IP: NYT Digital Commerce: Is Delivery the Dealbreaker for

[Dave Farber <farber () cis upenn edu>]

From: caruso () technomedia com (Denise Caruso)


DIGITAL COMMERCE / By DENISE CARUSO


Online Sellers Learn How to Get Packages to Consumers


Speak the words "electronic commerce" and in most circles, the starry-eyed
vision that comes to mind is of a sophisticated new computer system for
selling goods to millions of online consumers without the costly overhead
of a storefront. Win-win, retail revolution, etc.


But in their rush to outfit the Internet as a global shopping mall,
investors and vendors may have overlooked a practical question that just
might be a deal breaker:


"How are you going to get me the goods?"


Delivery trucks roll during business hours, which is when some 70 percent
of Americans  are not at home. Coming home to a "delivery  attempt" notice
is not only annoying and  inconvenient for online or catalog shoppers,  but
it is also a major problem for ground carriers, all of which acknowledge
they are  ill-equipped to handle the onslaught if  e-commerce really
catches on.


"We haven't figured out how to make a profit delivering to homes," says
Bram Johnson, senior vice president for marketing and strategic planning
for RPS Inc., a unit of FDX Corp. and the world's second-largest ground
carrier of small packages. "For us, the cost of running a delivery truck is
putting on the parking brake -- you take 50 boxes off the truck at Wal-Mart
or Kmart. The 'stop cost' is almost zero. But when I stop at your house,
the whole cost is absorbed by the package that I leave on your doorstep."


That cost becomes even higher when drivers have to redeliver a package.
Worse yet, theft and fraud are growing problems in areas where drivers
leave packages on doorsteps to save the cost of redelivery: Thieves often
follow behind trucks, scooping up packages, or customers deliberately do
not answer the door to sign for them, then claim they were not delivered.


This simply will not do when nearly $12 billion in Internet consumer sales
are expected by 2002 -- up from $200 million in 1996, according to the
Direct Marketing Association. Assuming an average order of $100, that means
120 million more home-delivered packages -- not counting the 646 million
catalog orders expected that year.


"Most e-commerce providers haven't thought about transportation or
logistics at all," says Mark Rhoney, the marketing vice president for the
electronic commerce division of United Parcel Service, the world's largest
small-package delivery service. "They've built all this nice software to
take credit cards and create invoices that print out someplace and end up
on the floor."


Only 20 percent of UPS's business is home delivery, Rhoney says. It is such
a tiny blip on Federal Express's radar that Fedex does not even track home
versus business deliveries. Virtually all ground carriers now charge extra
to deliver to a residence, and it is still a break-even proposition at
best.


"Home delivery is definitely the fly in the ointment," says Kenneth Ross,
chairman and chief executive of Packagenet. "If carriers can't find ways to
deliver more cost-effectively, it will double the cost of residential
delivery, and the whole value proposition for e-commerce gets blown."




Packagenet, a Fairfield, Iowa, company, provides consumers with UPS
shipping and catalog return services from counters inside 4,000
supermarkets, including Kroger and Safeway.


Until now, its focus has been on outgoing packages. But anticipating a
steep increase in home deliveries because of e-commerce, Ross is developing
what he calls a "Depot Network" to give consumers a handy place to pick up
packages at convenient times and to help carriers like RPS solve the "stop
cost" problem by letting them deliver a neighborhood's packages to a single
location.


E-commerce customers who choose Depot Delivery from a merchant's site, says
Ross, will pay about a $3 premium over standard shipping charges.


The Depot Network, a set of software tools for e-commerce merchants that
the company says will be ready for a market trial this year, will link
supermarket depots to existing carrier tracking systems and merchant data
bases. The software is being developed in conjunction with Packagenet's
advisory board, including Microsoft, Netscape Communications and America
Online.


Although Packagenet is declaring its intentions early, its competitors are
getting their trucks in a row.


Home delivery, says Rhoney, is "definitely a business that UPS embraces,"
and though he is coy on specifics, he says that UPS is exploring
alternatives like night and weekend deliveries three to five years hence,
when he expects residential delivery volumes to double.


The U.S. Postal Service anticipates "an explosion" of home deliveries
because of e-commerce. "We'll do whatever the customer needs -- evening
deliveries, convenient pickup hours, tracking, tracing, delivery
confirmation," says Bill Henderson, the service's chief operating officer.


Of course, anything is possible. Even Packagenet is considering evening
home deliveries. But how much is the customer willing to pay? That is the
real issue -- and the deal breaker -- for e-commerce vendors.


"It comes down to sales tax vs. the cost of shipping and handling," says
Packagenet's Ross. "Consumers have enormous sensitivity to those extra
shipping and handling charges. They say, 'You keep raising those and we'll
just go back to the department store.'"




DIGITAL COMMERCE is published on Mondays.
Copyright 1998 The New York Times Company


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Denise Caruso                                   'Beware the lollipop of
415.695.0508                                     mediocrity. Lick it once
Technology columnist, New York Times             and you suck forever.'
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