PACKAGE FIRMS SEE E-COMMERCE DELIVERING BIG BUCKS
Byline: Scott Malone
NEW YORK — Package delivery services are pursuing a pot of gold they perceive at the end of e-commerce’s rainbow of revenue.
The explosion of online shopping has carved an opening for the United States Postal Service and United Parcel Service — firms that traditionally dominated the home delivery business — to develop services aimed specifically at cyber-shoppers and e-tailers.
The phenomenon also has attracted the attention of delivery companies such as Airborne Express and FDX Corp., parent of FedEx, that once focused principally on the business-to-business world, but are now eyeing ways to increase their presence in the consumer market.
Noticing that roughly 25 percent of online purchases are returned — and realizing that the easier it is for consumers to exchange goods, the more likely they are to continue shopping online — the Postal Service has developed a program designed to expedite that process.
Bob Krause, vice president of e-commerce for the Postal Service, said his company has made it possible for consumers to print out postage labels from their home computers, so they can return merchandise without standing in line at a Post Office.
“You go back to the Web page of the retailer, describe your desire to return the merchandise, the seller can pay for the return shipment electronically, and the consumer can print out a postage-paid label on their printer, or the [consumer] can pay online themselves,” he said.
Krause noted that a large number of e-tailers using the Postal Service to deliver packages have opted to pay the cost of shipping goods back, hoping to prevent exchanges from becoming returns.
While the Postal Service has concentrated on making the consumer’s life easier, United Parcel Service has developed a program aimed at streamlining e-tailers’ operations.
UPS Worldwide Logistics Group, a subsidiary of UPS, 18 months ago began targeting e-commerce, according to a spokeswoman for the logistics group. The unit enables a Web site to outsource everything related to inventory management: warehousing, accepting incoming shipments, and picking, packing, and shipping outgoing orders.
“There’s been very intense interest after last year’s holiday season, when people freaked out and realized they could not deliver on time,” the UPS spokeswoman related. “Logistics became a very hot topic for the e-commerce industry, as people realized that the connection between logistics and customers’ satisfaction hit the bottom line.
“There was an idea that ‘virtual inventory’ was going to be the way to go,” she continued. “But that turned out not to be true. You have to be sure your goods are going to be available.”
UPS is providing logistical support for pure dot-com players, such as Boo.com, as well as for apparel marketers that do business in brick-and-mortar stores, including Nike.com.
Those services go beyond merely moving merchandise.
For example, UPS makes sure that Boo.com’s apparel and footwear shipments go out in boxes bearing the Web site’s logo, and in Europe it has a staff of professional musicians who ensure that Fender guitars are in tune when they are sent to the purchaser.
Much of UPS’s outsourcing services are handled in an 866,000-square-foot facility in Louisville, Ky. The spokeswoman noted that the large scale of the operation allows many relatively small e-businesses to manage their inventories and shipments at a substantially lower cost than they’d be able to do on their own.
“One of the big trends we’ve seen, in the last four to six months, is that e-tailers are realizing shipping costs are one of the big barriers to people finally making that decision to buy something online,” she said. “Sometimes a shopper [finds] that a small order can cost 50 percent more because of shipping costs.”
The UPS spokeswoman predicted that as the cost of shipping becomes an increasingly prominent issue for consumers, a growing number of e-commerce players will build that cost into their overhead, rather than charge hefty shipping fees.
Underlining the importance of shipping charges is the fact that Airborne@Home — a service launched by Airborne Express last July to provide home delivery for consumers — describes its prices as “5 percent cheaper than our main competitor, UPS,” according to Joy Williams, director of customer technology at Airborne Express.
Airborne charges a zone-based rate for Airborne@Home deliveries, which ranges from $3.73 for shipments of less than 150 miles to $4.39 to shipments of more than 1,801 miles, according to Williams.
A UPS spokesman said his company’s rates vary by a number of factors, including the size of the particular order. He could not offer specific rates, though he said that UPS also uses a zone system.
For comparison, the Postal Service’s Priority Mail costs $3.20 for up to two pounds.
“We said, OK, this whole market is now exploding and everyone believes this is e-tailing’s coming of age,” Williams explained. But the company didn’t go so far as to set up home-delivery routes. Airborne@Home, conceived as an all-but-last-mile service, moves packages from an e-tailer to the Post Office nearest a purchaser’s home. The Postal Service then completes the delivery.
In another possible effort to serve the e-commerce market, FDX’s RPS unit is testing a service that would be offered by an independent fleet of drivers, according to Paul R. Schlesinger, a transportation analyst at Donaldson, Lufkin & Jenrette.
And while UPS’s position in this market is considerable, some predict that, over the long haul, the Postal Service could win out because of its huge network.
“All of the major delivery companies are being as aggressive as they can be in trying to win accounts,” said Helane Becker, transportation analyst with Buckingham Research Group. “But, truth be told, the biggest winner of all of them is the U.S. Postal Service, because they’re at your house on a daily basis. The average order on amazon.com is $35, and people are not going to spend $15 to ship it overnight.”
For now, however, UPS appears to have a leg up, having delivered 55 percent of e-commerce packages during holiday 1998, according to Zona Research, compared with the 32 percent delivered by the Postal Service.
The Postal Service’s Krause also acknowledged that keeping delivery costs low will become more important as a greater portion of consumers begin shopping online. “Our view is that the early adopters are more economically advantaged, and perhaps less price-sensitive,” he said. “More and more, it is our sense that price will become very important.”