Coffee and a croissant in Christmas logistics

Before we knew it, the last months of the year are here. What does that mean (not only) in e-commerce? On the e-shop side a multiple increase in orders and, with it, pressure for fast, reliable delivery to customers. On the transport company side an enormous increase in the number of parcels carried. This situation has significantly influenced what is happening on the logistics market and contributed to various changes.

Why are we opening this topic?

At Neoship we sit somewhere between the e-shop and the carrier. The changes on the logistics market have affected us too, and that is exactly why we are very sensitive to the situation from all sides. We have written down a few thoughts and facts we currently observe in e-commerce logistics that may give you a different perspective on things. At the end we have added our recommendations, which could help you deal with the price of transport effectively and assess the quality of the dispatch services you use.

Thoughts

Thought no. 1: Costs, revenue, profit The sales, revenue and profits of (most) e-shops grow during the run-up to Christmas. On the other hand, courier companies' revenue grows too thanks to the higher number of parcels, but their costs rise significantly in this period, which can ultimately mean lower profit for them than in ordinary months.

Thought no. 2: The courier Almost every customer expects perfect, fast delivery with premium service. And on top of that a friendly, smiling courier, regardless of whether it is freezing outside, there is a snow emergency or it is raining. A courier who gets up at four every morning and goes home at eight in the evening. A courier who often stands at a door where nobody answers and nobody picks up the phone. A courier who carries goods up to the 4th floor without a lift. A courier who … has to be great under all circumstances. Hand on heart: who would want to be a courier at any transport company right over the Christmas period? And if you would, for what wage?

Thought no. 3: The price of coffee vs. the price of delivery It is interesting to observe that for roughly the price of a coffee and a croissant (somewhere maybe without the croissant) the expectation is that a parcel will get from Bratislava to Košice by the next working day. For that price the courier has to collect the parcel at the e-shop, load it, deliver it to the depot, where a worker has to process the parcel according to the data, put it on the sorting line and then into the lorry heading to Košice overnight. After arriving in Košice the parcel is processed again at the main depot and loaded into the van of the courier who will try to deliver it to the customer that day. Is the price of a coffee adequate compared with delivering a parcel?

Thought no. 4: The rising cost of labour Generally speaking, the cost of labour is rising. If you are in a pinch and need to hire new people at short notice, you have to pay even more to be able to guarantee the required quality. Besides that, you have to size your technology for the increased volumes, even though for 10 months of the year you will only use it at ½ or ⅓ capacity.

Thought no. 5: Rising shipping prices If a carrier is to handle a multiple increase in volume over the course of 2 months, it has to take various measures. To cope with the situation it hires new warehouse workers, handlers, people for customer service, transport systems, equipment, vehicles, and so on. Those measures therefore have to be passed on to e-shops in the form of higher shipping prices.

Facts

Facts about transport companies

The fact is that all transport companies, including the post office, are generally raising prices. Why? Fact no. 1: Transport companies' costs are generally rising. Fact no. 2: The number of parcels carried in the run-up to Christmas grows and is several times higher than in ordinary months of the year. Fact no. 3: Lowering shipping prices because of the „price war” of previous years has hit a floor that is unsustainable. Fact no. 4: Slovak Parcel Service is the first company in Slovakia to introduce a „seasonal surcharge”. It comes into force on 1 November 2019 and will be applied to every shipment until 24 December 2019. Among transport companies a seasonal surcharge is nothing new. In the Czech Republic, for example, some transport companies introduced it last year.

Facts about shipping and postage

Fact no. 1: 9 out of 10 customers say free shipping is the most important factor when shopping online. Fact no. 2: The most common reason for abandoning a cart is unexpected costs, such as shipping. Fact no. 3: 56% of customers abandon the cart once postage is added. Fact no. 4: Free postage supports repeat purchases and increases the average purchase value. Fact no. 5: 92% of shoppers buy more just to secure free shipping. Fact no. 6: 81% of customers will not make another purchase at an e-shop that charges postage when returning goods. (Source: Transportation Insight)

Fact no. 7: It follows from the above that using free shipping as a benefit is a powerful marketing and sales tool. At the same time it is a significant cost for the seller. Although at first glance it concerns transport, in reality it is a pure acquisition tool. On the one hand the carrier has no say whatsoever in this benefit for shoppers, and on the other hand the same service in delivering the parcel is still expected of it. It is therefore appropriate to assess this cost in the category of marketing costs and not as transport costs the sender has to subsidise, as many often argue.

Our recommendations

Recommendation no. 1: Do not compare only the price per parcel at the individual carriers in a given weight class. Add up your total dispatch costs for the whole year and work out the average per parcel. You will certainly get a more objective picture.

Recommendation no. 2: Think about how to communicate the higher shipping prices or surcharges to your customers, and try spreading the difference between the product price and the shipping price.

Recommendation no. 3: Shoppers react to the word FREE, but also to the word DISCOUNT. Try replacing free shipping above a certain purchase value with, say, a 50 % discount on delivery, and tie free shipping to an even higher purchase value.

Recommendation no. 4: The Christmas period is demanding for every carrier and problems will arise at every one of them. The question is who handles them best. Clues can be found in their investments in the logistics network, people and services, which „unfortunately” cost something. Whether the price reflected the value you will find out after Christmas. So do your service analysis only once it is over.

In any case, whether you are the owner or an employee of an e-shop or work at a courier company, we wish you plenty of patience, strength and understanding in the coming days and months. We will all need it.

One provocative thought to close

Everyone talks about price, but when it comes to the crunch what everyone really cares about is quality. After all, someone can always do it cheaper …