Autumn 2007

Larger consumer products have always required home delivery, but this used to be a relatively fragmented market. Now it's becoming more specialised and centralised. Peter Rowlands reports

There's a temptation to bracket the current growth in the home delivery market with the recent massive growth in home shopping activity as a whole - and especially internet shopping. But there's one sector of the home delivery market that's been around for almost as long as people have shopped in stores - two-man delivery.

The reason is obvious. You can't drive away from a shop with a fridge freezer or a three-piece suite in your car; someone has to deliver it for you, and it will probably be a two-man crew.

In the old days the goods probably came straight from the store where you bought them, which is why many larger stores had their own modest delivery fleets. Those that didn't probably had relationships with local carriers - classic white van men, in many cases.

But the logistics landscape is changing fast. Few retailers now stock large quantities of bulky items. Nowadays it's a fair bet that the product will be ordered up from a central warehouse, or increasingly from the original supplier. If it's furniture, it may actually be made to order and delivered direct from the factory.

And alongside this change in fulfilment philosophy, the internet has come along. It's given small retailers a nationwide reach, making locally-based delivery more or less unthinkable. And it has allowed 'virtual' retailers to sell direct to consumers without having any stores at all, using external contractors to do their warehousing and fulfilment.

All these changes have fuelled a steady growth in the market for contracted-out two-man home delivery. It's hard to put a finger on the rate of growth. As Roger Burns, business unit director for this sector at Wincanton Logistics, puts it: 'There's no specialised trade association gathering statistics specifically on two-man deliveries, so figures are difficult to come by.'

However, what is not lacking is a confidence among contractors that the growth is real and will be sustained. 'This is very much one of our key areas for expansion,' says Stephen Baxter, director of Nightfreight's logistics division. Jonathan Chadburn, a director at DHL Exel, says there 'is plenty of potential in this market.'

Contractors serving this market sector are a mixed bag. A small number such as Nightfreight have emerged from the express parcels business. On a somewhat larger scale, you could probably group Home Delivery Network in this category as well; it emerged from the GUS/Littlewoods catalogue fulfilment business, but its broader operations have much in common with the parcels carriers.

Others have grown as specialists in this particular niche - companies such as Caretakers, Direct Home Deliveries (DHD), Door to Door, Expert (the Iceland offshoot) and Tawny.

Then there are the major logistics groups - businesses such as DHL Exel, CEVA Logistics (the former TNT Logistics business), Kuehne & Nagel and Wincanton. However, the big groups have so far tended to build up their presence in the two-man sector through dedicated logistics contracts with specific customers. DHL, for instance, has major contracts with Next, Ikea and Argos, and CEVA has contracts with retailers Habitat, ILVA (a recent development) and Tesco Direct.

This contrasts with the approach of sector specialists such as DHD and Expert, who are more likely to run shared networks based on hub and branch networks. Their method is to achieve economies of scale by sharing resources among suppliers with similar product types - a philosophy that helps them to provide economical coverage in remoter areas of the country, and allows them to offer services to smaller customers who couldn't afford a dedicated service.

However, the big groups are beginning to realise that networks could open the door to more business for them. Wincanton has already made its move, buying Lane Group, a general logistics contractor that had latterly focused more and more on the home delivery sector. Lane's speciality was networked two-man deliveries, especially in the white goods sector, and Wincanton gained not only an eight-branch network (since expanded to 14), but also a robust and wide-ranging software suite developed by Lane in-house.

'We believe we now have a unique offering,' Roger Burns says. 'We're the only large operator in this market to provide dedicated, hybrid and shared services.' He claims Wincanton is now the overall market leader in two-man home deliveries, with an unspecified share that he says is 'well above ten per cent'.

Rivals might dispute some aspects of that claim, though. CEVA Logistics, for instance, acquired the home delivery assets of Hanson Haulage two years ago, including eight depots and 130 staff, and now offers both shared and dedicated deliveries, as well as its own version of the hybrid approach. This is the type of operation in which major population centres are served with dedicated vehicles and drivers, but peripheral areas are covered with a shared operation.

The Hanson acquisition has already helped here, says Jon Evans, who is in charge of business development and support in this sector. 'We've already been able to save some of our existing two-man home delivery customers money by transferring parts of their operation from a dedicated to a shared basis.'

Nightfreight, too, offers both shared and dedicated operations. In this case the shared network is its main focus (it is branded Delivery to Home), but there are some dedicated operations as well, including one involving kitchen furniture.

Stephen Baxter says Nightfreight's network operation is probably the most extensive in the industry. 'We use 22 of our 50 depots for two-man operations, but we can easily bring others on stream if necessary. That's the benefit of being linked to a carrier network.'

He adds: 'There are major benefits in trunking closer to the point of delivery. The final delivery journey is shorter, so you can be more accurate on timing, and that means less disruption and fewer delivery failures.'

Other major logistics groups are known to be looking at expanding their two-man network operations - among them DHL Exel. 'There's an overwhelming requirement for good-quality networks in this market,' Jonathan Chadburn says. He resists being drawn on when his company might launch one, but leaves little doubt that it is on the agenda.

Many of the specialist operators rely on the networked approach, and some run their entire home delivery business in this way. A classic example is offered by DHD, which was formed eight years ago as an offshoot of Cranleigh Freight, initially to meet the needs of MFI. Becky Young, sales and marketing manager, prefers not to describe the operation as merely shared. 'We call it a dedicated operation for multiple customers.'

She says the company has about 75 different customers, who are served via a trunking system and a network that now extends to 14 depots. 'It's the mix that optimises the operation and keeps costs down,' she says.

A point where DHD scores over some of its rivals is in its freighting connections. Furniture is increasingly sourced from abroad, and parent Cranleigh Freight is in a strong position to handle the importing and consolidation as well as the delivery activity within the UK. One could speculate that DHL (with its international connections) and CEVA (with its recent acquisition of EGL) would also be well placed to extend their reach further on the inbound side as global sourcing becomes increasingly the norm.

Not all two-man home delivery companies will handle all product types. Some, for instance, avoid white goods, pointing out that the purchase price of many fridges and washing machines can be relatively low, leaving little room for profit margin on the delivery. 'It's low-rate, high-volume product that is better handled by specialists,' says DHD's Becky Young. 'There may also be a need to supply specialists such as electricians to install it.'

Others take a broader view. Wincanton, for instance, happily delivers this type of product as well as furniture and other bulky products. 'It was the core market for Lane's home delivery operation,' says Roger Burns. So does Nightfreight. Some companies such as Expert Logistics specialise in white goods, and it is one of the core markets for Home Delivery Network.

So what's the secret of delivering white goods cost-effectively? HDNL director Chris Bowden says scale is a key to this. 'It's absolutely fundamental.' He adds that rigorous systems are also vital. 'If you do the job properly, I don't see any problem with low margins.'

Stephen Baxter of Nightfreight, who gained extensive experience in this sector with companies such as Philips and Merlin, adds that correct handling is also vital. 'Contractors who use clamp trucks can easily cause damage by handling incompatible products together, and applying the wrong clamping load.' He adds: 'We don't use clamp trucks at all.'

One contractor, NYK Logistics, specialises in a kind of 'sub-niche' of the white goods market - namely giant American-style side-by-side fridge-freezer units. It is believed to have picked up some of this business following the demise of the Merlin/Harrier operation a few years back, but it has reinforced its position in the market, and now works for a wide range of suppliers including names such as Bosch, Electrolux, Maytag, Siemens and Samsung. Director Terence Tory says it's a fast-growing market for big the Japanese-owned logistics group.

'It's quite a complex operation,' he explains. 'Some of these units require plumbing in, and they're so large that we sometimes have to use a four-man crew rather than a two-man crew.' He says this applies particularly to 'over-the-banister' and basement deliveries. 'We have a thirty-question checklist for consumers to fill in when we contact them, including the width of doors, but people sometimes still get it wrong.' The company also has an array of handling equipment such as special stair lifters and barrows.

There are other products that can also pose unexpected problems in this market. One is large plasma TV sets. Their size puts them in the two-man delivery sector, yet the consumer expectation is often that they will be delivered next day, like normal-sized TVs or other 'brown' electrical goods. This may not necessarily deter carriers from handling them, but makes some of them think twice. 'We'll handle them,' says DHD's Becky Young, 'but it's not always easy to explain that they may not be delivered in the same time frame as other TVs.'

Opinions seem to vary in the market over how much technical expertise should be offered by delivery teams, and how much positioning and electrical or 'wet' (plumbing) installation work they should perform. DHL's Chadburn says his company tries to resist getting drawn too far in this direction. 'We'll deliver to the customer's room of choice, but the more time we spend in people's homes, the less time we can be out making deliveries.'

To a large extent, of course, this is decided by the client company, and most contractors will attempt to offer what is required of them.

Many have delivery teams with basic electrical skills, and more are adding this capability all the time. HDNL's Chris Bowden considers basic swapping out of new for old units to be 'a natural part of the proposition', and Nightfreight's Stephen Baxter sees it as a logical next step for his company. Neither of these companies offers gas installations yet - though coincidentally, both men came up with an almost identical response when asked: 'Never say never.'

The problem with gas fitting is that it demands a higher level of skills than electrical or plumbing work, and contractors are reluctant to pay for training. However, one contractor that has grasped this nettle firmly is Wincanton. 'We have a team of drivers trained to CORGI gas fitting standards,' says Roger Burns. 'In fact we're increasing our capabilities in this area, and are actively promoting it to potential customers.'

Something all contractors seem to agree on is the need to have a rigorous regime for planning deliveries in advance, and then contacting the final recipient in good time to let them know what day to expect the delivery - and preferably what time. This is fundamental to preventing failed deliveries.

Most contractors seem to have systems in which the recipient is contacted several times - a process that usually culminates in a call on the day before delivery, and another on the actual morning of the delivery - sometimes by the delivery team themselves. You might think this would result in almost a one hundred per cent success rate, but sadly that is not the case.

'However many times you contact the recipient, in some cases they just won't be at home,' says DHL's Jonathan Chadburn. This may be down to people's fickleness, but sometimes it's because the delivery may follow some weeks behind the order date - perhaps because the product is a piece of bespoke furniture that has had to be made to order. People forget, and then aren't at home to receive all the reminders.

Wincanton's Roger Burns says his company likes to takes responsibility for arranging delivery itself if possible. 'We prefer to receive orders from clients unbooked.' He adds that the best possible option is to arrange a booking by voice contact with the end customer. 'When people book a delivery online, they seem to have less confidence that it will really happen than if they do it by phone.'

Jonathan Chadburn says the end user 'must form part of the delivery bargain,' and suggests they should bear some responsibility for delivery failures. He speculates that the time could even come when a penalty might be imposed on recipients who book a delivery and then fail to be at home to deal with it.

The human factor may be difficult to deal with, but at least the IT systems behind delivery planning are getting increasingly sophisticated. A classic example is offered by DHL, which now users a combination of Siemens vehicle tracking, Paragon dynamic scheduling a proactive customer telephoning to ensure that the delivery is well planned and the recipient is kept informed about it. DHL is also trialling text alerting to let customers know when a delivery is due.

CEVA, too, uses Paragon for scheduling, and is already using text alerts, while HDNL is currently rolling out wireless handheld terminals to its drivers, and hopes to have a live consignment tracking system in place by the end of this year or early next year.

Visibility, a much discussed feature, can of course mean different things to different people. Initially, most contractors who roll out live consignment tracking systems aim to provide the information to their clients - who are mostly retailers, and in some cases manufacturers. Whether that information should then be made available on the internet to the end customer is another question.

DHD, for instance, is currently rolling out an extension to its in-house CAPTAIN IT system which will offer tracking visibility to clients by the end of this year. 'Then by the end of next year we should be able to offer visibility to end users as well,' Becky Young says.