Postal Service OIG report takes a long look at impact of same-day delivery and next-day, too

Even though e-commerce continues to gain more and more traction by the day, consumers ordering items online and wanting (or expecting?) same-day delivery of these online orders are not in the majority, with the exception of millenials, of course.

That was a key takeaway in a recent white paper issued by the U.S. Postal Service Office of Inspector General (OIG), which noted that “the same-day delivery of online orders is still a niche market (249 million packages in 2018, or 2% of the total domestic parcels market) and its future is fraught with the uncertainties.” What’s more, the report said that this market is dominated by crowdsourced delivery companies, and major online retailers have started to acquire or develop their same-day capabilities.

So, what exactly are those uncertainties?

For starters, the report pointed to how many customers are not willing to pay for same-day delivery regardless of price, with medications and groceries representing the lone possible exceptions.

And from a logistics perspective, the report called the logistical requirements of same-day delivery both complex and expensive, coupled with how a fair amount of same-day providers have business models that are unsustainable and not profitable to the point that they are losing money with each delivery.

So, while same-day delivery may have more distance to travel to gain additional traction, the report observed that is not the case for the next-day market, a segment the report described as highly competitive and emerging as a new major battleground. And it also noted that it is “critically important that the Postal Service takes necessary steps to maintain—and enhance—its currently strong position in that market.”  

And it took that sentiment a step further, too, observing how there is an emerging focus on next-day delivery service as a potential good balance between low price and fast delivery.

As an example, it highlighted how some major retailers have introduced plans to shore up their next-day delivery options and are promising to offer the service up for free. The report explained that if next-day does become the option that reshapes future consumer delivery preferences—instead of same-day delivery—it would be more in line with the strengths of traditional carriers like the Postal Service, which it said is “well-suited for next-day delivery and is a major provider of these types of services through its Parcel Select DDU service, which has seen steady gains going back to 2012.

Gordon Glazer, senior consultant for San Diego-based parcel consultancy Shipware LLC, said, at the end of the day, a major driver related to the adoption of next-day shipping is closely tied to price.

“If it was ‘free,’ then why not?” he said. “But if there was cost involved then that was weighed against the need. Most would choose a slower, cheaper option, but this changes by age, Millennials want what they want when they want it and cost often doesn't' resonate.”

Looking ahead, Glazer said that the future is going to change how consumers receive products, and it will be driven by changing attitudes of the consumer population, those that make the decision of what and how to purchase. Another factor is technology and a capitalistic economy, in the form of drones, automated driverless vehicles with robots to walk the final 100 feet and the consumer’s ability to download a CAD file and print the item will become commonplace.

“This topic is one of many impacting shippers today,” he said. “Every day as consultants we help our clients navigate some very tricky waters. A president of a large e-commerce giant recently confided to me that his business was under assault. Eroding margins due to rising transportation costs, his vendors opening up their own e-commerce sites and competing with them, while their largest channel, Amazon, strong arms them while systematically replacing them with their own sourced products. It’s scary out there for those who make their living selling via e-commerce, and its tough to lower costs on their own. We know those that leverage experts and closely monitor changing attitudes and trends will fair better. For me, I had to look no further than my own household to realize it doesn't matter what I think, it is what the next generation thinks that will drive the new economy.”

Glazer makes many fair and valid points there. One thing that this report and his commentary makes clear is that, in some ways, the future is now, when it comes to the myriad decisions and factors that influence both same- and next-day shipping, and each day represents a new chapter in that journey while balancing time, resources, and costs all at once.