News / Cost pressure rises for parcel carriers alongside booming consumer demand

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The parcel industry has been turbo-charged by the Covid-19 pandemic, but is now feeling some pain in response to the massive boom in traffic.

“In the past two weeks we carried over two million parcels – a higher volume than in previous peaks,” Gilles Fernandez, sales director, mail & parcels at AN Post, told a Post & Parcel online conference last week.

Operators are fast-tracking investment in capacity expansion to keep up with the relentless growth and Mr Fernandez reckons 50% of the new business will  become part of the new base of regular business for AN Post.

However, further investment is needed to train employees and beef up technology – simply cranking up capacity is not going to be enough, he said.

Canada Post has seen 86% growth year on year, according to COO Charles Brewer.

“Volumes have gone through the roof and really tested the system,” he said, adding that the pressure would likely increase further as the peak season looms.

Ryan D’Souza, director global business development & e-commerce partnerships at Purolator Courier, said the pandemic had pushed priority to the need for diversification and resilience of supply chains.

He said operators needed to change their approach to partnerships. So far, they had been built around the focal points of cost and efficiency – in the post-Covid-19 world they would have to be more forward-looking and required a more holistic approach.

“A proven track record will not necessarily hold true in the new normal,” he warned.

Mr Brewer is convinced the landscape is shifting irreversibly.

“It is a tipping point. The situation we’re going forward to is very different from the market before,” he said, adding that the decisions on what to invest in will not be easy.

“We can’t be all things to all people. There will be tough calls on volume caps and oversize shipments. We need to have a clear position and stick to it.”

AN Post had to impose capacity caps and a capacity allocation system for large customers in order to manage its volume growth, Mr Fernandez said.

And in terms of performance the industry certainly has some way to go, according to technology provider BluJay Solutions, which conducts a consumer survey on an annual basis, and the results of this year were sobering: only 22% of deliveries were up to expectations all the time.

“Delivery expectations and experience do not match up,” said Katie Kinraid, general manager of APAC. “We’re always measured at the exceptions – the really good and the really bad.”

If anything, expectations appear to continue to rise. Andrey Busk, head of post-purchase experience at online fashion retailer NA-KD, warned that the next-day delivery paradigm was not going to constitute a final frontier.

“The market is moving in the direction of same-day,” he said.

Ms Kinraid noted that the pandemic had led to a marked rise in interest in click and collect schemes, as shoppers looked for contactless delivery options. “

Another stress point is the returns arena. Mr Busk emphasised the importance of a frictionless returns process, from instant refund and refund flexibility to seamless exchange of merchandise – at the click of a button when it comes to sizes and colours.

These developments spell higher costs for providers, along with the need to beef up capacity and safeguard networks against disruption. The bad news is that consumers seem unwilling to shoulder the cost.

BluJay’s survey confirms this. “People are not willing to pay much more for additional services,” Ms Kinraid said, adding that consumers were also not willing to pay for basic delivery.

According to Mr Busk, 54% of NA-KD’s audience say delivery decides with whom they shop, while 73% have purchased more items than originally planned to reach minimum spend levels for free delivery.

For carriers the windfall of B2C e-commerce is expected to continue, but the cost pressures are rising.