Amid all the excitement over the phenomenal growth of online retail pushing up demand for home delivery, it has been all too easy to overlook the intensely competitive nature of the market.
But City Link going into administration was a harsh blast of reality – and harshest of all for the 2,727 people who found out that they were losing their jobs on Christmas Day.
The company had been losing money for a number of years and Christmas 2014 seems to have convinced owner Better Capital that there was no hope of returning it to profit. Christmas 2014 also marks another stage in the realignment of the express parcels market to reflect a new commercial reality, where the main driver of growth is B2C rather than B2B.
And it’s not just the traditional parcel carriers that are competing in this market. For the past couple of years Amazon has quietly been building up its Amazon Logistics operation, a network of local delivery stations using regional delivery partners. “These stations provide more capacity and flexibility within our delivery network and will fulfil orders across all Amazon’s delivery options,” said a spokesperson when the company announced it was opening four new sites in 2014.
There have also been moves by the newspaper wholesalers into the broader distribution market. Smiths News and Menzies have large fleets of vehicles devoted to distributing newspapers overnight. That of course is a declining market, so there are good reasons to diversify. Menzies has so far focused on the retail market, for example it now delivers betting slips to bookies. Smiths News has launched Pass my Parcel with Amazon. A customer orders a product online and Smiths delivers it to a local newsagent for collection.
But these developments don’t necessarily solve all the delivery problems. One of the lessons of Christmas 2014 is that carriers cannot always cope with the huge peaks in demand. And increasingly there are voices arguing for a rethink. Dick Stead, executive chairman of Yodel said: “We have seen that the majority of retailers are unable to accurately forecast future demand. The carrier industry cannot be expected to take all the risk, investing in building networks that are capable of handling unspecified peaks.”
He argues that it might be necessary to move to 48 and 72 hour services at peak periods and only offer next day deliveries for a premium.
The home delivery market is expected to continue growing, and closure of City Link takes some capacity out of the market. But, margins are still going to be tight and online buyers will be just as demanding in a year’s time. Innovative thinking will be at a premium.
Malory Davies FCILT,