or special requirements can command a much higher rate per delivery/drop as opposed to the usual e-commerce parcel deliveries. In such cases, volume is not a key factor in order to ensure that a profit for the number of deliveries is made.

While this list is not exhaustive, these are some key issues 3PLs should give a thought about when deciding whether to jump into the e-commerce delivery bandwagon or not.  They should objectively evaluate the company’s capacity, capabilities, operational resource efficiency and evaluate if they are in a position to meet the demands of the e-commerce delivery or how they can better equip themselves to be at that level. E-commerce delivery is an area where technological capability differences between logistic companies become apparent. This is due to the need for speed, flexibility and accuracy, which would prove to be difficult to cope with manual processes.  As the saying of Heraclitus goes “change is the only constant”, it might be about time to let the e-commerce boom be the reason to embrace change.