Parcel power: who's delivering the goods?

Consumer demand is making the busy world of logistics ever more sophisticated. From same-day services to drones, we track where the delivery industry is headed.

by Jack Torrance
Last Updated: 03 Aug 2016

Britain is a world leader in ecommerce but selling online leaves retailers with a challenge: how to actually put goods in the hands of the consumer. Traditionally shoppers have been left with little idea when their new dress or DVD would show up, often getting back from work to find the dreaded calling card promising to try again tomorrow - when they will still be out. And everybody knows someone whose parcel has been left in a supposedly 'safe place' like a wheelie bin, or in the case of one unfortunate Yodel customer, on their roof. But things are changing. As customers demand better service and new entrants are vying for a slice of the pie, the old guard are having to up their game.

Courier firm DPD's parcel volumes fall off dramatically after the busy Christmas period. But at 7am on a pitch black, freezing cold January morning its delivery depot in Feltham, Middlesex, is awash with people. It's a surprisingly simple operation. Parcels arrive throughout the night in articulated lorries from one of the company's giant sorting depots in the Midlands. They are loaded onto an elevated conveyor belt that stretches the length of the building, automatically scanned for their postcodes and deposited onto one of a dozen chutes to be collected by whichever van driver will take them to their final destination. Oversized and awkwardly shaped packages ('uglies' in the industry lingo) and fragile products like mobile phones are sorted separately.

The company has 56 of these depots in the UK but the plan is to almost double that within the next 10 years. It's not the only parcel carrier that's expanding either. Hermes is currently building a £31m super hub in Warwickshire, budget carrier Yodel has opened seven new service centres in the past year, and FedEx is reportedly doubling the size of its Staffordshire warehouse. With its letter business in terminal decline, former state-owned monolith Royal Mail is also betting on parcels as a vital source of growth.

As well as splashing the cash on bigger depots, some companies are investing heavily in tech in a bid to keep up with customer expectations - and to create some extra value they can charge retailers for.

Before DPD drivers get on the road, they arrange their items in the order they will be delivered, and scan them. Customers then receive an automatic text message, alerting them to the one-hour window in which they can expect the parcel to arrive. Soon shoppers will be given the chance to pick their own slot.

Out on the road, courier Pralhad Bista has to make 86 delivery drops today. That might sound like a lot, but over Christmas that number can reach 200 or more. Even on a quiet day, there's no time to waste and he soon settles into an unremitting cycle of hopping out, grabbing a parcel, ringing a doorbell, handing it over and getting on the move again. Things can get a bit frenetic - you try quickly turning around a long wheelbase van in a suburban cul-de-sac.

The packages Bista is dropping off may have been in a retailer's warehouse as little as nine hours ago, but some are determined to make the delivery process even faster. Last June, Amazon launched its same-day Prime Now service, which promises to reach you within one hour in central London. In October, Argos (soon to be sold to Sainsbury's for £1.3bn if all goes according to plan) jumped on the bandwagon, announcing a same-day service that covers most of the UK.

Same-day delivery 'is going to be huge', says Patrick Gallagher, chief executive of courier firm CitySprint. 'As we speak today, it's almost ridiculous that we haven't got more convenience at a local level for same-day delivery, but it's going to happen.'

That's not a simple question of speeding up existing processes. Traditional delivery firms like DPD with their 'hub and spoke' systems simply cannot get a product from warehouse to consumer in just a couple of hours. 'In order to be successful you have to have the product very close to the customer,' says Stuart Higgins, retail partner at LCP Consulting. That's why Amazon's one-hour service is so restricted in its geographic reach, for now at least. Meanwhile, Argos can only offer nationwide same-day services because it fulfils orders directly from its 740 stores.

Will DPD be rethinking its model to keep up with the pace? 'I don't think so to be honest,' says UK CEO Dwain McDonald. 'There has always been a market for same day but I think it's very niche.'

As well as looking at different operational models, some are trying to speed things up with the use of new kit. Amazon drummed up a lot of attention in 2013 when it said it was developing autonomous 'octocopters' that could carry small packages directly to somebody's door within minutes of an order being placed.

An idea that originally seemed like a marketing stunt has persisted. Amazon continues to talk up the idea and has even expanded its UK R&D operations to test prototypes. It's not a pariah either. Google announced its Project Wing programme in 2014 and traditional logistics firms including DHL, FedEx and UPS have also been dabbling in drones.

But it seems DPD's couriers are unlikely to be replaced by flying robots any time soon. 'It's spin and bullshit,' says McDonald. 'It's something for futuristic films, not reality.' So how come DPD's French parent tested out some drones? 'It's experimental, it's like anything else - all companies will try different things.'

The economics of drone delivery is certainly hard to make sense of. While you don't have to pay a drone for its labour, and the cost of building them is sure to come down in the future, they can't carry remotely as much as a transit van. 'You can fit an iPhone 6 in a drone, you can't fit much else,' McDonald adds.

Not everyone is so sceptical though. 'We have pretty direct exposure to the policy people at Google and Amazon,' says Jay Bregman, CEO and founder of drone compliance start-up Verifly. 'They are taking it very seriously. It's not just a headline grabber for them; they have some very, very smart and dedicated people working on this.'

Even if the model does make sense, drone delivery has other obstacles to overcome. Regulators need to find a way to accommodate the craft within the already complex rules about the use of airspace. Last year, planes at UK airports narrowly avoided colliding with private unmanned aerial vehicles on four separate occasions.

Then there's an even bigger challenge. 'How do you get the drone to actually deliver the goods in a way that makes sense? That's a really hard problem,' Bregman adds. 'Where I am here in Manhattan, I don't have a roof that is accessible. The packages are normally left in the lobby downstairs - it would take a lot for this thing to figure out how to open doors.'

If all that seems too far-fetched, how about robots with wheels? Last year Starship Technologies, founded by two of the creators of Skype, announced plans to test a fleet of small self-driving buggies that could be used to deliver shopping over short distances. The buggies will use sensors to navigate their way from a shop or warehouse to your front door without bashing into stray dogs or getting hit by a car.

'Drones and self-driving cars are still at least five to 10 years away, while our robots are actually being trialled this year and will probably be operational in larger scale commercial deployment sometime next year,' says co-founder Ahti Heinla. While Starship's buggies might find the mean streets of city centres tough to navigate, it's not that hard to envisage them trundling along the pavements of an affluent housing estate.

But these robots and drones still suffer a problem that afflicts traditional couriers. Of the 50 or so parcel drops that Bista attempted while on the road with MT, he had to hang on to five or six, despite calling on neighbours. The fact of the matter is that some people are always going to be out of the house.

McDonald suggests this could be partly overcome by the use of smartphone tracking. Soon DPD's couriers will be able to tell if you are away from your house and come back later. In the future they could even come and find you in the pub.

'It's a little bit sci-fi but it's the sort of thing you would imagine in three years' time will be a reality,' McDonald says. 'There's a lot more chance of that than of a drone landing on your building and dropping a parcel off.'

Illustration by Peter Allen

Some retailers have tried to overcome the missed delivery problem by offering 'click and collect' - where customers shop online and pick up their wares in store. A simple enough solution but a costly one - John Lewis had to start charging for the service last year.

Tim Robinson launched Doddle in 2014 with a plan to solve the same problem. Originally backed by Network Rail but now owned by billionaire Travelex entrepreneur Lloyd Dorfman, the company has a network of more than 45 parcel shops, mainly located in train stations (to make use of excess space left by the closure of sorting offices).

It's a straightforward model. Customers choose Doddle as a delivery option when they get to an online checkout. Retailers ship their products to one of the shops in the same way they would to somebody's home. And consumers then collect the package at their convenience using a barcode.

Doddle's model also helps overcome the perennial problem for fashion ecommerce - returns. Rather than having to wait in for a courier to show up, shoppers can just take their parcel to Doddle, where ASOS, Net-a-Porter and several others will pick them up for free.

Missed deliveries have long been a problem, so why hasn't someone done what Doddle is doing before? 'It's very expensive,' says Robinson. 'This is a build it and they will come model.' The company had to raise £40m in capital to create its network of shops and Robinson says without the national reach, retailers wouldn't have been interested. With lots of leases to pay and staff to employ, Doddle is capital intensive. But Robinson says the company is on track to break even by the end of next year.

Doddle doesn't want to be totally reliant on shops though. To extend its reach deeper into less well-populated areas it is trialling a new service called Doddle Neighbour. In the spirit of the so-called sharing economy, this lets people earn a bit of cash on the side by effectively turning their home into a Doddle shop.

There are plenty of other new entrants trying to use Britain's growing number of casual workers to disrupt the industry too. London-based start-ups Quiqup and Jinn are cutting out warehouses and distribution hubs altogether. Their fleets of self-employed couriers take orders for virtually anything via a smartphone, go grab what you're after from a shop and drop it off within minutes (obviously that's only possible in central London, for now). Controversial taxi app Uber is getting in on the action too with its on-demand courier service UberRUSH.

All of this innovation is well and good, but it comes at a cost, and one which some believe consumers are not willing to pay. That's partly because retailers used to offer free delivery as standard, leading to a race to the bottom in service. Even if you're offering a premium service, it's hard to convince people they ought to pay for something that used to be on the house.

But some believe that attitude is changing. 'Delivery has become a product,' says Robinson. 'Amazon will now take posters on the underground, very expensive ad space, to advertise a delivery product - Prime Now. Before Christmas, Argos ran TV ads about same-day delivery. They didn't mention a (physical) product at all.' Logistics firms have a big appetite for change, but their success depends on convincing consumers that delivery is something worth paying for.


Logistics gets more complicated when what you're shipping is big and unwieldy. Parcel carriers generally charge retailers more for awkwardly shaped parcels, and delivery of something massive like a sofa or a bed frame normally falls to specialist firms (you'd be hard-pressed to strap a 50 kilo chaise longue to the bottom of a drone). Many have to be able to assemble products as well as carry them, so service is key.

'You've got to have that personal touch,' says Colin McCarthy, MD of Panther Logistics. 'Where parcel companies go to your front door, we're going into people's kitchens. We're going into people's living rooms. We're going into people's bedrooms, where their private stuff is.'

As well as being more complex operationally, running a two-man per-drop operation is more capital intensive. You can't fit as many sofas as parcels into the back of a van and there are more couriers to employ. But Panther can charge in the region of £45 per drop for its specialist big and bulky offering. Proof that customers will pay for delivery if the service is good enough.

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