Nowhere is it written that all e-commerce deliveries must consist of symmetrical four-pound parcels. In fact, the focus of the online fulfillment saga's next chapter could be on items that don't look anything like what has come before.
Small, lightweight shipments handled through traditional conveyance systems have dominated e-commerce's early days. But the broadening of online inventories now gives consumers and businesses access to goods of all shapes, weights, and sizes. These include so-called large-format items that weigh more than 150 pounds and usually require two people to deliver and perhaps install, as well as relatively light but bulky products that are incompatible with conveyors. These could be skis, mattresses, treadmills, or desks. Or they could be furniture items ordered on Seattle-based Amazon.com Inc., the world's largest e-tailer, which recently announced it would enter the space.
U.S. online sales of nonconveyable goods have hit $30 billion, equal to about 10 percent of total e-commerce sales, according to Omaha, Neb.-based truckload and logistics company Werner Enterprises Inc., which in May launched a service to deliver such items the "last" mile to residences from stores, factories, or DCs. For-hire last-mile deliveries of heavy goods ordered online have grown at a nearly 9-percent compound annual rate since 2012 and are now a $7.6 billion-a-year business, said consultancy SJ Consulting.
E-commerce rewrote the rules for parcel carriers, which had to adjust to business-to-consumer (B2C) deliveries overtaking their traditional business-to-business (B2B) market. The continued growth of large-format orders will rewrite the rules yet again, but this time for multiple types of carriers. Parcel service providers are expanding their physical networks in part to accommodate orders that can't be handled via conveyor. FedEx Ground, the ground parcel unit that handles the bulk of e-commerce deliveries for its parent, Memphis, Tenn.-based FedEx Corp., has added 10 million square feet of capacity in the past 18 months, with four major U.S. hubs and 19 automated stations. Meanwhile, less-than-truckload (LTL) carriers with minimal exposure to residences and with drivers accustomed to serving docks will now be expected to go into a home and work directly with customers. And truckload carriers, the biggest collective players in U.S. shipping, will dive in as e-commerce growth provides attractive levels of shipment density centered around major markets.
Kevin P. Knight, chief executive officer of Phoenix-based Knight Transportation, which will become the nation's biggest truckload carrier should its $6 billion merger with hometown rival Swift Transportation Co. LLC win shareholder approval, reportedly said on a recent analyst call that e-commerce volume growth "has allowed truckload to be in the game, whereas initially when it wasn't so concentrated or there wasn't the volume, you had no choice but to rely on parcel or even LTL."
CAPACITY ALLOCATION CHALLENGESGiven the dynamic nature of omnichannel fulfillment, where orders can be pulled from anywhere, there will be increasing pressure to execute proper load planning so carrier capacity can be effectively allocated. "The challenge for us will be getting good capacity in all the right places," said Craig Stoffel, Werner's vice president of global logistics. Werner's fleet will focus on the linehaul part of the move—known as the "middle mile"—before tendering the goods to a network of last-mile delivery providers. Stoffel said the company has assembled a network of 200 locations to support the initiative.
Demands by consumers and businesses for faster delivery will require greater focus on cross-docking, where goods dropped off at a dock are quickly reloaded onto another vehicle without the product's entering a warehouse or DC. XPO Logistics Inc., the Greenwich, Conn.-based transportation and logistics service provider that operates what it says is the industry's largest last-mile network with 12 million deliveries a year, leverages its cross-dock function to examine products and make any needed modifications, said Will O'Shea, senior vice president, sales solutions, for the company's Last Mile unit.
XPO is testing the integration of its contract logistics, LTL, and last-mile operations and is working to compress delivery times for larger items to one to two days from the current five- to six-day window. XPO is a top player in all three segments, which O'Shea said gives it a leg up in the last-mile space compared with rivals that are just starting out. XPO has said it hopes to roll out the service by year's end.
The cross-dock model could be expanded on a collaborative basis, with goods being brought in on behalf of multiple retailers and then placed on so-called straight trucks, vehicles with standard dimensions and "lift-gate" devices that raise and lower items between ground level and the level of the vehicle's bed. "Why would each one of those [retailers] have its own discrete method of final mile?" asked Alex Stark, senior vice president, marketing for Kane Is Able Inc., a Scranton, Pa.-based LTL carrier and third-party logistics service provider (3PL). "They should pool their sales and leverage an enabler to execute to the consumer."
Stark also suggested that truckload and LTL carriers consider tapping into the pool of straight trucks controlled by rental outfits such as U-Haul that might otherwise sit unused. "What if truckload and LTL carriers contracted out with those companies to provide last-mile service within a geographic region?" he said. "That would be an excellent example of collaboration and shouldn't cannibalize the driver fleet since most straight trucks do not require a [commercial driver's license] to operate."
Stoffel of Werner expects that truckload carriers will partner up with LTL carriers because it would not be cost-effective to utilize a whole truck to transport, say, two or three treadmills to residences, whereas an LTL carrier commingling freight for multiple customers can afford to do that. "Truckload service providers will need strong LTL partnerships" to remain viable over the long haul, he said.
The growth of last-mile services, and the accompanying proliferation of entrants, could result in provider convergence the likes of which the transportation and logistics industry has rarely seen. "They're all merging," said Paul Johnson, vice president of global solutions and consulting for Descartes Systems Group Inc., a Waterloo, Ontario-based IT company, referring to the expected integration of services. The ability of providers to be flexible and reconfigure networks almost on the fly will be critical to success, Johnson said.
SUPERIOR TECHNOLOGYTo be sufficiently agile to support multiple workflows, providers will also need top-notch technology. A company like XPO, for example, offers visibility to the consumer from the point of purchase to proof of delivery, according to O'Shea. It also gives its contract drivers (it relies on about 5,000 independent contractors) visibility of the product down to the item level, O'Shea said. This means, among other things, that drivers can be guided to address specific issues related to product installation either while at the home or before arrival.
By contrast, truckload carriers have barely scratched the surface on track-and-trace technology because that hasn't been a priority. Johnson of Descartes said the speed and proficiency by which truckload and LTL drivers master mobile technology will be another key factor in making last-mile work.
Above all else, according to O'Shea, those getting into the market must adapt to a new world. Not only are drivers entering a customer's most private environment, but they are usually delivering a high-cost product that, in many cases, must also be assembled. Unlike "traditional" e-commerce shipments, which can be returned with relatively little inconvenience to the customer and cost to the retailer, a late delivery of a large-format item, damage to the item during delivery, improper installation, or just plain buyer's remorse ratchets up the cost to the retailer as well as the provider. If any of those scenarios occurs, the driver must then go into "save the sale" mode, according to Stoffel of Werner.
"It's a very different business when you are interacting with the customer in their home," said O'Shea, who has been doing last-mile for years. "For drivers, it's not what they're used to. They bump docks."
A version of this article appears in our July 2017 print edition under the title "Going heavy to the home."
Gartner, Inc.