eShip-4u: Package games

The B2C parcel delivery market in the US is estimated at $7 billion today, and handles 1.3 billion packages a year. In other words, each American family receives an average of one parcel a month. 75% of the volume of parcels come from traditional shopping by catalogue, and the rest from shopping online.

The parcel delivery market is expected to double or triple by 2004, mainly due to the continuous increase on online shopping.

So far, so good, so where is the problem? The problem is in the last mile. This time, we are not talking about Internet access, but the final stretch the parcel has to cover to the customer's home. This is the stretch that causes the greatest logistical problem for the parcel delivery companies. A survey by Forrester discovered that 42% of delivery problems are during that last and dangerous mile.

The logistical problem is created by parcel deliveries to private residences. During the day, 65-75% of the adult population is not at home, frequently forcing parcel delivery companies to maker several trips – for free – to the same residence.

Another problem in the last mile is the relatively low density of deliveries because private customers are not located in a single commercial center, and the distances involved are very large.

As in any field where a problem costs money, here too there are several companies trying to solve the problem in different ways. One of them is Israel's eShip-4u, which was founded at the end of 2000 by senior VP Nir Kinory and VP Yoav Koster. The CEO is now Dan Granot, who founded Shigur Express and brought DHL to Israel and still serves as DHL World Wide Express Israel vice chairman.

eShip-4u offers a hardware and software solution called Automatic Machine Delivery (ADM), rather like the well-known ATM. The idea is to deploy centralized automatic machines at convenient locations where parcels for a particular residential area will be concentrated. In other words, the e-commerce site will send the purchased item to the customer's neighborhood ADM, located, say, on the route home from work. The customer will even receive a discount for using the service. When a parcel is delivered, a message is sent to the customer's cellular phone or e-mail, together with a password for the ADM, which will hold the parcel until it is convenient to be picked up – 24 hours a day.

The advantages for the parcel delivery companies are even more obvious. Instead of sending five vans to different addresses at different schedules and at rush-hour, a single truck can be sent to the ADMs at a convenient time.

There are also advantages for the e-commerce marketplaces. For example, when the fifth Harry Potter books goes out, it will be possible to distribute the copies to the ADMs in advance, cutting delivery costs and times for millions of books.

Neither the idea not the implementation is particularly revolutionary, nor were they originated by eShip-4u. There were numerous companies in the field, most of which did not survive the current stock market crisis. Some of the better-known competitors that were forced to close down or change their business model include homegrocer.com, Kozmo.com and webvan.com

In general, the companies said, "come into our website, order something, and we commit to delivering it quickly." Kozmo.com even promised to deliver the parcel to the customer's home within an hour.

The companies met their promises, but Granot says they created a situation in which their venture capital backers were paying the price for the costly deliveries. Granot says that Kozmo.com over-reached when it signed a deal with Starbucks (Nasdaq: SBUX). The company offered a service to bring video rentals to the customer’s home, and collect them after viewing. It order to meet its promise in the face of the huge costs involved, Kozmo.com offered to place return collection points at Starbucks’s cafes. A customer who chose to return a video to a Starbucks cafe would get a free cup of coffee. The astonishing aspect of the tale was the size of the deal: Kozmo.com agreed to pay Starbucks $150 million for hosting the video collection points. To Starbucks regret, Kozmo.com went bankrupt faster than one can say, “Give me a cappuccino.”

A question of time-to-market

So far we have been talking about solutions that hurt the customers’ own convenience. Why should the customers forego the convenience of receiving parcels at home at a suitable time in order to save logistical costs to the parcel delivery companies? It is not the customer’s problem that companies do not know how to adjust their schedules to ours.

Granot says, “I go to work every morning, and go to the post office on Friday to collect my parcels. It is important that I get them. But I have to wait on line and waste my time. Think about it: if there was a way I could get my parcels at the gas station or post office to or from work, 24 hours a day, it would be far more convenient. I would also get a discount on the delivery.”

eShip-4u’s end unit costs several tens of thousands of dollars. The main part of the development and pricing is the supporting software, which the company will manage on contract for an extended period.

As mentioned above, the company has many competitors, especially in the technology aspects. Northrop Grumman (NYSE: NOC) has a similar system. zBox has developed a different system, a kind of smart-box. The smart-box is a box with a password that only solves the problem of repeat deliveries if the addressee is not at home.

ShopperBox Networks offers a different solution: electric lockers (like the ones at airports or schools in the US) with an added control panel, turning them into smart-boxes. The system has been tested in several locations worldwide, mainly at large apartment blocks, office buildings and malls.

eShip-4u is in advanced testing of the technology in Europe, and a smaller test was carried out in Israel in April.

"eShip-4u does not think it has an advantage in manufacturing end-user systems," says Granot. "We may make the first few hundred end-points ourselves, in order to prove they are practical. We have a department specializing in the end-points. Meanwhile, penetration has priority. Later, we will transfer manufacture to countries with a relative advantage in manufacturing such machines. Our advantage is in the machines' sophistication. This is where we lead our competitors, although I do not think we will remain alone."

"Technology precedence is not a matter of years. We have patents, and patent applications, but there will also be technologies developed alongside ours. Time-to-market is one the most important aspects of our technology."

In September 2000, eShip-4u raised $1.6 million each from Veritas Venture Partners and the Yozma Group, plus $300,000 from private investors, for a total of $3.5 million. The company is planning another financing round of several million dollars, and even thinks the company value for the round will be considerably higher than in the previous round. The company is also setting up a marketing system in Europe, and will begin setting up another one in the US in the next quarter.

Published by Israel's Business Arena on 9 August 2001