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Economic Affairs

Unwrapping the parcel locker scheme

Logistics is ripe for disruption, said Prime Minister Lee Hsien Loong at the National Day Rally on Aug 21. The proposal for a nationwide system of lockers for deliveries can help Singapore get ready, and be a boon for e-commerce, but requires more study.

Having no one at home to receive deliveries will no longer be an issue under a proposal the Government announced earlier this year to introduce a nationwide, common parcel locker system in residential areas.

Singapore will be the first country to roll out the so-called "federated locker system".

The need for such a centralised parcel pick-up system has arisen amid a boom in online shopping, making e-commerce an invaluable economic activity. What has become required is a delivery system combining productivity and efficiency, which avoids wastage, reduces the carbon footprint and which has a complete supply chain.

In fact, the logistics sector was identified as a sector ripe for disruptive technology by Prime Minister Lee Hsien Loong in his National Day Rally speech.

However, much thought and planning must be made before the nationwide system debuts.

Singapore should start with what in the logistics industry is called "proof of concept" - proof that a business idea and model are workable and applicable in the real world - before a nationwide rollout. There are lessons to be learnt from the less than satisfactory rollout of some logistics innovations in past years, both locally and overseas.


ST ILLUSTRATION: MANNY FRANCISCO

THE ROAD TO CHANGE

First, though, I will look at why a federated locker system is needed.

The e-commerce segment will continue to grow strongly and "last-mile" delivery - the final part of the journey to your home or a parcel pick-up point - has to catch up with this growth. E-commerce ventures have broken down the barriers of not having a network of retail stores, geographical constraints in doing business and traditional payment systems.

New ventures, both overseas and at home, are leading to new winners. Even established retail businesses have launched their own online platforms to supplement their brick-and-mortar outlet sales.

Another reason for centralised lockers is that changing demographics, with greater workforce participation, mean last-mile deliveries are often hampered by not having anyone at home to receive and sign for the goods. Logistics companies incur high costs and inefficiencies by having to knock on doors to make deliveries. This is especially critical when e-commerce deliveries may be for very low-value items but which are part and parcel of an e-commerce merchant's total product offering.

And of course, they are already here in some form. Installing centralised parcel lockers for consumers to pick up their orders has been tested by several companies. SingPost has its POPStation lockers, while other firms are considering rolling out their own lockers. Clearly, this is duplication and a waste of resources.

Indeed, automated lockers have been successfully used in airports for left luggage, and by clubhouses for their changing rooms. Several years ago, a multinational logistics firm I was running tested the use of strategically located automated lockers to leave service parts for engineers to retrieve in the course of their round-the-clock work.

LESSONS FROM THE PAST

However, while a centralised parcel pick-up location makes sense, a federated locker system needs more study and proof of concept along several dimensions, based on my own experience as follows.

Several years ago, there was a move by some logistics companies, or investors in logistics facilities, to fit out new buildings with automated storage and retrieval systems (ASRS). This was either to benefit from industrial building allowances or to make the case for land-allocation approval to build a "higher value-add" facility.

Another reason for centralised lockers is that changing demographics, with greater workforce participation, mean last-mile deliveries are often hampered by not having anyone at home to receive and sign for the goods. Logistics companies incur high costs and inefficiencies by having to knock on doors to make deliveries.

ASRS facilities are not new. But they work best in single-user establishments where there is little variation in product size to be stored. So we find this used in many industries, from consumer goods - to store big pallets - to aerospace companies , where they fit small boxes of components.

Several years ago, at the multinational firm I was running, I watched more in pity than with amusement when three such building owners went into receivership. Their facilities were just not suited for a third-party logistics business that had to serve multiple clients with a range of product sizes. An operator cannot optimise usage of an ASRS if it has to store a wide range of carton sizes.

There are important lessons we can learn from this when considering a federated locker system for e-commerce:

  • Locker size: E-commerce goods come in all sizes, from small packages to bulky items. It is difficult to match the size, and any unused space in each locker is, in logistics parlance, wasted real estate.
  • Utilisation: A package takes up a locker from the time it is left in there by the delivery person until it is retrieved by the consumer. Smart locker systems can signal that the locker is free again, but it can be several hours before another product is placed inside. Hence, there is poor utilisation of a relatively expensive locker. Like many businesses, it is the number of "turns" - number of times a space is used - that determines profitability or usefulness of an asset.
  • Number of lockers: The number of lockers will invariably be insufficient. E-commerce companies typically hold special sales when volumes may increase. An example is China's online shopping website Taobao's annual record-breaking Singles' Day sales. What do you do when all lockers are occupied?
  • Accessibility of locker locations: SingPost has installed POPStation lockers at some of its post office branches. Lately, it has also configured its branches to ensure 24-hour access to the lockers. Unfortunately, some of these post offices, while easily accessible in the day, become less inviting areas when commercial activities cease at night.

SUGGESTIONS TO MAKE IT WORK

I would define a federated locker system as a subset of centralised parcel pick-up (CPP) locations. The physical network must precede the automation solution.

  • Location: As we roll out more MRT lines and stations, it would be logical to site CPPs in MRT stations. Other possibilities may be NTUC FairPrice supermarkets (there is one in every neighbourhood), 24-hour convenience stores and, for those who drive, petrol stations, although this may run counter to efforts towards a car-lite society.
  • Design: A counter or small storeroom is a good start for a CPP. Simple racks in a storeroom will turn over more parcels than a finite number of automated lockers. It is easier to expand or shrink capacity in a storeroom than deal with fixed-capacity automated lockers.

In the United Kingdom, there is the example of an Oxford Street department store where you can order goods in-store or online, and choose to pick up your order at the nearest affiliated supermarket. It is not a high-tech setup; a supermarket staff member will open the storeroom and hand the product over.

One can imagine the same situation at an MRT station. If volumes are consistently high, we can even consider engaging senior citizens, or students in the evening, to man the counter. They can earn a small fee for every parcel handled. We as a nation are promoting active ageing and our senior citizens are certainly skilled enough to play a part in e-commerce and remain productive.

What about federated locker systems? We can prototype these if we wish to, in anticipation of a manpower shortage. The system can be used for standard-sized high-value items - think of safe deposit boxes in banks where high-value items are stored and incur higher charges.

Alternatively, items not collected from the counter can be placed in the system after closing hours or to make space for new items coming into the storeroom.

There are various permutations.

Perhaps the final solution may be a hybrid one, or, looking further into the future, even incorporate robotics for product delivery, assuming product size variation and volume fluctuations can be satisfactorily factored in.

In summary, rolling out a federated locker system is best preceded by adopting several proofs of concepts - from the simple to the complex, and learning and adapting as we go along, even as we gauge the growth rate of e-commerce and match it with an effective last-mile infrastructure.

Yes, the logistics sector is ripe for innovation and, in Singapore, we must do what we can to make sure we are ready.

The writer is chairman of Jurong Port and was previously Asia-Pacific CEO of a multinational logistics firm.

A version of this article appeared in the print edition of The Straits Times on August 31, 2016, with the headline 'Unwrapping the parcel locker scheme'. Print Edition | Subscribe