THE GFS REVIEW 2012: CUSTOMER EXPERIENCE, CARRIER CONTINGENCY AND THE FUTURE

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1 THE GFS REVIEW 2012: CUSTOMER EXPERIENCE, CARRIER CONTINGENCY AND THE FUTURE A Guide For Users Of Express Parcel Carriers

2 About Global Freight Solutions (GFS) Global Freight Solutions (GFS) is the UK s leading parcel and carrier manager. Since being founded in 2001, it has become increasingly relied upon by major brands in retail, leisure, financial services and engineering to enhance their operations and customer service experience whilst controlling costs. The GFS approach is built on its partnerships with many of the country s major carriers and its innovative technology, backed up by a proactive customer service team. The company has been at the forefront of efforts to enable client firms to manage the impact of change within the parcel industry in recent years. In particular, GFS has developed systems allowing retailers to better cope with how e-commerce affects a number of different functions within their operations. In October 2012, GFS consolidated it s suite of individual products under the umbrella of a single platform - Enterprise Carrier Management (ECM) - capable of helping companies which interact with parcel carriers to apply necessary resources in a more strategic fashion in order to run those relations more efficiently. This document is the third edition of the GFS Review and follows similar studies of the pre- Christmas peak seasons in 2010 (The Big Chill: Parcel Carriers, Customers and Christmas) and 2011 (Parcels, planning and the e-commerce boom). Summary This report contains the results of detailed analysis by GFS of preparations for Christmas 2012 by the UK parcel industry and its clients. The equivalent phase in 2011 had seen carriers having to cope with the pronounced effects of e-commerce on the seasonal parcel market. As carriers and their clients began planning for November and December 2012, both expected internet retail to again have a significant bearing on how they fared, although issues of economy, technology, capacity and consumer confidence meant neither could accurately predict the size and duration of the peak with which they might have to contend or when it might occur. As it turned out, B2B parcel volumes fell once more by about two per cent, while B2C deliveries rose by roughly 15 per cent both of which were in line with predictions made by GFS in its 2011 Review. Whilst 2011 s pre-christmas peak season had seen something of a month-long plateau of consistently high parcel traffic, numbers steadily increased throughout the same period in Even though volumes in the final week before Christmas Day were lower than the season s absolute peak, they were still dramatically higher than the average seen during the rest of the year. Measures introduced by carriers earlier in the year to improve delivery reliability meant that they arguably coped with the seasonal peak better than they had done since e-tailing truly began to take effect. However, the growth in online shopping and carriers more efficient management of their own capacity underlined the importance of both customer service and

3 delivery contingency in meeting commitments, maintaining reputations and sustaining the potential for future sales. In analysing the period in question, this document seeks to draw lessons for the benefit of those involved in and reliant on the parcel industry about how best to prepare not merely for Christmas 2013 but year- round and into the future. process likely parcel volumes and how best those resources could be deployed. Uncertainty, however, was generated by certain carriers either reducing the amount of physical capacity available to handle volumes throughout the year or outlining potential price rises for home deliveries. Context Preparations for Christmas 2012 began almost as soon as the previous peak season had ended. On the face of it, the prospects seemed good. In 2011, the real peak had arrived in the last week of November, when the domestic parcel sector began handling 4.15 million B2B and B2C items every day. Those numbers remained consistent until the week before Christmas Day itself. The issue for carriers and clients alike was one of management. Retailers wanted to make sure that they could satisfy a growing number of consumer orders whereas B2B customers wanted to ensure their needs would not be overtaken by the increasing proportion of home deliveries. Carriers, meanwhile, wanted to be able to fulfil their delivery promises and retain business in a challenging economic climate. A number of couriers introduced limits on the amount of items which they were prepared to handle from individual clients while still more ended their acquisition of new business earlier than usual. Both measures gave them a clearer idea about the resources they might need to The parcel industry had already seen a succession of peaks of varying sizes throughout the year due to a periodic increase in volumes linked to events as diverse as Valentine s Day, Mothers Day, Easter, the Queen s Diamond Jubilee and the new academic year. The principle focus, though, remained the period stretching from the beginning of November through to Christmas. The start of that phase was affected by the continuing economic pressures which had caused some retailers to scale back their physical presence on the high street in favour of online operations. That, in turn, resulted in yet another two per cent year-on-year drop in B2B traffic at the start of November, the point in the year at which stores stocked up for the usual pre-christmas sales push. Greater reliance by retailers on e-commerce

4 coincided with increased consumer facility in shopping online both in terms of the size and frequency of their spending and their technological ability to buy where and when they wanted. In 2011, internet purchases began to peak in B2C traffic during week-beginning 22nd November, a full week earlier than the previous festive period. Even though consumer volumes began to build at a similar point in 2012, the real surge began on Monday the 26th November, a day billed Cyber Monday. Even though there was a drop-off in the amounts of items handled at the start of the following week, they were still 49 per cent above the year s average Monday figure, demonstrating the impact of e-commerce on seasonal parcel volumes. The last GFS Review document had concluded that, based on the firm s analysis of 2011 data and intelligence from its carrier partners and clients, there was likely to be an increase of 15 per cent in e-commerce parcel volumes in November and December That prediction was justified by figures during the actual period. Parcels delivered to consumers instead of businesses also contributed 40 per cent of overall volumes during the two months of the peak about 30 per cent higher than just 11 years ago. However, even though it was widely anticipated as the year s online shopping peak, the number of parcels which resulted from purchases made that day were dwarfed by those generated on each of the following three Mondays. The most intense period for UK delivery firms actually came during week-beginning December the 10th, which witnessed parcel traffic 67 per cent above the average figures reported for Mondays throughout the rest of the year. That equated to an average daily volume of more than 4.25 million B2B and B2C packages - an increase of some 3.5 per cent on the volumes seen during the 2011 Christmas peak season. A small but growing proportion of consumer business was taken up by goods either bought from foreign firms for delivery to UK addresses or despatched by domestic retailers to destinations overseas. Issues The 2012 pre-christmas peak has surely underlined the importance of e-commerce for retailers and its consequences for the parcel industry. Persistently difficult economic circumstances have added incentive to the efforts of stores to capture more digital custom. Figures issued by the leading store chains in the early weeks of 2013 have set an incredible rise in seasonal online sales against an otherwise depressed retail picture.

5 The Office for National Statistics (ONS) has also reported that the rate of retail sales growth during December 2012 was lower than any pre-christmas period since Perhaps not surprisingly, online sales represented the strongest - if not the only - source of comfort for many. With retailers now committed to growing the proportion of their overall turnover accounted for by e-commerce, there is no reason to believe that Britons will reverse their tendency to do seasonal shopping on the internet. There is also no indication that predictions made by GFS about the increase in peak parcel volumes need to be revised either. In its 2011 Review, the company estimated that B2C traffic will make up half the roughly 4.75 million new parcels generated every day during the peak season in One vitally important consideration for retailers and their carrier partners relates to the nature of their customer service provision. Despite the best will, effort and investment of carriers, service levels tend to fall as the number of parcels entering the collection and delivery network increase, leading to the possibility at least of more delays, enquiries and complaints. In addition, even though Britons have radically altered where and when they shop, how they do so remains the same - in one sense, at least. The absence of digital changing rooms means that those buying clothes will often purchase an individual item in more than one size in order to try on at home. According to one estimate, as much as 40 per cent of such goods are later returned for refunds. Another GFS forecast to impact on Christmas 2012 related to the seasonal online sales. Whereas high street sales historically began on Boxing Day, the advent of e-commerce has meant that retailers can trade on Christmas Day itself while bricks and mortar stores are still closed. One report suggested that the amount of business which retailers were able to do on Christmas Day 2012 was up 27 per cent on the previous year. Even though no collections or deliveries were made on December 25th and just a few were completed on 26th, the remaining days of Christmas week saw parcel traffic also up on 2011 figures. Although not as high as immediately before Christmas, they were still equivalent to a busy day outside of peak season. One development occurred too late in the year for its full weight to be felt during the 2012 peak season. In November, the European Commission launched a consultation about cross-border parcel deliveries. The move was part of a process aimed at increasing the amount of online business involving retailers and consumers in the organisation s 27 member states. Officials in charge of the exercise have hinted at recommendations being published during Spring 2013 to make cross-border shipments easier, cheaper and more frequent. Implications A number of implications for all those businesses relying on the UK parcel industry can be drawn from the patterns seen in the 2012 pre-christmas period. There is likely to be yet another increase in B2C traffic during November and December 2013.

6 Retailers are understandably going to want to generate as much online custom as they can, particularly if high street operations remain largely moribund. Carriers too will naturally want to grow business yet will no doubt be eager to repeat their success in managing volumes in the build-up to Christmas 2012, something which suggests limits might again be put in place. Retailers will also be aware of the need to fulfil orders promptly, especially as they near Christmas, when consumers arguably regard delivery with greater urgency than at any other point in the calendar year. Meeting ever-increasing consumer demand with a finite level of carrier resources emphasises the need for high-volume shippers to ensure delivery contingency via a number of carriers upon whom they can count. Carrier efforts to better manage peak volumes raises the possibility of their also prioritising the type of clients and goods which they are prepared to work with and move during the peak period. Such a scenario represents another reason to ensure flexible delivery arrangements. Whether satisfying consumers at home or abroad, the e-commerce boom highlights another area of potential sensitivity for retailers and their carrier partners: customer service. Traditionally, shoppers experiencing issues with high street purchases have been able to bring goods back to stores for problems to be rectified. The absence of such a physical facility means that efficient customer service operations should be a necessity for online retailers. Those which are seen as being more customerfriendly have seen how that perception can translate into additional sales. Of course, such a status depends on more than politeness or having a good range of product to sell. Consumers demand that every aspect of e-tailing - from what they can buy and how much it costs to how they receive it - is shaped around them. Convenience and reliability should become essential elements and can best be illustrated to consumers by the range of delivery methods and cost. That increased flexibility or variety, in turn, dictates the need to be able to include newer alternatives, including drop-boxes and parcel shops, among the menu of delivery options presented to customers. The growing international dimension to seasonal e-commerce provides yet another incentive for retailers to consider delivery provision. Detailed research by the European Commission has already highlighted how consumers regard the excessive cost and a lack of transparency of cross-border parcel shipments as obstacles to making purchases. Firms with ambitions to develop such business need to have straightforward, reliable modes of delivery in place to meet their own budgets and customer demand. Carriers will, therefore, also have to weigh up the potential consequences of being tasked with making domestic deliveries on behalf of retailers based overseas. Customer service relating to delivery does not just entail the process of delivery but the management of it too. That includes identifying and resolving any exceptions or issues which may occur.

7 As mentioned earlier, an increase in overall parcel volumes results in more individual cases generating an enquiry or complaint. Even though the proportion of such instances may remain relatively small, consumers and their advocates expect each complaint to be dealt with promptly and positively. The pre-christmas peak season just passed marked the first during which GFS Manager had been fully employed. While the number of exceptional items increased in line with expectations, given the sheer volume of parcels being processed, the system proved so adept that the number of occasions when retail clients needed to get in touch remained the same as at pre-peak season levels. The annual peak parcel season is, of course, not just about e-commerce. The majority of shipments is made up by B2B deliveries during that period. The gradual decline in the volume of items moved between businesses has obliged carriers to consider the nature of provision offered to B2B clients during November and December in particular. Whilst, temporary staff can be drafted in to help pick, pack and dispatch an increase in orders, recruiting significant extra specialised personnel to deal with consumer enquiries about lost, late, damaged or returned items may be thought uneconomic and, perhaps, unachievable. However, good customer service is critical. Just as the internet can enable business, it provides a means by which unhappy consumers can instantly inform peers of their dissatisfaction. A premium should, therefore, be placed on the ability to pre-empt or swiftly resolve any exceptions which present themselves. During 2012, GFS introduced GFS Manager, a means of proactively determining and dealing with exceptional items before retail clients were forced to react once they or their customers had noticed something might be amiss. Those clients will also need to be aware of the potential impact on their ability to make deliveries as the consumer parcel peak arrives, making it essential to maintain a number of carrier partners to ensure reliable deliveries. Recommendations Forward planning for Christmas 2013 All available forecasts predict further increases in e-commerce sales. As retailers try to ward off unfavourable conditions on the high street, the battle to secure e-consumers can reasonably be expected to be more competitive. As shoppers become more demanding, those retailers who demonstrate an aptitude for good customer service are likely to gain favoured brand status among key consumer affairs influencers on the internet and mainstream media - and, with it, the potential for increased business.

8 Contingency For those wishing to grow and retain custom at home and abroad, means not only the ability to sell but to deliver. Having a portfolio made up of the right sort of carriers - and enough of them - providing the most suitable and flexible service possible is a must. en route, so avoiding customer enquiries or complaints and taking up precious resources should be considered. To discuss the contents of this White Paper, contact GFS on or visit us at to arrange a meeting with one of our specialists. Delivery operations To persuade customers to complete purchases once they have arrived at an online Checkout, it will be essential to put a variety of delivery options before them so that they can pick the most appropriate in terms of speed, convenience and cost. Doing so not only satisfies consumers now but will help futureproofing retailers ability to handle deliveries on a scale capable of matching domestic and international ambitions. Ease of returns Returns can be considered an incidental but important part of the growth in e-commerce. It is essential to ensure that shoppers don t feel they re having to work too hard to get unwanted items back to the retailers from which they were bought. Convenience and flexibility are key, qualities with which locker boxes and parcel shops have already become associated and should be considered as part of a broad mix of delivery and collection talents. Pro-active customer service Whether handling small or large volumes of parcels, they need to be managed efficiently. Consumers expect to know when goods are dispatched and likely to arrive. The means, such as GFS Manager, for dealing simply, quickly and successfully with issues which might occur