Open or closed networks? Let’s talk parcel lockers

A quick dive into research results

The 2021 IPC Cross-Border E-Commerce Shopper Survey looked into the delivery preferences and experiences of over 33,000 global consumers in 40 countries. Respondents were asked which delivery locations they had used in the past year and how often they had used them over that period. The most used location was delivery at home, at the door (used at least once in the past year by 88%), followed by delivery in the mailbox (78%), post office (55%), and postal service point (e.g., in a retail store, 51%). Other locations were used by less than half of the respondents. Parcel lockers were used by 44% of the respondents at least once (a 5pp YoY increase), and 1 in 5 responded that they had used parcel lockers more than six times in the last 12 months. In terms of consumer preferences regarding return location, parcel lockers were the fourth most popular – this was highest in Estonia, Poland, Lithuania, Latvia, and Finland.

Research from 2021 commissioned by InPost[1] revealed that 89% of Polish consumers preferred their e-commerce delivery to a local parcel locker. The NPS for InPost deliveries was 72 points and an even greater 74 points for parcel drop-offs. InPost claims this score is “primarily driven by the label-less posting option available in the InPost app”, and the round-the-clock availability of the majority of lockers and the sheer amount of them – 16,000 locker machines across the country allow InPost to boast an impressive “average distance from customer’s house of 1.7km”.[2]

In a June 2022 article from the European Journal of Transport and Infrastructure Research on consumer preferences for parcel delivery methods, the potential of parcel locker use in the Netherlands was discussed and analysed based on market research undertaken with 343 Dutch consumers[3]. Its results indicated that even a small increase in home delivery price “decreases the choice for this option considerably.” The article also indicated that if home delivery “is priced at €6, service point use is set at €2, and parcel locker is for free and located close to consumers’ homes, most e-consumers will use parcel lockers.”

The article continues: “[parcel lockers require] high investments, and to function properly they should have a white label, implying collaboration between the different competitors in the sector.” Governments could stimulate this development by subsidising the placement of white label lockers and assisting with providing suitable locations in many countries, but this would require a willingness to cooperate between the delivery operators previously unseen in many, if not all, markets.

The Covid-19 effect

Covid-19 and its related lockdowns in various markets over the last year and a half have certainly had a large influence on growing e-commerce volumes. The mix of high street store closures due to anti-pandemic measures, online retail offers, and early Christmas shopping all drove a 230% increase in parcels in the peak period of 2020, from 1 million to 3.3 million items compared to the same period in 2019[4].

In the Netherlands, however, during the pandemic and during the lockdown especially, “Home delivery was a lot more popular and so the usage of parcel lockers decreased slightly. What increased by a lot, however, was the use of parcel lockers for returns” – says Jean-Luc Otten, Business Development Manager, PostNL.

In all countries, Covid-19 made parcel volumes grow faster than expected. Home deliveries also saw a “significant growth due to the amount of people working from home. As more people continue to work from home, we have seen the use of PUDOs, unfortunately, slow down more than the growth which we had initially foreseen but it is picking up fast.“ – said Karin Enzlin, bpost.

Despite these changes in how often people are at home during the work week, parcel manufacturer SwipBox remains optimistic. When working from home or in a hybrid way, “it becomes even more important for you to have the flexibility to pick up their parcels where and when you want them” – says Jens Rom, CEO of SwipBox. “People pick up their parcels around the clock more than in the past. Our research shows that many people are still uncomfortable going to PUDOs or interacting with a public touchscreen such as that of a typical parcel locker.” The Infinity lockers provided by SwipBox, operate via Bluetooth, allowing for parcel pick-ups using the consumer’s own screen only using their smartphone.

Some parcel operators, however, say that the extra convenience for some people might become a blocking factor for wide parcel locker usage for a given population – a screen-less locker requires the consumer to have a smartphone with a dedicated app installed and the required skills to operate it. This can prove difficult for some people, including senior or less tech-literate demographics.

Dwell time – the make-or-break factor for lockers

Dwell time – the total time for a parcel to be stored in a locker compartment from deployment until effective pick-up by the consignee – is arguably the most important factor for parcel operators when considering parcel lockers.

In SwipBox’s case, its Infinity lockers make it possible to be installed closer to home and, as a result, it sees “that around 35% of the parcels are picked up during the first 5-6 hours in many markets – and 50% during the first 12 hours“– said Jens Rom, SwipBox CEO.

With certain exceptions, such as lockers at the workplace or in a convenient public transport location, dwell times tend to increase the further away a locker is situated in relation to one‘s home. Even with residential parcel lockers, “distances from 200m trigger longer dwell times. Bad weather further increases dwell time too.” – said Jesper Okkels, Founder of Sesam. Also, most locker compartments can be used only by one end-user and not a family or a household, for example. This is, however, possible with many of the residential parcel boxes such as Sesam.

When you look at Sesam residential parcel boxes, Okkels continued, “the typical dwell time is 3-6 hours which means that one box can be shared between more tenants”. While having a truly local last-mile delivery located at the door or within the premises of your apartment building looks to solve the dwell time conundrum of unassisted last-mile delivery, in many cases, this requires an upfront investment on the household level plus a small monthly fee for maintenance and software.

Right now, there seems to be a limited appetite for this kind of localised service of parcel boxes across Europe. However, with many more parcels forecast to be delivered per household in the future, it is not difficult to imagine that consumers will eventually become ready to pay premium for a truly local unattended delivery solution – a solution that will be the equivalent of what the introduction of letter boxes did for receiving letters, now a no-brainer virtually anywhere. Whether it will be possible due to residential parcel boxes or parcel locker machines, is arguably of low importance to an average e-shopper. The key advantage is distance from their home.

Carrier-agnostic does not necessarily mean more sustainable or more nimble last-mile delivery

A lot of companies which produce parcel lockers are essentially in the business of selling their units to public or private carriers. The lockers are then used for deliveries from a specific carrier, as in the case of Cleveron, Keba or InPost (in Poland).

However, in the last couple of years, there have been some attempts, primarily from SwipBox, to promote the carrier-agnostic approach where more than one carrier has access to the same parcel locker network.

At first glance, a carrier-agnostic approach seems like an interesting solution for last-mile delivery, especially for local governments. The promise that some analysts associate with an open network of parcel lockers is they increase the out-of-home coverage for carriers and reduce the distance that any carrier has to drive to deliver a full load of e-commerce items.

Some within the e-commerce industry voice their full support for the open network model – for example according to Last Mile Experts and UPIDO’s Out Of Home Europe report, this is the “go-to model”[5]. Open networks have an advantage in four key areas: efficiency, proximity, speed of development and sharing benefits – their report explains.

However, as promising as it sounds, the current reality is complicated. For delivery providers, there are financial and logistical issues to consider regarding sharing locker space.

An open locker network is not possible in the case of DP DHL, for example, as its "lockers are well utilised and so it does not make business sense for us to open up the network. Full control of the network is also in the interest of our customers as we can ensure that their parcels are not rerouted due to the locker being filled with parcels from other delivery organisations.” – says Corinna Glatz, Senior Expert at DP DHL.

Sustainability

Parcel lockers also help reduce emissions per parcel thanks to consolidation, allowing more parcels to be delivered with fewer kilometres driven per route. As a result, use of parcel lockers for last-mile delivery can contribute to a reduced impact on the environment. Increasingly, it seems like the word ‘can’ is the key to understand the sustainability potential of this mode of delivery. Also, reducing emissions on the carrier-side does not necessarily equal reduced emissions for the entire e-commerce delivery.

On the one hand, we hear that increased first-time delivery success and a reduced number of individual routes that the courier must follow all result in lower total emissions. This can be true for closed parcel locker networks where one carrier has effective control of all compartments. Things change when this network is opened to other couriers and every single courier company may have access to only 25% of nominal capacity (in the case of smaller parcel lockers machines this translates to around three compartments per courier, assuming maximum dwell time is less than 24h.

However, a lot of the studies that try to prove that using public parcel lockers is better than home delivery when it comes to emissions use the concept of the legal possession, so the emissions are only measured on the carrier side until the delivery to a parcel locker is made. As a result, the consignee’s trip back home is not taken into account when calculating the total amount of emissions. In some of the academic assumptions, “largely outdated data is being used such as a city route with 150km driving and only 70-80 parcels per tour which nowadays is more like 40-50km with 120 to 350 parcels per tour” – said Jesper Okkels, founder of Sesam, an individual parcel boxes manufacturer from Germany.

Meanwhile, other experts say that it all comes down to the density of the network and the type of goods that are ordered online, but the true sustainability equation is influenced by more factors.

Weather is a major factor in the adoption of parcel lockers and the sustainability of the solution. In markets with regular periods of extreme weather (warm or cold), parcels are likely to remain in the locker for longer times before being collected. And when they are collected, it’s likely it will be done using a car even for a trip of 500-1,000 metres.

Part of this willingness to pick parcels in a carbon-zero way can be due to the culture of a specific market. In the Netherlands, known for its bicycle-centred lifestyle, “already 62% of the parcel locker users pick their parcel up on foot or by bicycle“ – says Jean-Luc Otten, Business Development Manager, PostNL.

In the UK, on the other hand, a study conducted by InPost between December 2019 to May 2020 on their parcel locker utilisation (only customers who collected or returned parcels from InPost Lockers outside Lidl stores) found that only 31% of consumers travelled to the locker by bicycle or on foot. Sixty-one percent went by car or motorbike, but almost half (47%) of those shoppers also went into the Lidl store[6]. This means that 1 in 4 travelled to the locker by car or motorcycle for the sole purpose of visiting the parcel locker.

Ultimately, every market is different in its approach to parcel lockers – be it consumer preferences or carrier strategy – and so trialling a solution is a good idea in all cases. A good example of this is the trial of an ecozone in the Belgian city of Mechelen. In a study that bpost did in the city during the trial, it found that 85% of Mechelen’s residents went to pick up their parcels on foot or by bike. Only a small number of respondents took the car and two thirds of car users combined the pick-up with other business (trip chaining), such as a trip to the supermarket, school or work. Eighty-one percent of users covered less than 500m to get to a parcel locker station. bpost also recorded a satisfaction score of 9.3 out of 10 for the ecozone delivery concept.[7] Based on the positive results of the trial, bpost has now expanded the Ecozone approach to at least one other city in Belgium. [8]

Putting this into perspective, however, makes one realise that parcel lockers such as these need a much higher density in order to accommodate the current and future e-commerce volumes. The 51 parcel lockers across the city of Mechelen each consist of 13 compartments, providing only 663 parcel spaces in total and the scalability of the concept is still to be proven.

Lastly, when put to the test, parcel lockers tend to be associated only with “potential reductions of emissions when compared to the legacy door-to-door model. In the article ‘On the Impact of Open Parcel Lockers on Traffic” from the Sustainability journal[9], the authors state that no general conclusion such as “a parcel locker will reduce the emitted CO₂” can be made. This is mainly since the individual surroundings and framework conditions have to be considered and there are a multitude of factors at play. The authors make another important point regarding lockers and their location, stating that “the main goal of (political) decision makers must be to promote sustainable pickup locations and prohibit pure cost-induced decisions like pickup locations at fuel stations or in industrial areas, which might be cheaper than those situated close to living areas.”

Returns via locker are increasing in popularity

An increase in parcel locker usage for returns was also noticed by InPost UK. Their ‘Instant Returns’ service was launched in March 2021 in response to calls from customers for retailers to make returns easier and to better fit around their lifestyles. This was reiterated in research commissioned by InPost – based on a survey of over 2,000 online shoppers.[10]

E-commerce returns from lockers is now a standard offered by many operators including bpost, Correos, PostNL and PostNord. In some cases, the returns are label-less adding to the convenience of customers. One postal operator offers consumers the ability to book a slot for their return in a particular locker for up to 24 hours which, no doubt, can increase the overall satisfaction with the returns process.

Ready for the locations scramble?

Parcel locker business is a “locations game” – this obvious truth is likely to become even more important. Good locations – easily accessible, well connected and with high footfall - will be harder and harder to secure sooner than we think. An increasing number of sources from the industry mention this as a major current or future challenge in their markets. One European locker expert said that while they could secure partnerships with supermarkets to install a parcel locker station for free (in return for the increased footfall promise or consumer convenience), this is not the case anymore. They have to compete for locations with a number of other players and ‘court’ the location owners with various incentives, if not direct monthly fee offers.

To gain competitive advantage in this area, several players such as DPD and SwipBox invested in AI-supported systems for location scouting. SwipBox is said to be working on a location prospect algorithm – using machine learning and combining it with multiple data sources, for example, in Google Street View. While parcel operators’ data expertise on volume data by location differs in quality and forecasting capability, it becomes increasingly clear that the short-term race is to secure key locations in high-traffic urban spaces before the competition does it.

Various forecasts are available for the actual parcel locker saturation needed to successfully service a given e-commerce market. Last Mile Experts’ advice is that the optimal last mile out-of-home network (including PUDO and locker machines) should have at least 10 points per 10,000 inhabitants as stated in their 2021 OOH Europe Report. Viewing the requirements for optimal networks in pure machines per a set of consumers, however, is quite problematic as depending on the market and network owner each machine can as few as seven compartments (the smallest machines from Correos) or as many as 149 (InPost Poland).

A calculation for the German market was done by Jesper Okkels from Sesam. Okkels claims that a total of “160,000 to 240,000 locker machines at 140 compartments each would be required for Germany in the future to deliver just 40% of all traffic via this mode of delivery (assuming dwell times of less than 48h). Compared to the current number of lockers in Germany which is <15,000, that goal seems a little bit too optimistic. There just aren’t that many locations and as you can see across Europe, securing a good location for public parcel lockers is getting more and more difficult.”

One common requirement for a location is access to a large pool of residents or consumers (shoppers or commuters) and the possibility to scale up if needed. Provided that the parcel locker model is modular, you can always scale down if the actual usage is lower than anticipated. However, an installation setting which does not allow for scaling up (adding additional modules) can potentially stifle the location’s potential – more and more consumers would choose that location, but their parcels would often be redirected to other lockers due to volume saturation. There are different strategies regarding what a good number of compartments is ideal to start with at an average location. SwipBox’s basic machine has 13 compartments, and their strategy is high density. Omnic, however, has a rule that a parcel locker of less than 36 compartments does not make business sense “since the unit economy becomes unprofitable for logistics companies”. From delivery efficiency point of view, an open network with just a few locker compartments per location would even make less sense, it seems. The driver would have to make the trip to the parcel locker only to leave, say, three parcels due to availability or the locker space sharing rules.

Peak season adaptability

Parcel lockers are not really built to serve the growth in e-commerce volumes during peak seasons such as the period from Black Friday to Christmas. Using incentives to pick the parcels up earlier and delivering several parcels for the same consumer into one compartment (such as ‘multi-skrytka’ by InPost) can help to a degree but will not solve the issue completely. In comparison, post offices and other more traditional PUDO points would not be affected by the peak season limitations in the same way as parcel lockers. Until we have a parcel locker network that can serve around 125% of average volume, which is rather unlikely even in markets such as Poland, the solution for peak seasons will have to be a mix of different last-mile delivery modes. One postal operator from Western Europe shared that as part of their renewed strategy, they will roll out even more parcel lockers at existing post offices as they are more effective in terms of servicing extra deliveries and returns-related traffic than self-service kiosks, for example.

Parcel locker, anyone?

The parcel locker market is still dominated by private manufacturers who sell their hardware and software solutions to different e-commerce stakeholders, but in some cases, it shows signs of change. In the Netherlands, PostNL decided that a close partnership with a local hardware manufacturer was the right way to launch and expand their parcel locker network – this ensured that they could influence the hardware and software design better for their local market needs. CTT Correos, the Portuguese postal operator chose a similar path, and more recently, split its parcel locker division into a subsidiary called Locky. A relatively new strategy of another European post is to offer its parcel locker machines to businesses and large apartment blocks for an annual fee – the post then consolidates the traffic and is the only one who makes the deliveries – removing the need for clearances for drivers from, say, five different parcel operators. This is unlikely to make a noticeable dent in the business of locker manufacturers such as Keba or SwipBox in the short term, but operators rolling out their own lockers is likely to only grow in prevalence in the future.

The future of last-mile delivery

One thing we know for sure - the future of last-mile deliveries will be dominated by topic of sustainability. As one of the postal operators put it, “not only in reducing CO₂ emissions, but also in bringing the social cost down, i.e. congestion, accidents, noise pollution, etc.” Will out-of-home deliveries grow? There’s hardly anyone who disagrees.

As one of the major PUDO technology providers, Doddle has stated “whereas PUDO locations can cost almost nothing to deploy, lockers have a set of pretty significant costs associated, from build and installation to power and internet connectivity.” Those costs can add up quickly and as out-of-home networks need a certain density to perform optimally, a large number of locations is required.

The pool of solutions in the market will only grow and, while some of them will be used in very specific cases only (drone delivery, car trunk delivery), there will likely be a balanced mix of post offices, dedicated PUDO points, public/residential parcel lockers/boxes and traditional retail counters – every healthy delivery network needs a mix of delivery modes.

In the B2C delivery space, the only way to achieve a sufficient return on the investment is to ensure that enough volume comes into the network on a regular basis. To achieve that, options to choose them need available across merchant checkouts – in case of Out-Of-Home, including parcel lockers, there is still much room for improvement in terms of cross-border e-commerce.