Short pre-Christmas online mega-sales helped generate double-digit growth for leading UK parcelfirms Yodel and Hermes in the 2014 peak season but also squeezed end-of-year operations for all
carriers with “unprecedented spikes in demand”, carriers and experts said today.Yodel and Hermes said the sharp peaks in demand around ‘Black Friday’ on 28 November and‘Cyber Monday’ on 1 December had posed significant new challenges for all delivery companies, andcould have created a ‘new normal’ with a “condensed” peak season.
Martijn de Lange, operations director for Hermes UK, told CEP-Research that there werea number of lessons to be learned. “The recent peak season was a lot shorter and sharper comparedto previous years, largely attributable to retailers using Black Friday and Cyber Monday to drivesales,” he said. “This theme is likely to continue in the years to come, so the industry has tobuild even more robust capacity during the year to deal with a huge surge in activity duringupcoming peak seasons.”
He said Hermes UK had enjoyed a “very positive” peak period, processing 24.4 million parcelsin total, representing a year-on-year rise of 15 per cent, “surpassing the industry average of 11.6per cent. On our record day, we handled around 1.2 million parcels and during our busiest week ofthe year we processed 6.9 million parcels, representing a growth of 27 per cent year-on-year.
“We are extremely proud of how our network handled this volume and all deliveries were madebefore Christmas. myHermes volumes also doubled during the peak season,” he said.
Yodel’s peak was even more pronounced, with flash sales over the Black Friday-Cyber Mondayweekend causing an “unprecedented” spike in parcel volumes, and with inaccurate forecasting byretailers of demand levels contributing to the challenge to carriers of meeting demand levels andconsumer expectations. Yodel delivered more than 15.5 million parcels between 1 December and 24December, a year-on-year increase of 11 per cent. But on its busiest day, 1 December, volumestopped 1.2m parcels, up by more than 40 per cent compared with the carrier’s peak day inDecember 2013.
Yodel said it accepted more than 600,000 parcels over and above the forecasted levels agreedwith retailers over the “Black Friday weekend”, as demand far exceeded the predictions of retailersand industry analysts. It said Christmas shopping predictions made by Experian and IMRG aslate as 25 November, while anticipating online spend to set new records, underestimated the levelof UK sales on Black Friday by 46 per cent, when £810 million was spent online, exceeding originalestimates of £555 million. Online sales for Cyber Monday also exceeded original forecasts by over10 per cent with £720 million spent online, compared to estimated figures of £650 million.
Yodel said that advance notification of promotions, coupled with a mild winter, meant thatshoppers had waited before they started buying presents and investing in their winter wardrobes,resulting in low parcel volumes during November. “The flash sales then triggered a huge andunprecedented spike in parcel volumes coming into Yodel’s network over the Black Friday, CyberMonday weekend compared to 2013,” the company reported.
Dick Stead, executive chairman of Yodel, said: “The Black Friday phenomenon, which overtookCyber Monday as the peak online shopping day for the first time, has changed the Christmas peakmodel, possibly forever, as consumers are changing their online shopping habits, condensing theminto a shorter time period. We’re reviewing our performance and will be working with our valuedretail clients on next year’s peak plan, setting out a new blueprint for Christmas operations goingforward.”
He said the carrier’s decision to defer some collections from its clients for two days whileit processed the excess parcels which came in as a result of the flash sales and transferredvolumes from other challenged carriers, had been well publicised. “We control the number of parcelscoming into our network by agreement with the e-tailer and through managing the number ofcollection vehicles we send to each of our clients,” explained Stead.
“Over the Black Friday weekend, the number of parcels on the incoming trailers increaseddramatically, over and above forecasted levels. We agreed to process the additional 600,000 parcelsto help our clients and ensure their shoppers received their purchases as soon as possible.
“We did this on the understanding that parcel volumes would start to tail off after thesales. When they failed to decline as predicted, we took the bold but necessary move to defer somecollections, which allowed us to recover and process all of the parcels within 48 hours. ByChristmas Eve we had not only delivered on our promises but also successfully delivered anadditional 388,000 parcels, which were not due until after Christmas, ahead of schedule,” hestressed.
De Lange agreed that there was room for improvement in the volume forecasts from certaincustomers. “It is fair to say that some volume forecasts were more accurate than others,” heobserved. “However, retailers faced a tough job trying to predict volumes, especially with all thepromotions running over the Black Friday and Cyber Monday weekend.
“There was also a subdued period over the autumn months, perhaps due to the mild weather, sothis has to be taken into account too. In the lead-up to Christmas we saw a lot of individualspikes from different retailers and the peak season was a lot shorter and sharper than expected.”
Stead said Yodel’s planning for the 2014 peak had commenced back in January 2014 when thecompany “invested heavily in a detailed Christmas operations plan”. The carrier then up-scaledresources to match retail forecasts, boosting the workforce by over 5,000, putting over 700additional vehicles on the road and procuring 13 extra sites to handle the increase in parcelvolume.
He said there were “many lessons to be learned” by the retail and carrier industries forChristmas 2015, including a possible need to limit the expectations of customers during periods ofextreme demand.
“The model of next-day delivery as standard for all orders simply has to change when volumesunexpectedly increase to such an extent, in a capacity-constrained business,” said Stead. “We haveseen that the majority of retailers are unable to accurately forecast future demand. The carrierindustry cannot be expected to take all the risk, investing in building networks that are capableof handling unspecified peaks,” he added.
“Working together, we need to find a method of spreading volatile parcel volumes to matchthe industry capacity, while delivering a high-quality service that meets everyone’s requirements.That may mean that 48- and 72-hour services become the standard during peak periods, and whererequired, next-day deliveries are available for a premium.”
But de Lange suggested that it was the responsibility of parcel carriers to adapt. “Weunderstand that people want to receive their packages in a quick and timely manner, especially inthe lead-up to Christmas,” he said.
“The ever-demanding end customer is driving the market and it is the industry’sresponsibility to work hard to improve its processes. The magnitude of Black Friday and CyberMonday was surprising, but now the industry has ten months to learn from this and prepare itselffor the next peak season.”
He did not believe there was a need for some kind of wider agreement on how to pay for ‘extreme peak’ delivery capacity.
“It has been a more challenging peak than other years and across the industry some companieshave struggled. In an ideal world, volumes would gradually grow towards peak, but as it stands weare seeing lots of individual spikes,” de Lange commented.
“We have developed long-term partnerships with a number of the UK’s leading retailers, whichincludes both off-peak and peak periods, so it is our responsibility to meet the challenge whenrequired. We are always in constant communication with our customers to explore how we can bestaccommodate their needs through our range of services.”
But Andrew Starkey, logistics director for online retail association IMRG, accepted thatthere was a need for retailers to acknowledge the burden placed on carriers by extreme peaks indemand. “The industry cannot be expected to handle such a large spike on top on the peak withoutcostly contingency,” he said. “We need to work together to keep the pipeline open.”
He agreed with Stead that there was a need for retailers to be realistic in theirexpectations. “At the point of picking, dispatch and hub sorting, we may have to be morerealistic with the delivery promise and over this period extend the service proposition,” he toldCEP-Research. “Instead of a standard delivery being three days, it may have to be seven.
“This will give the industry the flexibility to pick and pack the following day or two days,dispatch in daily ‘non-peak times’ rather than holding vehicles later and later to get goods awaysame day, allowing carrier hub sortation to cope. This may require holding areas for orders,” headded.
And at the delivery end, Starkey said greater use of click and collect would help to createdelivery efficiency and capacity. Meanwhile, improved communications were needed throughout withthe customer, “advising when goods have actually been dispatched and pre-advise the daybefore delivery”, he added.
Starkey had no doubt that retailers would repeat last year’s big Black Friday and CyberMonday sales promotions, but if they expect normal levels of delivery service during ‘extreme peak’periods, it is likely to come at a cost. “They will go ahead,” he said. “They may be asked to payto prioritise or to maintain a same-day dispatch or next-day delivery service level.”
On the subject of forecasting, Starkey pointed out that the overall forecast for last yearwas “spot on, but the daily ebbs and flows were different”. But with the market evolving sorapidly, forecasting inaccuracies were inevitable.
“We do our best but… I think we must assume that, as it is with all forecasts, the onlything you can be sure of is that they will be inaccurate!”
