Faris Fallouh is the Global Express and ground services director at Aramex
Peak seasons such as Eid, Christmas and the many popular discount days like White Friday and Cyber Monday, bring with them joy to the consumer hunting for bargains, but they also represent a huge challenge on both the online retailer and the carriers doing the last mile delivery.
For the e-commerce and online retailers, they have a huge burden to forecast multiple aspects of their business. Which include predicting the most popular items and ensuring they are in stock. The amount of growth that will be realised based on the company’s marketing efforts and budgets allocated to persuade consumers to browse their websites and make purchases and finally to prepare their supply chain, warehouse and fulfillment capabilities during the peak seasons.
The logistics and delivery firms in the Middle East and North Africa (Mena) region are starting to experience what UPS and FedEx faced in the US back in 2013. In just a few short years, the demand far outweighed the capacity, and some ended up overcompensating, resulting in a lot of under-utilised capacity once the peak seasons subsided.
What makes these seasons even more challenging is the preparation not only on the operational level, but the huge surge in demand for customer services when handling a vast majority of products that need to be shipped to non-address structured countries. This increases the cost of shipping and with the high prevalence of cash on demand (COD) in this region and the uncertainty of payment it brings, it can take several delivery attempts before the transaction is fully completed.
For the carriers, the preparation and forecasting exercise is certainly multi-dimensional, it involves:
- Data collection from their customers
- Looking at historical trends
- Checking the retail situation and marketing efforts conducted by the traditional brick and mortar side of the business.
- Rationalising all the inputs collected
Data Collection from Customers
Naturally this needs to be done for each market the carrier operates in and from the large and sizeable customers of e-commerce players who can seriously affect the capacity allocated for those peak periods. This process includes all domestic e-commerce and cross-border volumes feeding that country.
For short production peaks of one to two days, it is probably easier than extended peaks like Christmas or Ramadan where promotions may run for a couple of weeks when the volume fluctuates during the period and can seriously affect capacity.
This involves looking at the past spikes and making use of this information to forecast the future. This obviously needs to be taken with caution as the customers’ mix and the marketing activities done by each customer can drastically change, the production of that customer during the year can give signals that affect the peak volumes.
Retaliation of Traditional Retailers
This has been a very interesting change in the past couple of years where we see both the key traditional retailers in the malls and the small shops making significant efforts to ride on the same wave of the “online” e-commerce shopping discounts days. Superdeals on Black Friday or White Friday and similar events in markets have a significant impact on how the consumer spends their money. The efforts of the traditional retailer have a serious effect on the potential online business to be generated during those seasons
Rationalising the Factors
This is the most important stage in order to understand how all the inputs gathered previously add up and how the total business volume expected compare against the overall growth projections in the market.
For example, if we discuss the growth projections of online retailer A , B and C, they expect a 50 per cent, 40 per cent, 70 per cent increase in their volume during the peak season, we need to think deeply about this. Can the market and the customer buying power really support the cumulative “projected” real volume of packages produced and pumped into the market?
What is known is the buying power and the expendable money can grow certain percentage points depending on the peak season and the market economic condition, hence it is not a total zero sum game, but the market cannot surely support exaggerated growth rates that might be forecasted.
Considering all the above, it is complicated to account for all above variables, especially when trying to balance holding the online retailers accountable for inflated projections that can cost carriers a lot of wasted and costly capacity, and at the same time building sufficient capacity and contingency plans to react faster and clear capacity shortages.