Same day delivery or overnight delivery?

If I were to tell you there was a service that was superior to others but often cheaper, would that make sense to you? Although it sounds improbable, this oddity arises from the different unit economics of the supply side of two related industries: the overnight courier industry and the same-day courier industry. I'll explain.

The courier industry in the UK is, in reality, two industries, which work in fundamentally different ways.

In the overnight world, the industry works by stringing together a long chain of components: ‘first mile’ (a van to collect from you), a consolidation centre (where everything is sorted and organised), trunking (a lorry to do the long distance part), another consolidation centre, and – finally – ‘last mile’ (delivery). It is an immensely capital-intensive process, which is why it is dominated by a small number of large players, such as DPD and DHL. The larger the company, the better the chance of efficiencies of scale (e.g. a lorry carrying thousands of parcels going the same way). The unit economics of this industry are all about getting as many parcels on as few vehicles as possible. The industry’s pricing model is chiefly based on package size and weight.

In the same-day world, the chain is much simpler. A courier collects from you and delivers to your customer. They may do a direct point-to-point delivery or they may execute a multiple-drop circuit. Either way, only one courier and one vehicle are involved. The unit economics here are not about space or weight (other than to determine the vehicle type – cycle, motorbike, car or van?) but about the courier's labour. That is by far the biggest cost in a same-day courier service. Same-day couriers will therefore price on time (i.e. shift work) or on distance (as a proxy for time with an inbuilt incentive to get the job done quickly).

So, two related but distinct industries, with different cost structures and pricing models. Which should you use? That depends on what you are sending and where.

You should probably use an overnight carrier:

• When you are sending something a long way.

Overnight carriers are, by and large, indifferent to distance; it is weight and volume that matter. If you are sending something from London to Inverness, this is the only sensible way to do it.

• When you are sending something of low value.

If it gets lost or broken, you’ll send a replacement.

You should probably use a same-day carrier:

• When you are sending something urgent.

Customers require ever-faster delivery. Same-day keeps the customer satisfied (and same-day, choose-your-own-30-minute-delivery-window keeps them delighted).

• When you have something fragile or breakable.

There is a reason it costs same-day couriers less than overnight carriers to insure goods-in-transit. Loss or breakage is much less likely with a same-day carrier: you give your item to the driver, who gives it to your customer. There is only one courier involved, and he/she is very accountable for the item's condition on delivery. In the overnight world, at least three different drivers are involved, not to mention all the loading/sorting/unloading at consolidation centres: plenty of opportunity, therefore, for something to get lost (e.g. put on the wrong lorry) or broken. When comparing overnight and same-day delivery rates you should factor in the higher wastage and packaging costs of overnight delivery.

• When you are sending heavy or bulky items.

Remember, the same-day unit economics here are all about the driver's labour, not the capacity of a lorry. Transporting 100 kg in the back of a van takes no longer than transporting 20 kg and so will not be more expensive: the opposite of an overnight carrier, where you would pay more for the extra weight.

• When you are sending lots of items within a relatively dense area.

The same principle as above applies; with same-day delivery you are paying for the vehicle and the driver. When you have lots of drops in the same area, same-day delivery can potentially be cheaper than overnight delivery. The price of a multiple-drop circuit will tend to depend on the number of drops and the size of the circuit. The more drops per unit of distance (i.e. the driver’s time), the lower the price per drop. Same-day carriers such as Street Stream will use route-optimisation to minimise the distance and, therefore, the cost.

This, of course, is where we started: a superior service for a lower price.

If you would like to explore whether same-day delivery is the right option for your business, feel free to chat to us at Street Stream. We'd be happy to analyse your delivery data and advise you on the best options.