6 minute read 22 Oct 2020
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How thinking outside the box could be the best way to deliver for your customers this holiday season

Authors
Joshua Chernoff

EY-Parthenon Americas Managing Director

Transformation leader in retail. Consumer-driven thought leader. Teacher and mentor.

Kevin Custis

EY Global Transportation Industry Leader

Passion – helping clients reimagine possibilities enabled by exponential capabilities that are rapidly shifting from theory to reality. Priority – time with family and long-course endurance training.

6 minute read 22 Oct 2020

Cooperation and collaboration between carriers and retailers will be pivotal in forging a new supply chain that can meet present and future needs.

In brief

  • Retailers and carriers must examine and implement joint strategies today to avoid late or missed deliveries this holiday season.
  • The risk of not meeting the demands of consumers stretches beyond missing out on additional revenue.

Retailers and carriers have spent most of 2020 adapting to new and emerging needs of consumers. Overnight, e-commerce transformed from a convenience to an urgent necessity as all 50 states implemented stay-at-home orders due to the COVID-19 pandemic. As a new normal emerges, the volume of e-commerce appears to be here to stay. In fact, even in September, as the stay-at-home orders of spring and early summer felt like a distant memory, 28% of US consumers say they are still shopping online than before the pandemic, according to the EY Future Consumer Index (FCI). 

Future Consumer Index

28%

of US consumers say they are still shopping online than before the pandemic.

Now, with the holiday shopping season approaching and carriers’ delivery networks already operating over capacity, retailers and carriers must examine and implement strategies today to avoid late or missed deliveries. The stakes have never been higher — according to the FCI, only 21% of US consumers report forgiving brands and stores whose service has been disrupted by COVID-19.

The effort to devise a plan that accurately forecasts demand and capacity patterns in each market has never been easy. Studies direct carriers to anticipate heavy volume in markets A, B and C, only to have markets D, E and F defy expectations and foil their plans. Consumer behavior can be analyzed and understood like never before, but it will never be foolproof. Different systems, operating agreements and incentive structures have led to suboptimal outcomes for all participants in the value chain.

Projecting shipping volumes is different this year, as volume is already hitting all-time highs in virtually every market due to the COVID-19 pandemic. On top of that, you have the unique challenges of 2020. The winter flu season could bring another spike in COVID-19 cases, creating another unprecedented surge in online buying and shipping. The November US presidential election might upend both the economy and consumer behavior. Finally, when a COVID-19 vaccine is approved, carriers will be given the daunting task of quickly delivering it all over the world — likely deprioritizing other shipments in the network.

In a time of never-ending uncertainty, one thing is for sure: cooperation and collaboration will be the only way to tackle the challenges that lie ahead.

Focusing on cash is your immediate concern, as raising additional debt is not a long-term solution. Make some tough decisions about what you expect your business to look like, analyzing consumer segments and factoring in fresh consumer research. Perhaps that means divesting a business line or abandoning a venture whose promise still hasn’t been fulfilled. Review and assess supplier and vendor contracts and business costs and leverage government incentives while evaluating tax implications.

Financial boost doesn’t solve short-term capacity problem

Carriers have invested billions of dollars to boost capacity and strengthen the supply chain in anticipation of online buying becoming the new normal for consumers. However, much of that expansion had stopped as carriers searched for clarity on how their efforts would be monetized. Now, this value that carriers brought to the supply chain is starting to be recognized. The world has learned how crucial these shipping channels are to maintain the framework of a functional society. 

Due to the pandemic, carriers have been able to increase rates in a meaningful way and finally see a return on their infrastructure investment. The market is rewarding the pricing surge for investors, who are finally seeing shareholder returns. Shipping and last-mile delivery is more competitive than ever.  And with the exponential, unpredictable increase in e-commerce, retailers are struggling to give accurate projections of volume to their carriers.

Despite the financial gains for carriers, there is lingering anxiety from both carriers and retailers about the network’s capability to grow and absorb increased demand and to deliver goods to rural residential locations. If rate increases stay in place long-term, it may result in fundamental changes that build capacity. The ideal scenario, with the holiday season inching closer, would be to also build momentum and identify strategies that can mitigate short-term concerns while concurrently laying the groundwork for a more robust e-commerce network.

Both sides must transform the current risks into catalysts to reshape what has historically been a transactional partnership into a transformative collaboration.

The risk of not meeting the demands of consumers stretches beyond missing out on additional revenue. Failure to deliver on-time and in-full orders to customers could also lead to brand damage and the loss of loyal customers, and make it difficult to convert the business of new customers. Both sides must transform the current risks into catalysts to reshape what has historically been a transactional partnership into a transformative collaboration.

Embrace a new mindset

One strategy that could help smooth out holiday shopping volume is to move up promotions that typically don’t come into play until the end of November, a strategy called “flattening the curve.” This can help retailers by creating early momentum heading into the year-end rush. It will also help carriers by spreading out shipping volume across the heart of the holiday shopping season.

Curbside pickup is also a valuable tool to help mitigate risk associated with extremely high and unpredictable shipping volumes. Retailers might consider incentivizing buying online and picking up in store (BOPIS) by offering discounts, free gift wrapping or additional rebates for shoppers selecting BOPIS.

But retailers can’t convince all customers to shop early and pick up in store, so collaboration between retailers and carriers will be essential to tackle the shipping constraints that will surely exist, even with these strategies in play. When it comes to working together more strategically, both sides should consider:

  • Taking steps to strategically distribute volume and position inventory further down in the supply chain
  • Implementing technology solutions to mitigate real-time challenges and forecast supply chain ebbs and flows
  • Working together to understand cost drivers — and push to slower deliveries or underutilized network lanes
  • Finding capacity that doesn’t add material cost to carriers
  • Discussing timing for surge rates and agree on no surge before Thanksgiving, with higher rates after the holiday
  • Considering nontraditional partnerships with entities such as app-based delivery services, leveraging the gig economy to harness untapped capacity for last-mile delivery. It’s a next-level solution, yes, but one that should be considered in these unprecedented times
  • Asking consumers to opt for a consolidated delivery day or provide a discount for picking up at a central location, such as a pickup locker to reduce the number and range of stops a carrier is asked to accommodate, creating synthetic density in the supply chain

Synthetic density is a tool that may require both time and experience for customers to fully appreciate its value. For instance, take a customer who is reluctant to retrieve their package at a pickup locker. If that method proves to be the only viable option to get the package delivered before Christmas due to heavy volume with the traditional shipping channels, it may gain in consumer acceptance. The best way to maintain customer satisfaction is to create a system that offers a variety of options that meet the demand for both convenience and, when it’s needed, urgency.

Be ready for anything

It’s impossible to predict exactly how COVID-19 will behave in the next few weeks, let alone through the end of 2020 and beyond. Contingency plans of all types are a wise investment of time and resources, even if they never end up needing to be implemented. The key to getting through any of these challenges will be collaboration between retailers and carriers. Keep the lines of communication open and be ready to adjust at a moment’s notice through a collaborative mindset.

If 2020 has proven anything, it’s that few things ever go according to plan. 

Summary

It’s impossible to predict exactly how COVID-19 will behave in the next few weeks, let alone through the end of 2020 and beyond. The key to getting through any of these challenges will be collaboration between retailers and carriers.

About this article

Authors
Joshua Chernoff

EY-Parthenon Americas Managing Director

Transformation leader in retail. Consumer-driven thought leader. Teacher and mentor.

Kevin Custis

EY Global Transportation Industry Leader

Passion – helping clients reimagine possibilities enabled by exponential capabilities that are rapidly shifting from theory to reality. Priority – time with family and long-course endurance training.