The push to build density in business-to-consumer (B2C) last-mile delivery has become so intense that customers are now being paid to aid the effort.
UPS Inc. (NYSE: UPS) announced on November 7 that it is offering $35 in rewards for consumers to pick up holiday packages at any one of 15,000 alternate delivery locations across the U.S. – known in Brown-lingo as "Access Points." Under the program, which began November 1, qualifying consumers receive a $15 Target Corp. (NYSE: TGT) digital gift card and $20 in upgrade credits to the UPS "My Choice" program, which allows business and residential end-users to manage their delivery schedules. The basic My Choice service is free, but UPS offers upgraded delivery options for a fee.
Users must be enrolled in My Choice to be eligible for the rewards, UPS said. The program will be available until January 12. It will not apply to drop-offs of parcels either for a forward move or for returns, the company said.
The carrier's Access Point network is comprised of an array of locations. The most notable outside of the UPS Store retail system are the 1,000 stores operated by Michaels Stores (NASDAQ: MIK), a retailer.
Alternate delivery locations are becoming increasingly important as last-mile providers look to aggregate their deliveries at a central location rather than dispatch drivers and vehicles to individual residences, a costly and time-consuming proposition. The added bonus for providers is that consumers are doing part of the legwork by stopping by the alternate location for pick-up instead of waiting at home for a delivery. Retailers, for their part, generally like the service because it drives more foot traffic to their physical locations.
Rival FedEx Corp. (NYSE: FDX) is building out its own alternate delivery network, notably through an agreement with retail behemoth Dollar General Corp. (NYSE: DG). Amazon.com, Inc. (NASDAQ: AMZN) allows customers to return packages to stores operated by retail giant Kohl's Corp. (NYSE: KSS).
The carriers have touted the alternate delivery services as a tool of convenience and flexibility for the consumer. A recent UPS-commissioned survey found that 20% of global shoppers prefer an alternate delivery location to a home delivery. For carriers, however, the holy grail is the chance to increase shipping density, which is key to wringing profitability out of a thin-margin business, especially with free shipping now the norm.
Historically, business-to-business (B2B) deliveries have been UPS' and FedEx's meal ticket. B2B had natural density characteristics because multiple packages would be delivered to one location. However, e-commerce's secular growth has toppled the traditional model. B2B traffic and revenues per-stop are in a multi-year decline. At the same time, the explosion of residential deliveries has dramatically increased the carriers' cost to serve at a time when consumers expect their deliveries to be free.
UPS and FedEx have spent billions of dollars to re-engineer their networks to meet the new delivery requirements. Both are works in progress, though UPS, in the midst of a massive four-year "transformation" initiative, seems to be ahead of its rival. The good news for carriers is that acceptable B2C density is beginning to emerge as big retailers grow their digital footprints and more orders flow from them, said Christopher Carlson, chief operating officer at OnTrac, a regional parcel carrier with operations in eight western states.
The need to improve parcel density becomes more important during seasonal spikes like the holidays, when carriers are inundated with volumes and need to be as efficient as possible. In theory, having deliveries made to a central location for customer pick-up takes a certain amount of cost and delivery pressure off the carriers.
Though programs like the UPS credits initiative are primarily designed to accommodate seasonal surges, they could be deployed during other periods of the year if the program promotes more pick-up activity, said Mark S. Schoeman, president of The Colography Group, Inc., a consultancy.
UPS has not determined if it will extend the program beyond the holiday peak, said Steve Gaut, a company spokesman.
Alternate delivery networks will only grow in relevance as last-mile providers look for every way to balance the cost to serve with the growth of online orders, said Ivan T. Hofmann, who was the CEO of the old Roadway Package System Inc. before FedEx bought it in 1997, and is now the CEO of GLD-holdings-U.S., a regional parcel unit of Royal Mail, the British postal and logistics giant.
Customers will need to be incented to pick up parcels at third-party locations, according to Hofmann. He speculated that, at some point, carriers will offer consumers a per-package discount to use alternate locations, or be assessed a per-package surcharge for carriers to deliver to their residences.
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