Same-day delivery plots a comeback

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Next on consumers' wish lists: instant gratification
Next on consumers' wish lists: instant gratification

Remember Urban Fetch and Kozmo.com? Centered in big cities, those online service providers flourished for a time in the mid-90s by using local couriers to deliver lunch or paper clips or paint brushes—or anything—to people ASAP. Both succumbed to the dot.com bust and no nationally positioned third-party deliverers have stepped into the immediate gratification void. Until now.

The United States Postal Service kicked off its Metro Post same-day service in San Francisco last week in a test with 1-800 Flowers' gourmet food products. USPS is looking for other retail partners to do similar tests in the coming year, relying on its delivery network to move past competitors in a race to provide same-day delivery service to retailers and direct marketers. In a business plan filed with the Postal Regulatory Commission in October, USPS noted that it expects to see revenues of only about $10 million during its experimental year.

“Our goal is to expand nationwide. We've committed the resources to do it and we have the infrastructure in place to do it,” says USPS spokesman John Friess. “Access to retailers' distribution centers or stores is a nuance that governs this business, so we'll be starting with larger cities. But we're the only transportation company stepping into this market that's capable of quickly working smaller metros into our network.”

The Post Office's chief competition will come from British import Shutl, which currently operates a same-day service for retailers in the UK and is readying a stateside launch for Q1 of 2013. It's already raised $5 million for its U.S. expansion from an investor pool that includes UPS.

Shutl serves more than 50 cities covering about 75% of the UK population. British customers who choose the branded Shutl option on e-com sites are promised delivery within a one hour window of their choice. Cost is typically the U.S. equivalent of $10, though retailers can opt to charge customers less. Shutl operates 24/7.

The company uses established courier firms to fulfill orders in a point-to-point delivery system in which couriers go straight from collection to delivery. All overnight deliverers, UPS and Fed Ex included, employ hub-and-spoke systems—as do Walmart and Amazon, which each began testing its own same-day delivery service earlier this year.

“Kozmo and Urban Fetch both failed because they built their own fleet of couriers. This was very expensive since delivery cost could only be brought down with volume and efficiency within the courier network,” Shutl founder and CEO Tom Allason told Direct Marketing News. “Things get interesting when [the] delivery distance is less than 10 miles. Over short distances it can be cost effective to send a courier straight from collection to delivery, and Shutl piggybacks off the capacity of existing courier firms who already have plenty of delivery volume.”

If Shutl's UK pricing model works in the U.S., it may have a leg up on USPS and retailers' proprietary services. Wal-Mart is charging $10 for same-day delivery in its test and Amazon is offering the service for $3.99 to its "Prime Service" customers who pay $79 annual membership fees. But if Walmart and Amazon can't show a profit or a suitable ROI on same-day delivery, theirs could turn out to be failed experiments, too. Amazon currently charges $18.98 to ship one book overnight.

Pricing information was redacted from copies of the regulatory filing USPS released to the press. Friess says the agency will by tweaking its pricing as it proceeds through its test phase. It's clear, however, that this will be a significant issue for the Postal Service if it is to succeed with same-day delivery, considering that the flat rate it charges for a large box to be shipped overnight via Express Mail is $39.95.

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