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I can't think of many scenarios in which one might need a pair of Crocs delivered to them in two hours or less — emergency gardening? An urgent need to DIY Christopher Kane's embellished versions? A sudden impulse to offend the sensibilities of those around you? — but thanks to Amazon Prime Now, residents of 32 U.S. cities can at least sleep soundly knowing the option is always there.
When the e-commerce giant launched the on-demand delivery program in 2014, it was billed as the most convenient way to shop for household essentials and groceries. However, the offerings now include far more than paper towels and potato chips. If you run out of clean underwear or gym socks, you can order a pack of new ones rather than running to the laundromat. If the weather report says a storm is coming, you can have an umbrella on your doorstep before having to venture outside — all without paying a dime in shipping fees. Of course, this is assuming you live in a city like San Francisco, Miami, or Chicago. If you happen to be in, say, rural Wyoming, you'll find you're out of luck.
In New York City, there's shockingly little you can't order online and have delivered to your doorstep in a matter of hours, from the most mundane of household supplies on Amazon to a $12,000 gown from Net-a-Porter. But the extreme conveniences enjoyed by online shoppers in major metropolitan areas don't necessarily extend to those who live in rural or remote locations. On social media, shoppers in small towns from Idaho to South Carolina complain about steep surcharges on incoming UPS and FedEx shipments, and gripe that Amazon Prime's free shipping often takes longer than the promised two days.
As seamless as the process can sometimes seem — three clicks and (ta-da!) your order is here — e-commerce presents a different set of challenges depending on where you live: In the city, your Madewell box may get dumped in the lobby of your apartment building and mysteriously disappear by the time you get home; in the country, it may not even get to you, period, if UPS or FedEx can't find your address. The same goes for the companies delivering your order: In the city, traffic congestion is such that parking becomes nearly impossible, and drivers might get ticketed several times per day (in 2006, UPS paid New York City $18.7 million in parking fines); in the country, low-density routes can get costly fast, with valuable time and fuel being spent dropping off just a handful of parcels, and missed deliveries adding to the bill.
This step — getting a package from a distribution center to your doorstep — is called the “last-mile” in logistics parlance, and it's generally the most costly and challenging leg of the supply chain. Whereas in commercial areas, businesses tend to get numerous packages delivered at a time, sparsely populated residential areas can shrink a carrier’s margins. And yet direct-to-consumer e-commerce is only growing: UPS reported an 11.5 percent jump in residential deliveries in 2016, and by 2019, it expects them to account for more than half of the total volume. Understandably, rural America is taking advantage, shopping online for items they'd otherwise have to drive for miles to buy, if they could get them at all. According to market research firm Kantar Retail, 73 percent of rural consumers — that is, those who drive upwards of 10 miles for everyday shopping — shopped online in 2016, versus 68 percent in 2014. And with more than half of all American households expected to have an Amazon Prime membership by the end of the year, it’s perhaps not surprising that much of this recent growth has come from rural regions. The internet behemoth is also now making a push to lure lower-income consumers with its new reduced-rate program ($5.99 per month versus $99 per year), no doubt an attractive offer for those who lack affordable shopping options nearby or reliable transportation to get to them.
E-commerce has fundamentally shifted how rural consumers shop, says Alice Fournier, director at Kantar Retail. “While they traditionally shopped with more of a stock-up approach, having access to free-shipping programs means the flexibility to shop more often, with a lower overall basket value.” The problem there? “The inherent costs to retailers of the current model make it unsustainable from a profitability standpoint,” she says.
Amazon, however, has an advantage over most companies when it comes to shipping virtually anywhere in the world: It has the means and motive to do so at a loss — for now, at least. In 2016, the company’s net shipping costs reached $7.2 billion, but thanks to the profitability of its cloud computing services, it can afford to let customers order, say, a dozen heavy-duty tires to Alaska free of charge, or a single bottle of bleach to a tiny town in Oklahoma along the longest mail route in the country. Complex algorithms determine the most efficient way to get each package to its final destination, whether through FedEx, UPS, USPS, any of the numerous other carriers the company works with, or Amazon’s own logistics infrastructure, in which it is currently investing billions, prompting speculation that it eventually plans to cut out the middleman and become a shipping superpower in its own right. Beyond the massive warehouses opening worldwide at a steady clip and the $1.5 billion air cargo hub announced this year, Amazon has also made clear its intentions to deliver small packages by drone once federal regulations permit, and has a team exploring the possibilities of a fleet of driverless trucks.
More uncertain is whether the company will continue servicing regions where they are clearly losing money — and for some residents, that question could have a significant impact on their quality of life. In Canada, where the population density is about one-tenth of that of the United States, the remote northern city of Iqaluit, Nunavut, is one of the fastest-growing destinations for Amazon Prime shipments, with parcel shipping increasing at two to three times the national average (the post office even had to open a second facility next door just to store all the packages). In 2015, Amazon removed the free-shipping option for smaller communities in the territory, leaving residents reeling. Suddenly the cost of buying diapers online went from $40 to $180, soaring past the still-expensive local price of $70, which they pay because inventory needs to be shipped in by air. If the same happened to Iqaluit, one resident told CBC, “It would be very, very bad. I don't want to say pandemonium, but maybe something akin to that.” Even in Alaska, where Prime's express shipping takes three to seven days, locals have begun noticing that many items they could once have delivered to their door are no longer eligible for the service.
For better or for worse, Amazon has has set a new standard of consumer expectations around fast, inexpensive shipping, and other retailers have little choice but to adapt. Some choose to join the fold, using the e-commerce giant's Fulfilled By Amazon service, which gives them access to the company’s logistics network, audience, and Prime benefits in exchange for storage and handling fees (it also, however, pits sellers against one another on the site, which can be a downside if the product is highly competitive). Others work with a third-party logistics (3PL) provider that might specialize in their particular niche or stage of growth, and can negotiate carrier discounts and offer more efficient shipping.
Red Stag Fulfillment, based in Knoxville, Tennessee, caters to businesses that ship relatively large or heavy parcels — think flat-pack furniture or kitchen appliances — which gives it extra bargaining power with FedEx and UPS, says Jake Rheude, the company's director of business development and marketing. In terms of speed, he says, “There are two factors that really play into anyone’s ability to get something to the customer in two days: There's what we call the click-to-ship time, so the amount of time that passes between a customer clicking ‘order’ and that order actually being picked, packed, and shipped, and handed off to the carrier. The second factor is obviously how quickly can the carrier take that order and get it on your front step.” To that end, the company chose centrally located warehouses — Knoxville in the east and Salt Lake City, Utah, in the west — to reach almost everyone (with the exception of some towns in the far corners of Maine and Washington, which can take three days) in the continental United States within the designated time frame.
Location, as they say, is everything, but strategies vary as far as where to situate fulfillment centers. ASOS announced last month that it plans to open a massive warehouse in Atlanta, Georgia, allowing it to offer next-day shipping across the US (currently, with orders coming from the UK, two-day shipping is the fastest option). “We were quite keen to have one facility that could give really good service across the board, whether you're in California, New York, down in Texas, or wherever our customers are,” explains Daniel Jenks, ASOS’s trade director. “We wanted to try and make sure we had really good cut-off times, and Atlanta is quite strategically placed, from that point of view, in terms of having the airport really close by. We’re about a 10-minute drive from the airport.”
One alternative approach is to place fulfillment centers close to where most of one’s customers are (which, of course, tends to be the more populous cities). ShipBob, a logistics startup that works with small businesses, stores inventory in four warehouses — Chicago, New York, Los Angeles, and San Francisco — and works with local carriers in addition to the major shipping companies, allowing it to reach many customers same-day or next-day.
“There are a lot of these specialized and localized last-mile providers who are way more efficient at doing the last-mile deliveries than what UPS and FedEx are capable of doing,” says CEO and co-founder Dhruv Saxena. “So by using these regional courier companies, we are able to get into more locations which are not easily accessible by UPS and FedEx, because UPS and FedEx just do not have the density to service that ZIP code in a cost-efficient manner.”
Both companies, for instance, tack on a surcharge for residential deliveries, along with delivery area surcharges for rural and remote addresses (and, with more than 20,000 ZIP codes affected, you don't necessarily need to be out in the sticks to qualify). Often, they’ll hand off parcels to USPS for the final leg of a delivery as a cost-saving measure, since the postal service is legally obligated to provide universal service to everyone in the country, and the marginal costs of delivery are lower. That’s not to say that everyone gets equal service, however: On rural routes, drivers are only obligated to bring parcels to the door if the driveway is less than half a mile long, paved, and wide enough for the truck to get in and out of without backing up. And on many very rural routes, mail isn’t delivered door-to-door at all, leaving residents to pick up packages from their local post office, which could be up to 30 miles away.
To reach these customers and compete with Amazon, many retailers are experimenting with innovative logistics methods. Walmart, for instance, is currently testing an associate delivery program, tapping its own employees to deliver online orders on their way home. Workers in three of the company’s stores — two in New Jersey and one in Arkansas — can currently opt in to drive packages to customers on their commute for additional pay (though executives have declined to comment on issues like insurance and how this pay will be calculated). Walmart has made no secret of its attempt to capture some of Amazon’s online market share, announcing earlier this year that it would provide free two-day shipping on any order over $35, without any annual subscription costs. It also already has a strong foothold in rural regions, with 22 percent of its nearly 4,700 stores situated in areas with fewer than 100,000 people.
The program is a cousin to some of the more established methods favored by retailers, including in-store pickup and ship-from-store, in which brick-and-mortar locations are used essentially as mini-fulfillment centers, so customers can order online and either drive to a store for pickup, have the items delivered to their home, or even, in some cases, have them delivered to a central pickup point, which mitigates last-mile costs and the risks of a parcel being lost or undelivered.
“Consumers don't separate online from in-store, or online and offline anymore — it’s all kind of a seamless experience,” explains Robert Schlussler, product manager at Radial, an omnichannel logistics company. Giving consumers the option of picking up their order for free or getting reduced shipping fees on products available locally takes some of the burden off of retailers. “Because you’re able to focus on products that live in that location for that consumer and offer them the choice to have no shipping fees and drive there themselves and collect it, you’ve eliminated your greatest expense. Or you can charge a shipping fee and reduce your overall cost by using products that are in that local store and shipping them direct to the consumer.”
Ultimately, it looks like providing consumers with choices will be key to the future of e-commerce logistics. “For rural areas, it is likely that retailers will heavily incentivize the use of delivery methods that avoid shipping single products to doorsteps,” says Kantar’s Fournier. “With rural shoppers being more focused on price than their urban counterparts, this is likely going to be a successful approach.”
After all, to paraphrase the old adage, there’s no such thing as free shipping — even in the age of Amazon Prime.