UK parcel operators are expected to be relatively well-prepared for the peak pre-Christmasperiod this winter, which is likely to be characterised by elevated on-time performance levels in
October, followed by the usual December performance dip and elevated quality levels in January.Andrew Starkey, head of e-logistics for online retail association IMRG, believes UK parcelcarriers and online retailers have learned a lot from their experiences in the last few years,particularly since the problems of Christmas 2010, when severe weather conditions led to majordisruptions across the sector.
“The carrier industry took a severe hit back then,” Starkey told CEP-Research in an interview. “To their credit, they accepted that they could have done better, but the weather was severe andsome were simply caught out. But they have learned from that experience, and now their contingencyplans are more robust.” Most of the big carriers avoided major problems last winter, with theexception of Yodel, which was still in the process of integrating its DHL Domestic and HomeDelivery Network businesses.
“I think the carriers are prepared for the coming peak season, although what they can’t mitigateentirely for is severe weather conditions, such as the major flooding being experienced in someparts of the country at the moment,” observed Starkey.
Nevertheless, the fact that parcel volumes will rise by around 50% during November and Decembercompared with their normal level the rest of the year means that, under current operational models,there will be an increase in the deployment of less-experienced temporary staff, which can have animpact on performance. Starkey said the productivity of temporary staff tends to be lower thanfull-time specialists, who know their delivery patch intimately – even, in some cases, down to thehabits of individual online shoppers; when they will be home and where to safely leave anon-signature parcel if they are not.
“The industry does not and cannot afford to carry 50% spare capacity, so the Christmas peak isalways a tense time,” Starkey observed. “The reason for the performance improvement in October isbecause the carriers and the retailers get ‘resourced up’ for the peak. But as the huge volumescome in November and December, quality will drop away.”
He said some of the temporary staff will be retained until the early part of the new year, inorder to help catch up with any backlogs, creating a pick-up in on-time delivery performance inJanuary, before dropping back to normal levels from February onwards. This trend is illustrated bythe monthly index published by IMRG, which shows average industry on-time delivery rates (includingattempted delivery) of almost 96% last October, dropping to 92% in November and 89% in December,before climbing to 95% in January, dropping back to 92% in February before returning to therest-of-year average rate of around 90%.
“We expect to see this pattern again this year,” Starkey added. “Capacity will be an issue, andwe expect retailers will try to mitigate that by pushing as much as possible through in-storeclick-and-collect and alternative delivery options such as Collect+. This creates capacity anddrives efficiency in delivery because it means a consolidation of orders going to one locationwhere first time delivery is assured. This takes some of the pressure off the carrier fleets aswell as creating additional capacity for the sector.
“We may also see retailers offering incentives to customers for non-express delivery services,”he added. As well as encouraging consumers to order early, this option allows a wider deliverywindow and increases flexibility.
But overall, he expected that as Christmas Day approaches, the proportion of customers requiringexpress deliveries will increase – as opposed to those requiring ‘economy’ deferred deliveryservices – a phenomenon that will peak in December, when the proportion of priority and economyservices will be roughly equal, at around 42% each.
“Lead times get shorter and people start to pay a premium for faster services, and ‘economy’drops off,” Starkey observed. For the rest of the year, demand for economy services tends to run ataround 45% and for day-definite at around 35%, with the remainder made up of international andother services.
“Another thing that happens as we get closer to Christmas is that international volumes, whichare generally rising month on month, may drop off a bit, as overseas customers recognise thatinternational deliveries will take longer and they focus instead on domestic retailers in thoselast days before Christmas,” observed Starkey.
While there has been some talk of parcel carriers increasing their prices in order to make thenecessary investments to meet the growing future capacity needs, particularly during peak season,in practice almost all delivery firms have applied significant increases in rates this year.
Starkey said these increases are not directly peak-related, but are in part because Royal Mail,which provides the “foundation prices” for the sector, has been allowed greater pricing freedom byregulator Ofcom that has allowed it to increase its parcel delivery rates by an average of 14% thisyear.
“As a result, many, if not all, of the other carriers are taking the opportunity to apply whatmany consider to be long-overdue price increases,” said Starkey. While this will not be welcomed byretailers in the short term, he said any situation where much of the carrier market is running at aloss is clearly unhealthy and unsustainable.
He believes this will lead to a noticeable shift in the base price for the home delivery ofonline orders, which will ultimately be passed on to consumers. “But it is not going to drasticallyhit order volumes or the market for online shopping, because online will still represent the retailbest value and choice” he said. “If only one carrier increased its rates, then they would lose somemarket share, but I think that the result of this situation will be that the whole market is justgoing to shift up a bit on price, and new delivery channels will develop.”
