Red Faces over Slow Deliveries

SYDNEY (03/28/2000) - They find the physical delivery of electronically ordered goods is threatening to turn into an Achilles heel. As a result, Australia's transport industry is starting to grapple with new models for delivering goods that better fit the needs of electronic commerce.

Delivery delays of up to a month may be acceptable to traditional mail-order customers, but delivery constraints are one reason mail-order revenues make up only 3.5 percent of total retail sales in the U.S. A similar market share ceiling could be imposed on online business-to-consumer (B2C) sales if Australian electronic retailers don't lift their delivery game.

E-tailers have spent more attention on payment systems than creating fast, reliable product delivery systems. That has created a huge mismatch between lightning-quick order entry times and turtle-slow order delivery mechanisms.

For example, one major bank attracted new credit card customers with a 90-second online approval process. As part of its promotional package, it offered a free CD to those who used their new cards at an online music site.

The end result: customers received their cards in 90 seconds but a month later were still waiting for delivery of the CDs they ordered.

The problem for e-tailers is that transport companies' traditional delivery infrastructures aren't geared to the requirements of online B2C sales.

Historically, those infrastructures are oriented toward bulk deliveries made during the work day. However, online consumerism demands a model based on high volumes of individual household deliveries which take place outside office hours.

Changing the infrastructure is a process fraught with risk and expense for major transport organizations. Also, young e-tailers have little trading history or commercial credibility with established transport companies so they have trouble convincing transporters to take them seriously enough to guarantee coverage of unexpected demand surges. Matching delivery resources with peaks and troughs in orders is an area in which dotcom companies are still feeling their way.

In addition to the delivery headache, dotcoms have a problem with returned goods looming on the horizon. In the mail-order business, consumers reportedly return between 18 and 32 percent of orders after they see them. Setting up efficient, customer-friendly order return mechanisms to cope with that level of activity is something most dotcom players are yet to achieve.

There are signs that some organizations are coming to grips with the issues, says Marc Scamps, CEO of Virtual Logistics Organization, a company facilitating messaging links between electronic trading communities and transport companies.

"This calendar year we are seeing significant investment from a range of transport companies to reconfigure their delivery capability," he says. "Some are working furiously to see if they want to get into this e-commerce delivery space."

The Toll transport group says it will spend A$50 million (US$30.6 million) over the next five years in this area and Australia Post has announced an Internet fulfilment service. "But these are all in the planning and conceptual stage," says Scamps. "In an ideal world, this would have happened 12 months ago."

Apart from the big established transport groups, a new generation of small young transport players has dotcom customers in its sights. They are highly focused on building a Net-friendly service and are faster to move because they don't have the corporate and labor relations restraints of the bigger companies, according to Scamps.

They include Retail Logistics Group, a Melbourne company being constructed around a national infrastructure of owner/drivers handling parcel deliveries on piece rates. Elements of the group embrace Victorian Express and Retail Freight Management, existing parcel freight companies which have grown their revenues by A$40 million in the past seven years.

Retail Logistics' managing director, Gavan Stewart, says traditional transport companies have inflexible cost structures linked to company-owned vehicle fleets, employee drivers and an emphasis on nine-to-five operations. That model imposes high penalties for making after-hour household deliveries of the type demanded by B2C electronic commerce.

"They either have to put on a whole second shift of drivers or push into overtime and doubletime," says Stewart.

A system of locally based owner/drivers tied into a national network of parcel-handling hubs and delivering into customer-nominated time windows is the solution e-tailers are looking for, Stewart believes.

"The first transport company that can genuinely produce it will be swamped by the dotcoms."

His own model will include an online fulfilment site linked to e-tail sites which will offer consumers one-click order lookup and tracking of their purchases. Some dotcom companies have despaired of finding the right transport industry partners and are attempting to create their own delivery fleets.

Stewart believes they will discover they have bitten off more than they can chew. He calls them "extremely naive" in terms of achieving the necessary economies of scale with the sales volumes they are able to generate.

Copyright © 2000 IDG Communications, Inc.

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