Alternate delivery model gains traction in US but has ways to go

Somewhere between theory and practice lies a segment of the parcel-delivery market known as “out-of-home” service.

Through parcel lockers, designated pickup locations, local stores or a combination of all three, carriers and merchants look to save time, money, cut carbon emissions and reduce porch pilferage, all the while making it as convenient as possible for end consumers to get their packages.

In theory, the concept spawns myriad benefits. By consolidating multiple packages at a central location, carriers can materially minimize the labor and fuel costs of driving many miles to deliver individual packages to residences. Merchants avoid onerous residential delivery surcharges, which are particularly painful on low-value shipments, because the moves are classified as business-to-business (B2B) transactions in which residential surcharges don’t apply. (An exception would be for a shipment originally bound for a residence but which the recipient has redirected to an alternate delivery location.) Consumers gain by having an expanded network of pickup and drop-off locations. In addition, they don’t have to wait at home for deliveries or to coordinate schedules with delivery drivers. 

Fewer deliveries translate into a reduced environmental impact, while deliveries away from a residence to a secured location lessen the frequency of porch piracy, which has been on the rise along with e-commerce orders and at-home deliveries. Consumer acceptance of the out-of-home concept may eventually be driven as much by security concerns as consumer convenience, said Scott Lord, a former UPS Inc. (NYSE: UPS) executive who helped design the parcel giant’s out-of-home model. Lord now runs a consulting firm called Strategic Growth Advisory LLC.

The alternate-delivery networks can be leveraged for drop-offs and returns. B2B customers can also utilize the networks as long as the parcels have preprinted shipping labels.

UPS, which brands its network as Access Points, and rival FedEx Corp., (NYSE: FDX) which calls its program OnSite, have an estimated 45,000 to 50,000 U.S. out-of-home locations between them. These outlets include pharmacies like Walgreens, retail chains like Dollar General Corp. and Advance Auto Parts Inc. and the carriers’ own retail store locations. 

Because the UPS Store operates as a franchised model, franchisees are not required to accept out-of-home deliveries. Most do, however, because it increases foot traffic, which can lead to the buying of additional goods and services, said Ron Swistock, director of retail physical channels at UPS. FedEx Office stores are company owned and are required to operate in such a manner. FedEx did not comment for this story.

Amazon.com Inc. (NASDAQ: AMZN) has thousands of counter locations across the U.S., according to a company spokesperson. These locations include Kohl’s department stores, Rite Aid pharmacies and Amazon’s Whole Foods Market grocery network. However, Amazon is more well known for its network of parcel lockers, of which it has so many thousands spread across the country that there is likely a surplus, according to Marc Wulfraat, founder of MWPVL International, a consultancy that closely follows Amazon’s logistics efforts. The lockers are used for pickups of Amazon parcels only.

In May, Amazon offered to knock $10 off an order of $25 or more if the buyer agreed at checkout to pick up the order at an out-of-home location. It no longer offers the service, however.

Slower uptake

Experts interviewed for this story said the out-of-home model will continue to gain traction in the U.S., especially as locker capabilities become more robust and user-friendly. Still, the uptake is nowhere near that of Europe, where a larger proportion of the continent’s population lives in densely populated areas with apartment buildings that often lack mail rooms. 

DHL, for example, has 189,800 lockers and alternate locations in Europe among three of its units: DHL Express, eCommerce and Parcel. By contrast, DHL eCommerce, which manages residential e-commerce deliveries in the U.S., doesn’t have any in America.

Increasing stakeholder acceptance of out-of-home deliveries will likely take some behavioral modification. Merchants need to be conditioned to ship to alternate locations. They can be incentivized by carrier pricing that skirts residential delivery surcharges. Convincing consumers may be trickier, however. A recent survey by regional delivery firm OnTrac found that 85% of consumer respondents preferred at-home deliveries. About 15% preferred the buy online, pick up at store (BOPIS) approach, which is a form of alternative delivery, the survey found.

There are other obstacles. An out-of-home location may not be convenient for a consumer awaiting a package. Collection locations may have strict policies regarding pickup, requiring individuals to supply specific forms of identification. Some delivery and collection counters are located in stores with limited space and may be unable to accept larger packages. 

The issue of geographic convenience could be mitigated by technology. For example, a platform called Hub Box has developed software that notifies consumers of the closest pickup point to their homes. UPS and FedEx have DeliveryApp technology allowing a recipient to redirect a shipment to their address of choice. According to Swistock of UPS, about 92% of all U.S. households are located within 5 miles of an Access Point location.

Swistock said UPS’ strategy is not aimed at reshaping consumer behavior. “Just the opposite,” he said. “We aren’t asking our consumers to adjust to our strategy.” 

He added that UPS aims to meet the consumer where the customer is. Whether UPS adds to the AccessPoint network or chooses to sweat its existing assets will depend on consumer behavior, Swistock said.

An Amazon spokesperson said that its customers “have told us they want more flexibility and control” over their shopping experiences with the company.

Lord, the former UPS executive, said that although the company recognized the value of its Access Points strategy, it never fully understood what he called the “disconnect” with consumer recipients. In a recent LinkedIn post, Lord said that most people are accustomed to “having their parcels delivered to their front door. When that doesn’t happen and they get a delivery notice, it takes some doing to understand what they need to do to obtain their package.”

Utilizing a carrier app is “not as intuitive as it may be for us to engage with our financial institutions as consumers often see their relationship with the firm they order from, rather than the carrier,”Lord said.

Alternate delivery locations will grow in use and size, especially for lockers as the process becomes more streamlined, Lord said. However, despite the fact that the alternate delivery model has been around for more than 10 years, “there is still work to be done to make it a normal part of the package-receiving process.” 

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