As E-commerce changes the way goods are distributed, fleets wonder who will move the freight.
Buying over the Internet is more than a phenomenon; it's a paradigm shift," says Arthur St. Onge, president of the St. Onge Co., a York, Pa.-based engineering and consulting company that, among other things, advises transportation firms on Internet issues. "Most transportation companies don't get it. It's catching them by surprise."
If projections hold, the surprise will be huge. In 1998, sales over the Internet were under $10 billion, according to the National Retail Federation. While this figure may seem small compared to catalog and home shopping sales, which topped $70 billion, this growth has occurred over only a few years.
However, estimations from many quarters say that Internet business-to-consumer sales will reach $60 billion to $85 billion by 2002, and business-to-business Internet commerce may top $300 billion. With the number of Web pages doubling monthly and the number of people tapping into the net for the first time increasing at the rate of 10,000 a month, these figures could be reached sooner.
If those changes aren't jarring enough, here's the unsettling part for the transportation industry: Although most of today's direct Internet sales are business to business -- a matter that current transportation models handle adequately at least for now -- the real growth in Internet sales will be from business to consumers, an area that vexes transportation companies.
For example, about 20% of United Parcel Service's (UPS) deliveries are to residential customers, and company officials say profits in that area are elusive. "We're just covering costs on residential delivery," says Atlanta-based UPS spokesperson Steve Holmes. "We know we have to be ready for the growth in residential deliveries. The answers aren't easy; they may even be painful."
UPS is not alone in its concern. "The real difficulty in residential delivery is how to make a buck," says Bram Johnson, senior vice president for marketing and strategic planning at RPS Inc., a Pittsburgh-based FedEx subsidiary. Like UPS, RPS is mainly a business-to-business carrier. "There are huge opportunities for E-commerce in business-to-business, but also in residential. We're concerned about residential delivery."
The Internet will force companies to confront a number of seemingly insoluble problems with home delivery. The first is density. Delivering packages to retailers is profitable because trucks make relatively few stops for the number of packages delivered. According to Johnson, the cost of deliveries comes with stopping the truck. Delivering large quantities to retailers ensures low costs per drop, but leaving one box at a customer's house is not cost-effective.
Another issue is security. Businesses are always available from 9 a.m. to 5 p.m. to receive packages. Most residential customers are not around during these times, and leaving a package on someone's doorstep invites theft. It also leaves delivery companies open to liability complaints that a package left outside means that no one is home, thus giving a green light to burglars.
One model observers say may work to handle residential packages generated by Internet commerce is that used by companies like Streamline Inc., Westwood, Mass. The five-year-old company has been delivering packages to the Boston suburbs for five years before any substantial E-commerce business existed. Now, Internet commerce accounts for 70% of its sales.
The comp any leases 16-ft. refrigerated trucks from Penske and AMI to deliver more than 10,000 items -- everything from groceries to books -- directly to people's homes from its 70,000-sq.-ft. warehouse.
"That's the crucial part of our business plan," says Dave Blakelock, vice president of operations. "We're not going to customers; we're going to homes."
The company installs a keyboard pad on the customer's garage for entry. Drivers deliver items during an 8 a.m. to 6 p.m. window to Streamline's own secure container, which has three parts: a refrigerator, a freezer, and an area for dry goods. The company charges $30 monthly for the service.
"We route our trucks based on our needs," says Blakelock. "That's where the efficiency comes in."
The driver uses a bar code reader to check the customer's inventory and that information is posted confidentially on the company's Web site so the customer can decide what he would like to have delivered next week. The company will also pick up videos, dry cleaning, and prepared meals for delivery to customers' homes.
Blakelock says the company has competitors in the Boston area, and that throughout the country others are working on similar models. "The most important lesson is to make it easier for the consumer. They want one-stop shopping." He estimates that consumers can save three to five hours weekly by not having to shop for household needs in traditional ways.
While Blakelock would not reveal the number of customers or the company's revenues, he sees few roadblocks to growth. "Once the consumer gets used to buying on the Internet, there's almost no limit. This is especially true for kids growing up now. Internet buying will be normal for them."
The U.S. Postal Service, on the other hand, is figuring out ways to deliver more packages to customers rather than homes. USPS is currently testing vertical carousels in post offices for consumers to pick up packages that could not be delivered to homes because no one was there to receive it. The driver leaves a note saying that delivery was attempted and the customer is directed to pick up the package in a secure building that contains locked boxes to which the customer has the code. The carousel allows the customer to retrieve his package only.
While trucking companies are trying to figure out how to get a piece of the delivery action spawned by Internet sales, the Web is also eating into some of their traditional businesses in ways that didn't appear until recently. As people in companies become more comfortable with e-mail over the Internet, they are sending more documents.
This year, the Postal Service reported that the number of e-mails sent daily has surpassed the number of First Class letters. However, these messages are short, often a line or two, with perhaps an attached file that might contain several pages. For the most part, lengthy documents, especially those considered confidential, still are sent by overnight or two-day delivery. This is especially true for documents that contain graphics or are accompanied by photos.
What's holding up the ability to e-mail longer, often confidential documents? People still are skittish about security on the Internet, and current encryption methods are too complex for most senders. In addition, different operating systems among senders and receivers sometimes makes retrieving attachments dicey. Sending graphics for most people is tricky as well. But this situation is expected to change.
"By 2001, we expect 30% of express, next-day delivery to convert to e-mail," says UPS's Holmes. "That 30% loss could affect us. We want to grab as much as possible."
Indeed, every year 17-billion documents are produced digitally (mainly by word processors, e-mail programs and scanners) and within two years companies will send nearly one-third of their documents -- about five billion documents -- electronically, according to statistics from the Electronic Messaging Assn. and the U.S. Dept. of Commerce.
In order to protect and enhance their stake in overnight delivery of documents, UPS last spring launched Document Exchange, a suite of software products to provide secure document transmittal. The product offers legal verification of receipt, which positions it for handling documents generated by law firms, according to Holmes. "We're still getting some large customers set up. It's a long sales cycle, six to twelve months," Holmes noted.
Whether or not traditional transportation companies are ready to handle the packages generated by Internet sales, it is inevitable. Because of fast-changing technology, having a retail Web presence gets easier everyday -- even for the smallest niche marketers. For example, Encanto Networks of Santa Clara, Calif., provides end-to-end Internet business transaction software through its product, e.go Commerce, which sells for only $1,295 in retail stores.
The package allows companies to establish a complete online shopping 'storefront' with shopping carts features, order processing, and secure electronic payment via credit card. Realizing that the Internet is only one piece of the sales puzzle, they just penned a deal with UPS to bundle its product with UPS Online, giving any Web retailer the ability to sell over the Internet and then ship via UPS to any address in the United States.
"The rule of thumb in E-commerce is that you don't charge someone's credit card until the goods are delivered," says Paxton Cooper, Encanto Network's director of E-commerce. "Shipping and fulfillment are crucial to the growth of E-commerce. It's the number-one issue."