Thinking smart parcel lockers? Don’t do it!

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Martin Sarch, partner at Leapfrog Business Consulting, explains why delivery firms should conduct a thorough cost analysis of their business before investing in smart lockers

Two key issues faced by the parcel delivery sector include rapidly increasing parcel volumes and the need for faster turnaround times – and smart parcel lockers just don’t cut it.

According to Pitney Bowes’s annual Parcel Shipping Index, parcel volumes rose by 17% to 74.4 billion parcels last year, up from 63.6 billion in 2016, and are expected to surpass the 100 billion mark in 2020. If you consider that shipping is heavily weighted to the Christmas period in North America, Europe and others, delivering the last mile becomes an increasing challenge.

One solution considered by many carriers and posts to solve last-mile difficulties is smart parcel lockers. At Post-Expo 2018 in Hamburg, Germany, more than 20 companies were selling smart parcel lockers that require real-estate, power, internet connectivity, maintenance, an interface to connect to the post’s track-and-trace system, and staff to load and manage the parcels. The lockers generally have the capacity to handle 40 to 100 parcels per bank.

Delivery needs
The common trend for all stakeholders in the parcel delivery sector is to lower costs. Customers want deliveries for free and e-retailers and posts are trying to manage and reduce their costs. However, when you look at the actual costs involved, smart parcel lockers provide middle-of-the-road delivery costs with a high capital cost.

For example, if we take home delivery as the most expensive mode of delivery, Post Offices or pick-up locations with PO Boxes offer the cheapest method of last-mile delivery at 20-25% of the cost of home delivery. Community mail boxes (CMBs) and standard parcel lockers run at about 40-50% of the cost of home delivery. Smart lockers essentially have the same delivery costs but have a much higher capital connectivity and maintenance cost.

Smart lockers are configured with as few as 20 lockers per bank to a high of 100 in a bank. Even if you have bank of 100, with 100% utilization and a 75% turnaround every day, which is ambitious, it can only handle 20,000 parcels per year and at best, they will only be convenient for some. The capital cost will equate to US$0.30-US$0.50 per parcel, not including rent or any major damage. If there is a catchment area with 10,000 people, the actual number of parcel lockers required would be staggering (and that is what manufacturers are fascinated with).

Lack of flexibility to expand for peak periods
Parcel demand will change depending on the time of year and changes in demographics. Smart parcel lockers have a fixed volume and need to be full to be continually economical.

What do you do with peak-period excess? Germany and the UK have parcel shops or parcel pick-up locations. Canada has postal franchises that can use backroom storage to manage the changes in demand.

When you look at smart parcel lockers it is difficult to have them address capacity issues. To make them viable, you need to have them full most of the time. The last mile is difficult and expensive and lockers, at best, can only be a small part of the process.

Conclusion
Smart parcel lockers are innovative and need to be tested for utility, customer acceptance and a true evaluation of their cost, capital and ongoing. They may definitely have a place in office blocks and shopping areas, but before posts spend millions of dollars on the parcel systems and renting thousands of locations, a cost benefit must be done first, as someone has to pay.

Bio:
Martin Sarch is a Partner at Leapfrog Business Consulting that offers a wide range of Postal consulting services. Martin has over 30 years experience in Canada Post Corporation in Postal Logistics and Retail Post Office Network Development.  Martin was the lead Director in the development and implementation of the Canada Post Concept in Toronto, Canada, that won the 2016, J.C. Williams/Ebeltoft award for Key Retail Innovation. The concept Post Offices included many innovations in custom self-serve, branding, process, merchandising, customer interaction, POS and other technologies.

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