Everything related to e-commerce is constantly experiencing monumental change. Some of the “change trends” include:
- New Service providers and improved service offerings directed at the consumer seem to be announced daily and you can’t deny that new technology and seemingly unlimited investment dollars are driving most of the change.
- Going vertical with the intent of controlling all parts of the e-commerce customer experience is driving competitors to enter-into services where they have limited or no direct expertise.
- Merchants, fulfillment, and delivery service providers suggesting that consumers are demanding ultra-fast solutions—such as 15-minute to 2-hour same-day delivery. This is about differentiating their offering to survive in the marketplace. However, the question begs, how practical are some of these service offerings that drive increased cost and seemingly endless losses for most of the new, VC-funded providers?
- Recent reports are telling us that, generally, e-commerce merchant profitability is trending downwards. While part of that condition is the result of intense competition, it is also driven by costly new service offerings that the consumer is not necessarily demanding.
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The Legacy of 2-Day Ground Transit Time Commitment
2-day ground delivery service is still the primary service of choice for e-commerce merchants, 3PL order fulfillment providers, and the legacy parcel integrators like UPS, FedEx, and the USPS. With just two or three fulfillment centers across the country, a merchant or order fulfillment 3PL can reach 90 percent of all US zip codes with affordable 2-day ground delivery.
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Amazon as a Change Agent-Driving Faster Delivery
The dominant force in e-commerce, Amazon, has been changing the e-commerce landscape and driving higher customer expectations since its inception in 1994. In 2005, Amazon moved to a 2-day ground delivery service commitment by leveraging their technology advantage and sourcing products from the largest network of forward-stocking fulfillment centers across the country. In recent years, Amazon has introduced one-day and same-day day delivery to select zip codes. However, 2-day Ground delivery remains an acceptable delivery service option for most Amazon customers.
Read all you need to know about micro fulfillment centers.
The Same-Day Delivery Phenomenon…Hurting Profitability
Digital Commerce 360 published a recent survey that indicates that between 24% and 36% of consumers have chosen the free same-day delivery service option at least once during 2021, but Statistica reports the size of the same-day delivery market in 2021 was only 8.5%.
The growth of free same-day delivery is real, but unfortunately for the merchants, those same-day deliveries are costly and often drive down profitability. Now, it’s not just the cost of same-day delivery that is negatively impacting merchant profitability, as the carriers are raising all shipping costs disproportionately when compared to the other costs of doing business. Additionally, the carriers are targeting the e-commerce shipments requiring home delivery for the highest rate increases.
Finally, the cost of the last-mile, same-day delivery can be more than the cost of the 2-day ground delivery that includes the first, middle and last-mile delivery, not to mention the added infrastructure cost of sourcing same-day delivery from a forward stocking, micro fulfillment center.
The long-term decreasing margin trend for e-commerce merchants is not sustainable and will ultimately force the e-commerce merchant to charge more for the costly same-day delivery. Additionally, practically none of the on-demand, last-mile delivery service providers are profitable and will need to charge merchants more for providing the same-day delivery.
There will always be a need for lower cost, one and two-day ground delivery that makes free delivery possible. There will also be a need for same-day delivery but in the future, expect to pay extra for such a premium service as e-commerce merchants facing the reality of having to drive improved profit margin, and not absorbing the higher cost of premium services like same-day delivery.