A niche opens up as integrators choose not to bulk up for e-commerce deliveries

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Airlines and forwarders have struggled to establish themselves as a competitive alternative to express carriers and mail operators in the quest for e-commerce business, but there is one market segment in which they have the upper hand – and it is big, in more than one sense.

Bulky commodities – from fitness equipment and bicycles to home appliances and furniture – are on the rise.

Moreover, the integrators have shown some reluctance to take on this traffic. According to enVista, a supply chain consulting firm with a heavy focus on e-commerce, a number of pricing moves FedEx and UPS have recently announced are designed to deflect such shipments from their e-commerce flows.

It points to increases in their large package surcharges and reductions in the size limits for parcels. Both raised their large package surcharges in the last peak season and lowered the size threshold, and additional handling charges are going to be levied on large shipments later this year.

Horst Manner-Romberg, principal of parcel logistics research and consulting firm M-R-U, says bulky shipments do not fit into the integrators’ parcel systems and have to be treated as exceptions, which is time-consuming and costly.

Moreover, bulky items tilt the economics on the final mile, said Brian Bourke, vice-president of marketing at SEKO Logistics. Whereas a driver may be able to deliver 50 to 100 parcels in a day, he can only move six to eight pieces of exercise equipment in the same time.

“In the past, we would be talking about cost per pound,” he said, “now it’s all about space. In the past, you could get 18,000 pounds on a 52-ft trailer; now it’s only 12,000 pounds. That’s a significant revenue hit,” he added.

According to Mr Manner-Romberg, the margins involved with bulky shipments are less of an issue in the integrators’ stance.

“One is about volume, one is about care,” he said.

Often deliveries of bulky items include ‘white-glove service’ to install the item in the home.

“There is a shift in the market where consumers demand this,” Mr Bourke said.

Some parcel companies are not trying to avoid bulky e-commerce altogether, but try to shift this to outfits within their fold. FedEx moved e-commerce to its Trade Networks arm this year, while Hermes is using its Einrichtungs Service offshoot for large items.

The latter has grown to five dedicated hubs in Germany, plus space rented from Hermes in other locations. Typically, a hub will be established once volumes have reached a certain threshold, Mr Manner-Romberg said.

He added that in part, FedEx and Hermes had made these moves because shippers are not inclined to separate their parcel and bulky cargo shipments. Another factor is the growth of this segment. At this point there are no clear statistics, Mr Manner-Romberg said, but he reckoned bulky e-commerce traffic was growing at about 5-7% a year.

SEKO launched a combined airfreight and final-mile service for bulky goods to destinations across the US at the start of the year. Mr Bourke likened the take-up of the new offering so far to “putting gasoline on a fire”.

In part this is due to consumers’ growing inclination to order these goods online, he said. First, consumers purchased items like clothes over the internet, but more recently added large household goods to their online shopping, although they were likely to visit showrooms first to inspect and select items.

Another driver behind the growth of SEKO’s new offering has been retailers’ distribution infrastructure.

Many still operate one central warehouse and find it more advantageous to use airfreight rather than set up regional distribution centres to achieve the necessary speed of delivery, Mr Bourke said. SEKO is looking to expand its bulky distribution capabilities overseas, with the UK, the Netherlands and Germany high on the agenda, he added.

XPO Logistics is also ramping up its final-mile capabilities for heavy goods in Europe. In February it announced the expansion of its service to the UK, Ireland, the Netherlands, Spain and France.

“Our last mile expansion to Europe is being driven by customer demand, primarily related to e-commerce,” said XPO COO Troy Cooper. “Consumers are buying more large items online. These are home deliveries that often require white-glove services, such as assembly, installation and testing.”

Mr Manner-Romberg said the European market was still very fragmented, but increasing cross-border flows were prompting national players to establish co-operation agreements. The emphasis is very much on the LTL sector, but with transit windows defined by express requirements.

These co-operative networks are in an early stage with their solutions, but some are offering competitive prices, he noted.