Article: Everyone Pays the Price for Residential Delivery Dwell Times
Technology may soon enable carriers to make every B2C delivery profitable
Despite carrier surcharges, variable residential dwell times make some residential deliveries unprofitable. A change is overdue.
You would think that surging volume in the age of eCommerce, COVID, and the new Delivery Economy would be a godsend for parcel carriers.
In many ways, it has been. But not as much as it could have been because most of the shipments are bound for residential locations, and current carrier pricing fails to factor in the actual cost of making these deliveries. While a delivery to a business is likely to be more profitable due to multiple shipment aggregation at each stop, residential delivery is probably going to require a relatively small, light-weight box making a long journey in a large truck to a location where there may be significant delays (aka, “dwell times”).
Current challenges to charging reasonable residential surcharges
Most carriers address the shipment aggregation issue by imposing residential surcharges on B2C shipments, which at least acknowledges that residential deliveries are fundamentally different from commercial deliveries.
But there are three challenges with imposing these fees:
1. How do you determine if a delivery location is residential or commercial? The USPS Residential Delivery Indicator (RDI) provides some help. USPS has compiled a database over the years that flags residential status for all addresses in the US. After all, the Post Office has been delivering to residences for decades, and most postal delivery personnel think they know a home when they see one. The USPS has made RDI data available to vendors who provide APIs that any eCommerce business can use to validate what USPS believes is a residential status address. But UPS, FedEx, and other carriers have their own ideas about what constitutes a residential vs. a commercial location that may vary from the USPS RDI.
2. How can shippers recover unexpected residential fees? Every eCommerce merchant has experienced residential surcharges on their carrier invoices that they did not anticipate. These additional fees eat into their margins. The existence of hundreds of parcel auditing firms who make their living disputing such fees is evidence that making the residential vs. commercial call is not a slam dunk. It is open to interpretation and often leads to time consuming, customer satisfaction-sapping disputes between the carrier and shipper which nobody wins.
3. How do you deal with the shift to work-from-home environments? In the age of virtual offices where employees routinely carry on working from home, the distinction between residences and work locations is blurring. Increasingly the characterization of what is residential and what is commercial is a difference that really doesn’t make a difference.
And even if all carriers agreed and you had perfect knowledge about what constitutes a residence, how effective would that be in recovering carrier costs? Does a shotgun, fixed pricing approach address the issue?
Probably not, because not all residential deliveries are created equal:
- Sometimes, a driver has a simple drop-off at an easily accessible house in a cul-de-sac nestled within a densely populated, tree-lined suburb.
- Other times, the delivery is in a remote area or at the end of long, sometimes impassable driveway that an extended area delivery surcharge doesn’t adequately cover.
- Sometimes a delivery requires navigating to a mid-town Manhattan high rise, which could entail traffic delays and obstacles (think double-parking on a busy street), driving up the total dwell time per shipment.
- Deliveries to nursing homes, prisons, military bases, universities, and or gated communities inevitably encounter random dwell times due to time spent waiting for elevators, ID checks, and the like.
Unfortunately, dwell times can be so variable, most carriers rely on a fixed residential delivery fee that they hope, on average, will cover the additional costs associated with these kinds of deliveries.
Fred Smith once remarked that some shippers treat parcel carriers as though they are utilities, service providers they are entitled to use no matter what the cost. But like any other business, carriers need to make a profit, which means they need to align pricing with their cost model for each kind of service they provide. Residential surcharges sorta, kinda take a stab at recovering the cost of non-aggregated residential deliveries. The alignment of pricing with B2C delivery costs is imperfect at best. Fees for delivering to some residences will always end up subsidizing the costs incurred by shipments to residences with more dwell times.
So the challenge of how to deal with the variability of residential delivery dwell time remains unsolved. And everyone suffers: customers experience delays, shippers fail to meet their delivery promises, and carrier margins erode.
As is usually the case, technology may provide the answer. Carriers could solve their dwell time dilemma by leveraging big data collection, analytics, and machine learning. Suppose a carrier had access to the time required to make a delivery to specific locations, considering day of the week, time of day, seasonality, or weather conditions. In that case, they could begin to implement a more rational approach to determining cost and price at the individual shipment level.
For instance, if it takes three minutes to deliver a package to 100 Elmwood Drive, Suburbville USA, but 30 minutes to fight traffic and navigate security procedures at Mid-town Towers in NYC, the cost factors for each residential delivery could (and should) be more quickly, systematically, and objectively considered. The cost for Elmwood Drive and Mid-town Tower deliveries could be more reasonably determined. Both stops could and should be profitable.
Loss leadership simply does not work in a market where the demand for capacity is at an all-time high. Pricing for delivering to any location should realistically be based on aggregate number of packages, weight, cube, travel time and dwell time.
Unfortunately, the seismic shift caused by exploding B2C eCommerce shipping volumes has not shaken the traditional residential surcharge approach. But it should. And Sendflex can help make that happen.
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