The big & bulky side of deliveries
As retailers invest in omnichannel capabilities, they are also investing in last-mile options – Curbside pickup, same-day delivery, and adding more carriers along with FedEx, UPS, and USPS to support next-day and more extended delivery options.
Some retailers, such as Target and Walmart, have acquired last-mile delivery providers. Target acquired a crowd-sourced provider, Shipt, in 2017 and Walmart acquired Parcel in 2017, and JoyRun, a peer-to-peer delivery app in 2020. Parcel is a last-mile delivery startup specializing in delivering perishable items and general merchandise to customers in New York City.
These acquisitions, however, are primarily focused on the delivery of small items.
The delivery of large items is a growing issue as consumers become more at ease at ordering such items as appliances, furniture, exercise equipment, and large bags of pet food or grass seed online. However, last-mile providers such as FedEx, UPS, and the USPS, have traditionally focused more on smaller items. As such, sorting facilities and delivery vehicles are not as well equipped to handle large, bulky items.
Over the years, to compensate for the extra time to handle such items and the space requirements on delivery vehicles, surcharges were implemented. Today, not only do we have regular surcharges to address large, bulky items, but we also have additional peak surcharges that were introduced last year in response to the COVID-19 related surge in e-commerce spending.
The latest increase in surcharges is from FedEx. As part of its upcoming increase in peak surcharges on June 21, a $30 per package fee will apply for oversize items. However, one must remember that peak surcharges are typically applied on top of existing surcharges, which for this particular surcharge, oversize, is $105 per package.
FedEx is certainly not alone in applying surcharges to large items. UPS, small parcel regional carriers, and even the USPS have similar surcharges.
The USPS, in particular, is an interesting case. Up until this year, the USPS differentiated itself from other last-mile providers by not applying surcharges to deliveries. Now, the USPS applies a $100 surcharge "found in the mailstream" that exceeds the maximum mailable size limit, which is a combined length and girth greater than 130 inches.
Retailers taking charge
Besides negotiating contracts with last-mile providers to help lower rates and surcharges, some retailers, such as Costco Wholesale, are taking big and bulky deliveries in-house.
In March 2020, Costco Wholesale acquired Innovel Solutions, a provider of warehousing, transportation, installation, and home delivery services, for $1 billion.
During its fiscal third quarter, the period ending May 9, Costco's Innovel Solutions, rebranded as Costco Logistics, fulfilled about 70% of Costco's big and bulky items. The company also noted on its earnings call that it continued to add new big and bulky vendors.
Citing benefits of "controlling the destiny of delivery times" and a shift away from drop-shipping, Richard Galanti, Chief Financial Officer of Costco, said on the company's earnings call, "as we get more volumes and handle them directly, we're able to improve the delivery time and lower the price for our club members."
Other retailers, such as Home Depot, are adding additional carriers such as crowd-sourced platform, Roadie, to move big and small items and trucking firms such as JB Hunt, Werner, and Ryder.
There are a growing number of options to manage big and bulky last-mile deliveries. However, retailers will need to decide what option or options best fits their strategy and pocketbook.
Thanks for reading,
Cathy
P.S. Stay tuned for my thoughts on Manhattan Associates’ Momentum conference - later this week.