Wednesday, October 05, 2005

Groceries In The Time Of Peak Oil

by Tom Bozzo

This morning's small sign of the apocalypse: looking over the invoices for this morning's and last week's milk deliveries, Suzanne saw that the dairy had slipped in a small (30 cent) fuel surcharge even for orders such as ours that exceed the threshold at which they are willing to recover the cost of delivery from the markups on the milk, butter, etc.

I'm curious as to how the dairy came up with the 30 cents, and what it might say about their delivery density. Delivery economics 101 is that the cost of an incremental delivery stop declines as delivery density (the fraction of locations receiving deliveries) increases — indeed, it tends to decline quite sharply over some range of "low" densities. This is part of the reason why the U.S. has relatively cheap mail by developed-world standards, and why private package delivery companies often assess residential delivery surcharges. An implication is that if more people got their milk delivered, the unit costs of providing the service would decrease, and make it less of a premium convenience for people put more than a trivial value on their non-work time.

Anyway, their nearest customer we know of is about a mile away (the friends who turned us on to the service). It's at least possible that's typical of their density, since it came as a surprise to some neighbors old enough to remember milkmen of yore, who noticed the deliveries on early dog walks, that it was even possible to get one's dairy delivered in Madison. At $3/gallon, covering that distance would consume about 20 cents worth of fuel assuming a 15 MPG delivery truck, so the charge does not appear to be cost-based. With our fuel cost of a round-trip to the supermarket from home nearing $1, not to mention the time cost, I'm not complaining.

To close out with a theme for possible future discussion, I'd like to suggest the following: Service is vastly underrated. This is not to say that there aren't areas in which certian modes of self-service have their advantages — for instance, being able to order, at 2 A.M. and with no more than a few keystrokes and mouse clicks, a book that couldn't be found in retail stock within 1,000 miles if anywhere. But I'll submit that it could be said that we've been persuaded with only modestly lower prices to accede to supplying a lot of non-market labor in the name of "convenience."
There was an op-ed in the Times over the summer resenting being forced to supply non-market labor. It was ignorant of the economics and so ended up sounding more hoity-toity and snobbish, than wise and reasoned like you (seriously!).

Also, UPS is now adding up to a twelve and a half percent surcharge on shipping for fuel costs. This doesn't bother me. It's when they add $120 for the box being over-sized, when it wasn't, that I get annoyed (and call them and they quickly refunded the charge. Which raises a whole other question: I had no evidence that I had been mistakenly overcharged, but they figure that it's worth the customer goodwill to quickly refund the money, and that people won't purposefully game the system...).
Isaac: Thanks! I'll probably have more to say about market vs. non-market labor and services supply and demand soon.

With the UPS package, did you drop it off (or send it through a business pick-up), or enter it at some UPS facility? If the former, there's the problem that the usual couple percent of the size data will be mis-entered, some by enough to affect the rate for the piece. W/o a clerk to quote you the surprisingly high price, one avenue of quality control is gone. If the latter, you're probably looking through a window on their revenue protection efforts, and probably have the decision process pretty much right.
I called them and gave them the dimensions, they priced it, and then UPS picked it up (very convenient when you are talking about a box containing a road bike. And only $35 to the East Coast!; it is $50 the other way). So somewhere later in the process they decided it was a different size and charged extra, which is what was weird about it.

So I'm not entirely sure where the error was introduced, because at the moment of pick-up I know they had the correct information.
Assuming your measurements were correct, it was in the 'revenue protection' process: at the UPS entry facility, someone re-measured your package to verify that it was correctly rated.
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