Connecting the dot coms

by Julia Kuzeljevich

In the sexy world of E-commerce, you can sit in the glow of a home computer and order up a storm on the Internet. Or, if you run a business, you can sell your goods in markets you never dreamed you’d serve.

But when consumers and businesses opt out of a trip to pick up their products, their products have to travel to them. That means a growing business opportunity for truckers to extend their reach.

The number of E-commerce business transactions is already growing at an exponential rate. According to Forrester Research, a U.S.-based researcher, most companies doing business online believe they will see business grow as much as 750 per cent in 18 months. Worldwide Internet sales are predicted to rise to more than US $3 trillion by 2003.

The trucking industry is already bracing itself.

The promise of such business has led to several fleet acquisitions. FDX Corp., which owns FedEx, acquired a number of companies including business-to-business courier RPS, and LTL-specialist Viking. Acquisition-hungry TransForce in Quebec announced this month that it is now buying DCA Express 24 Inc. and Distribution de Colis Les Appalaches Inc. “We’re entering this market because, in the age of E-commerce companies are using express services to deliver their goods,” said chief executive Alain Bedard.

Where Just-In-Time delivery systems seemed to sound the death knell of warehouses (why do you need a large building when the parts can arrive by truck as they’re needed?), warehousing space is now finding new life as the link between an online order and the consumer. Even truck manufacturers are looking hopefully to the business of E-commerce, introducing or expanding their medium-duty truck lines to meet the needs of growing delivery services.

But this growing trend in online business also means new kinds of business relationships for those who haul freight.

“It’s a different type of relationship,” says Clive Hall, a business developer with Fed-Ex Canada, of the E-commerce relationship that is developing between retailers and couriers. “Companies don’t want to have the warehousing, and consumers are comfortable buying something from them online.”

For those who own the trucks, there is growing pressure to take on the entire package of delivery and logistics issues once an order is placed.

“In some instances, we’re turning into a virtual courier,” says Amgad Shehata, director of marketing and public relations for UPS Canada. “We have extensive feeder networks, with cube vans supported by trailers and feeders.”

The retailers who work out a close relationship with delivery firms tend to want to concentrate on the advertising and marketing aspects of their business, without the logistics worries.

It’s also a different world for drivers. E-commerce transactions aren’t always limited between businesses. The retail component means an increasing number of drivers will have direct contact with consumers.

Online consumers, for their part, can be more demanding in tracking the precise location of an order at any given time, and want to make returns just as easily. (And you thought automakers wanted precise schedules.) And it’s all something they expect to be able to do online.

While Chapters has, for years, ensured deliveries to its chain of retail stores, Chapters Online had to partner more closely with carriers, to ensure a quick turnaround time on orders and offer tracking options, says spokeswoman Martha Kass. “The average Internet order for Chapters Online is two units,” says Mike Harkins, senior vice-president of operations for Pegasus, the company that has been fulfilling Chapters Online’s orders since October 1998. “And we are absolutely driven by the carrier cutoff, so we want to have the latest cutoff time possible,” he says.

Chapters Online has partnered very closely with Canada Post Corp., which has seen shipment volumes increase considerably in the space of a year.

And the postal giant is already using more than 6,000 vehicles a day and logging 74 million kilometres per year (once for-hire carriers, such as Kleysen Transportation, are factored into the equation).

“E-commerce is very consumer-oriented,” agrees Canada Post spokesman Rheal LeBlanc. “We’re looking at how we can improve services for the consumer, such as having them choose a specific time for delivery. We ran a pilot in Montreal, Toronto and Calgary with evening parcel delivery.”

So far, many online retailers have accepted that initial profits won’t be that high, as they pay the steeper delivery costs that come with quick turnarounds. To attract clients, it’s common for retailers like Chapters Online to charge a flat rate for shipping or even absorb the cost.

But E-Commerce has yet to become a cash cow for traditional courier companies, either. Hall says the delivery costs associated with the regular courier service are not profitable for anyone.

“The time factor kills us. If a customer is not home, it’s not a completed delivery,” he says. “Our profits were eaten away with residentials.”

Some carriers may also find they need to become extensive logistics centres, increasing warehouses and distribution space because they are expected to pick-up returns, re-stock products and repair damage. In some warehouses, UPS employees can be seen doing everything from scanning bar codes to tuning guitars before a delivery.

Without question, trucking companies and couriers who are involved in E-commerce will have a major learning curve ahead.

“Customers say trade barriers have to be down, and security has to be there,” says Hall. “Major challenges will also come with patent agreements under free trade,” he says. “There are a lot of government practicalities (to be worked through).”

Stories of online hackers who access secure information from companies online are rampant these days, and delivery companies haven’t been immune to the problems. Stories are already emerging of local couriers hacking into a site, highjacking a product for delivery, and then asking for cash on delivery. An unwary consumer pays the price, even though a credit card has already been billed.

“What’s happened is piracy, basically,” says Hall. “The issue of liability and responsibility for freight is a big, big problem.”

Hall says that, although retailers will try to make it clear on the site how the customer will be charged and who will delivery the goods, the customers may not pay attention to details such as who is supposed to bring an order to their door.

Hall says Fed-Ex has a warehouse near Pearson International Airport in Toronto, set up to store high- value, urgent parts.

“We try to have Canada Customs people working on the site,” Hall says of the Fed-Ex facility. “Paperwork is sent electronically ahead of time, then a matching process takes place. A pegged item is pulled from the belt and sent though Customs. It allows us to clear a package faster and inform the customer.”

“UPS handles something like 12 million packages a day, 8 million electronically connected to UPS,” adds Shehata. “Before the package even leaves its point of origin, the customer has electronically forwarded the details to the border for expediting.

“It makes an easier schedule but also allows the handling of more packages,” he says. “We know a lot more ahead of time.”

Forget Just-In-Time delivery. An era of E-Commerce means Well-Ahead-Of-Time, he says.

Those who can crunch numbers even further can use the typical number of hits or online orders through a site – to predict what resources will be needed, say, on a Wednesday as compared to a Saturday.

“We’ve extended the electronic communication right down to the driver on the road,” adds Shehata. “The Delivery Info Acquisition Service advises the driver if there are any delays. And each delivery vehicle will have this communication method,” he says. “They can communicate back to us whether they can or can’t pick up.”

Grocery Gateway is using a fleet of custom-built cutaway trucks with racks capable of holding totes full of food, bringing traditional grocery stores to a customer’s front door.

The Toronto-area service a
llows consumers to order groceries online. So far, it is partnering with Longo’s supermarkets and pulling produce off traditional shelves, so Grocery Gateway doesn’t have total control over the inventory.

“When we have a pick ticket from a customer and an item is not in stock, we’ll substitute it and the customer gets it free,” says Peter Stasiuk, Grocery Gateway’s director of delivery operations. “Once we get our own warehouse, we’ll control the inventory start to finish, and request a replacement,” he says.

But warehousing – especially centralized, specialized warehouses – will increasingly become part of the process.

“One of the major trends,” says Shehata, “is that retailers or customers are saying they don’t need warehouses across the country. They consolidate and create an alliance or partnership with the courier, and the courier controls the warehousing.”

Pegasus operates three different businesses under one roof at its Brampton, Ont. warehouse, co-mingling Chapters retail shipments with wholesale products destined for LTL routes, and the smaller parcels for Chapters Online.

“Warehousing is a whole special arena. I think what you’re going to see is more warehouses geared to an E-commerce order – higher volumes, smaller in size, but more labor-intense,” says Pegasus’ Harkins. “It’ll be more primary storage, less bulk and less backstock.”

Distribution centres are also expected to become more specialized.

“I think that you’ll see larger, more centralized distribution centres, and an increase in third-party folks doing the E-commerce distribution. The pressure will really be on E-commerce warehouses to reduce stock and turnaround times,” says Harkins.

For their part, LTL carriers will be called upon to make point-to-point E-commerce deliveries, to help couriers save time.

“I think there will also be an upturn for inbound LTL, for those involved in picking up from the vendor and delivering to the distri- bution centres,” says Harkins.

Will couriers and trucking companies still need to have more trucks on the road?

Hall says the goal is to have shippers sign contracts that commit to revenue rather than volumes. Those who deal with more individual deliveries are hoping that the streamlined logistics will be able to handle the volume.

Ultimately, the new type of business will also require a new breed of driver looking beyond a delivery itself. “We need people who can relate to customers, and develop an ongoing relationship,” says Stasiuk. “They can feed messages from the customers back into the system.”

Then companies like Grocery Gateway can better feed their customers. n

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