Can couriers deliver on the growing needs of retailers?

Retailers striving to satisfy increasing customer demands for cheap and efficient deliveries can find themselves forced to deal with courier firms which are struggling to cope.

The problems facing couriers hit the headlines during a spike in demand on the run up to Christmas 2014 when the high profile courier firm City Link collapsed, leading to the loss of more than 2,500 jobs. The period also saw Yodel, popular with Amazon and Argos, stop accepting parcels for a short period as it fought to clear a backlog.

UK Government statistics from June 2017 show online sales increased year-on-year by 15.9% with average weekly spending online topping £1.1 billion. With the continued growth of online shopping and competition fierce in the sector, is the network resilient enough?

Struggling to survive

The Government’s Insolvency Service has recorded 328 insolvencies among businesses involved with postal and courier activities between 2010 and 2016. The highest number of annual insolvencies in that period was 62, which occurred most recently in 2016.

In an article on accounting and business advisory firm Moore Stephens’ website, head of restructuring and insolvency Jeremy Willmont says: “The traditional courier and haulier model is now under threat. The consistently high levels of investment necessary are beyond the means of most small companies.

“There has been a generational shift in purchasing patterns. A lot of younger consumers now expect to have eight to 10 items delivered per order and send several back, and they do not expect to pay extra for that service. And, of course, all of this must happen within much smaller time windows than in the past.

“This is enormously challenging for any delivery company, but virtually impossible for the small players. The expense of installing and upgrading integrated IT systems within each depot and each van can be prohibitive. With margins being squeezed out of the supply chain, larger companies are using their scale to outcompete their smaller rivals.

“The squeeze that the delivery sector is facing raises some real questions over how sustainable the current logistics model is – consumers have come to expect free delivery, but that simply may not be feasible in the long term.”

Potential solutions

Retailers are ultimately held accountable by customers for delivery problems and bad experiences can be damaging.

It’s too early to tell what the resolution will be but it’s clear that choosing a courier partner simply on cost without understanding how sustainable the business model is, might be a decision that proves costly in the end.

“The pressure on delivery firms due to increasing customer expectations has a clear impact on retailers, in particular those smaller companies who are unable to achieve the same economies of scale as their larger competitors,” said Frank Woods, Commercial Development Specialist and retail expert at NFU Mutual.

“Reacting now and considering other distribution models will be crucial, for example, offering a ‘click and collect’ service. According to recent reports, 72% of UK shoppers now use click and collect and in 2016 58% of retailers were offering the service – up from 44% in 2015.”