Autonomous Vehicles — Who Is Now in the Driver’s Seat?
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See where the autonomous vehicle industry stands today and how the balance of power is shifting within the AV market.
Volume XXV, Issue 53 |

The years since the COVID-19 pandemic began have seen continued very strong levels of demand for online deliveries — indeed, many parcel carriers have delivered record volumes in the past couple of years, with volumes up approximately 30% compared to before the pandemic. As a result, in 2021 parcel carriers’ profit margins increased, especially for low-cost carriers that typically rely more on volume to make their business model profitable. Consumers have been forced to change their purchasing habits given the intermittent (and in many cases permanent) closure of a significant number of brick-and-mortar retail stores, further reinforcing a permanent step-up in online shopping penetration across a range of categories.

However, parcel carriers face increasing demands beyond just higher volumes. The ecommerce supply chain is subject to ever-increasing consumer expectations, and addressing these demands is key to further increasing online retail’s share of overall sales. Today’s consumers expect quick, free and reliable deliveries and returns, with an increasing proportion becoming concerned about the environmental impact of ecommerce (see Figure 1). While many of these trends had been gathering momentum before the COVID-19 pandemic, the events of 2020 significantly accelerated them.

In this edition of L.E.K. Consulting’s Executive Insights, we look at some of the increasing demands our clients are facing and how carriers should seek to maintain profitability in the context of higher volumes and increasing expectations.  

Fast, cheap and successful delivery the first time

Consumers have been demanding a faster and cheaper service successfully delivered on the first attempt. Even prior to the pandemic, the introduction of Amazon Prime had raised the bar on delivery cost and speed. Free delivery has fast become a “table stake” expectation for most consumers (expected by approximately two-thirds of respondents in a 2021 poll of US consumers), in particular for purchases over a certain threshold (expected by approximately 80% of consumers in the same 2021 US poll). Consumers also increasingly expect live tracking of their packages and the flexibility to make changes to their delivery instructions in real time in order to achieve higher first-time delivery success rates. This trend of increased consumer expectations is likely to continue. Same-day delivery is already being offered by some retailers, and consumers may soon expect two-to-three-hour rapid delivery for some orders.


The pandemic also accelerated consumers’ interest in shopping sustainably (see Figure 2). While most consumers still demand faster and cheaper delivery, data suggests that a growing proportion are willing to compromise on key purchase criteria for a greener service in some scenarios (for example, for less urgent deliveries like furniture). More than half are willing to accept longer lead times for environmentally friendly delivery (with almost one-third willing to wait up to five days), and between 20% and 50% would be willing to pay more for sustainable packaging.1 Retailers are currently falling short of consumer demands in this area, as shown by the results of a 2022 survey in which almost two-thirds of consumers were unhappy with retailers’ sustainability efforts.2 This trend is expected to accelerate as environmental concerns continue to become an increasingly significant driver of consumer behaviour.

Two-thirds of consumers have indicated that they would pick up parcels from a convenient location if a retailer provided information at checkout about the environmental benefits of doing so.3 Recent initiatives from the Royal Mail to inform customers about the most sustainable option for delivering their purchases and Amazon combining multiple orders into a single package illustrate how parcel carriers are becoming more aware of the need to communicate to consumers about their efforts to improve sustainability.

Hassle-free returns

With ecommerce penetration at such high levels, our retail clients have spoken about the importance of delivering a winning customer experience that offers many of the advantages of in-store shopping and a seamless end-to-end experience. This includes the requirement for easy, hassle-free returns — a key factor that has helped unlock fashion ecommerce. More than 40% of consumers regularly order more products than they need with the intention of returning some or all of them, and two-thirds expect retailers to offer free returns. This expectation has been driven by leading online retailers such as ASOS offering free returns, no doubt contributing to their impressive growth.

However, other retailers, such as Boohoo and Zara, have already responded to the increasing cost of processing high volumes of returns by introducing a return charge for consumers. This necessarily requires a fundamental reset of consumer expectations and is a step that may alienate some consumer segments. Therefore, a middle ground is being pursued by targeting so-called serial returners (who, for example, order multiple sizes of the same item or return an item they added to an order only to reach the free delivery threshold) or by increasing the minimum spend threshold for free/discounted delivery. 

Carriers can also do more to support retailers that are facing the challenge of how to handle increasing volumes of returns. Improving carriers’ reverse logistics processes can reduce the costs associated with facilitating returns and enable retailers to continue offering this service (for free or for a minimal charge). Integrated returns management systems provide greater SKU-level visibility and data capture, which enables carriers to work with 3PLs (third-party logistics) to determine the most efficient course of action for an individual return (e.g. direction to store circuit or local fulfilment centre for repack). As these systems become more advanced, retailers and carriers will be able to forecast predicted returns and incorporate them in their capacity planning.

Can carriers meet consumers’ expectations while maintaining profitability?

Parcel carriers that have been able to scale their capacity and operations (to cope with the rapid rise and subsequent volatility in demand for carrier services) have seen impressive results in terms of both revenue and profitability. But one of the biggest challenges now facing carriers is how to meet consumers’ expectations without squeezing their margins. Rising wages and fuel costs are likely to persist in a meaningful way through the rest of 2023 and into 2024, but the impact of an increasingly challenging macroeconomic environment on demand is not yet clear. Fortunately, some other causes of higher costs, such as driver shortages, appear to be subsiding, according to recent data.4

Nevertheless, carriers must continue to innovate and evolve to preserve their margins and meet the rising demands in ecommerce. Carriers that want to continue to offer their customers a cost-effective service will need to find ways to manage their expenses appropriately. Partnering with other value chain participants (including competitors) to increase network breadth and density will allow carriers to achieve economies of scale and de-duplicate costs. Greater utilisation of distributed fleet models via the gig economy or brokering parcel delivery jobs can enable carriers to efficiently scale their capacity to cope with periods of fluctuating demand (albeit raising potential challenges when it comes to maintaining quality and reliability of service). This trend is already underway in other last-mile delivery sectors, with Just East recently announcing they intend to make greater use of the gig economy at the expense of full-time delivery drivers.

These initiatives will be key to further increasing ecommerce’s share of retail sales — and with it, increased parcel volumes — while also maintaining profitability for carriers.

For more insights on how ecommerce logistics businesses could approach these issues, please contact

L.E.K. Consulting is a registered trademark of L.E.K. Consulting LLC. All other products and brands mentioned in this document are properties of their respective owners. © 2023 L.E.K. Consulting LLC

1Blue Yonder Consumer Sustainability Survey (2022)
2Survey of 8,000 participants from across the EU and North America by Descartes Systems Group (2022)
3Descartes Systems Group
4BEIS national statistics

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