On the Road with E-Commerce

One of the ironies of e-commerce is that the most important part of an online transaction occurs not in cyberspace, but at the customer’s door. Despite all the discussion about pure-play versus brick-and-mortar, it is steel and rubber — in the form of vans, trucks and the occasional bicycle — that ultimately rules.

E-commerce relies on the last-mile delivery system as much as it does servers and ISPs. But until recently, it seems as though everyone — from seven-figure e-commerce executives to Mr. and Mrs. Smith at 1 Shady Hill Lane — has been taking the delivery infrastructure for granted.

E-tailers should not only give more thought to the logistics of getting that book, CD or patio chair from point Amazon to point Buyer, but also start thinking about the overall delivery problem in a whole new light.

E-Commerce, Meet Big Oil

In the final analysis, e-commerce isn’t that much different from other industries, and that means its fortunes will rise and fall with oil prices.

Yes, the digital age was supposed to help Western countries become less dependent on petroleum. Still, the world economy chugs along only when the people who drill and barrel and ship the oil let it. Need proof? Take a trip to the UK sometime soon — but don’t be surprised if the only vehicle with enough fuel to get you home is a sailboat.

A sharp rise in oil prices, expected in the United States when cold weather hits, is just one piece of the dot-com puzzle. Even under good conditions, e-commerce companies have been severely strained by the difficulties of delivering on Internet-scale demands. That may especially be true this winter.

A Long, Strange Trip

The problem has already been documented with respect to merchandise returns. Many shoppers prefer to keep disappointing or defective products — even downright mistakes — rather than deal with the Byzantine and often costly process of shipping something back.

NFO Interactive recently reported that one in five online consumers have had that frustrating experience.

But it’s no picnic getting those goods to buyers in the first place. Though Kozmo.com has other well-publicized woes, a major obstacle has been the company’s inability to make money when its delivery people were rushing all over major metropolitan areas dropping off a few candy bars here and a couple of magazines there.

A minimum order price was instituted, but the problem remains: Kozmo drivers can only average about two deliveries an hour. Even if they work for just $8 (US$) an hour in pay, the total amount for wages — plus the cost of operating delivery vehicles — takes a big bite out of product profit margins.

Okay, What Now?

Like the need to do a lot better on the customer service front, the problem of how to establish a snag-free delivery system affects all e-tailers equally. Because it’s an industry problem, the best way to find a fix is with a cooperative approach.

Imagine a bird’s-eye view of zig-zagging delivery trucks and vans scurrying from one residence to another. In my neighborhood alone, and it’s a quiet one, the U.S. Postal Service, UPS and FedEx make daily stops. Other package services show up around four to five times a week, and at least two home grocers regularly unload their wares. On a typical day, 10 delivery vehicles turn in and out of the driveways of about as many homes.

Milk, Eggs and a Stereo

It’s amazing there’s not a pile-up. Now, I am not suggesting that UPS deliver milk to the Johnsons, but there are clearly some areas where cooperation would make sense, especially for deliveries that are not highly time-sensitive.

It’s no sweat to many e-tailers just yet — their delivery costs are covered. But what happens when trucking companies are forced to raise their rates? Imagine Pets.com having to break the news to its customers that it will now cost $8 instead of $5 to have that chew toy delivered?

If that scenario were to develop, some people would undoubtedly log off and wait until they needed to order dog food again before buying the chew toy — or they would simply pick one up on their next visit to the supermarket.

It would be better for Pets.com if the shopper waited and placed a big order later; but it would definitely not be better if that customer were to buy the chew toy — and maybe the dog food too — somewhere else.

In other words, the impulse to buy is dominated by the need to shop smart. But if Pets.com could piggyback that delivery onto an Amazon shipment scheduled for the neighborhood next week, or possibly get it into the hands of a home grocer stopping across the street the next day, the per-delivery cost could shrink. And that would be good both for buyer and seller.

I’m not proposing a conglomerate that monopolizes deliveries, but inefficiency doesn’t help anyone. E-tailers constantly talk about closing the “last mile” gap, but so far, no one has succeeded on any sizeable scale.

Maybe that’s because they have all been going it alone instead of thinking of the Internet as a real business community.