Parcel roundtable ‘leftovers’ shine a light on key parcel trends

In case you missed it, this month’s edition of Logistics Management featured our annual parcel express roundtable. This is always a fun one to do, from my perspective, as I am able to gather opinions, analysis, and insight from three of the most knowledgeable minds in the business:  Jerry Hempstead, president of Hempstead Consulting, a parcel advisory firm; David Ross, transportation and logistics director at investment firm Stifel, and Rob Martinez, president and CEO at Shipware, an audit and parcel consulting services company.

As usual, this trio delivered in providing the market with pretty much everything they need to know relating to parcel trends and themes, including: rates, volumes, last-mile logistics, and the economic impact on the market, among others.

But, unfortunately, with such good content to include in this roundtable, print edition word counts can often come into play, leading to not everything being included in that version. So, I thought it would be a good idea to touch upon a few topics that were cut, but are certainly no less important.

The first topic, in this case, has to do with an e-commerce outfit that goes by the name of Amazon, with a focus on its current presence in the market, both now and also down the road.

Hempstead noted that Amazon is a “unique logistics company,” in that they don’t make anything and, instead, they facilitate the purchase, fulfillment and delivery of items. And he added that Amazon uses the services of lots of transportation companies.

“They use the USPS (mostly Parcel Select for last mile delivery), they use integrators, they use the regional carriers like Lasership and OnTrac and, most recently, they have and are in the process of developing their own delivery network of vehicles to deliver their orders to consumers,” he explained.

But he did not stop there, noting while looks like a lot even a company with Amazon’s scale, Amazon has the critical mass to do all of this, adding that he thinks the Amazon network of driver owners will most likely expand and the speed of this development will rest partly on what the USPS does with the Parcel Select rates as a result of the scrutiny the White House is putting on the USPS balance sheet.

“Amazon has a Negotiated Service Agreement (NSA) with the USPS but the White House wants more revenue from parcels, and Amazon is one of these firms using the USPS for delivery,” he said. “At this point in time Amazon is busy taking care of Amazon. They are making moves to get more volume that they can influence into their network but my gut says it will be a while before they attempt to retail their delivery service, if they ever even go in that direction.”

Shipware’s Martinez pointed out that Amazon’s continual expansion of their fleet of cargo planes and the introduction of their Delivery Service Partner (DSP) program shows it is focused on delivering their own packages as much as possible. 

“In a recent Shipware survey of shippers, 65% expect Amazon to be competing with FedEx and UPS within two-to-five years,” said Martinez. “What’s worse for purple and brown, 68% would ‘definitely’ or ‘likely’ explore a competing service from Amazon if a shipping program were made available.”

While the findings of that survey offer up a lot to chew on, Stifel’s Ross said it may be wise, in the interim, to consider that Amazon is a large parcel shipper and is is not a large parcel carrier. 

“Amazon will always be a large parcel shipper, but while they will move more packages around under their control, we don’t expect them to be another large parcel carrier,” stated Ross.

Another question posed to the trio in the parcel roundtable asked how are carriers adjusting their services to stay ahead of these new players in last-mile, as well as the key differentiators?

Hempstead did not hesitate to say that keeping costs down so shippers can continue to afford to offer “free delivery” requires a keen focus on costs, adding that part of the cost is the last mile component, which in the end is the trickiest.

“The USPS raised their price for Parcel Select, their last mile offering, by 10% on January 27,” he said. “Granted the vast majority of Parcel Select transactions within the USPS network are transported under NSAs and those shippers (Amazon, FedEx Smartpost, UPS Surepost, DHL e-commerce & Pitney Bowes Newgistics) don’t pay the ‘rack rate,’ these firms may see their costs go up but perhaps not as drastically as the press might have us believe.”

And as the costs go up, Hempstead said that firms like FedEx and UPS can convert on the fly those shipments with higher postage costs (for example those over 10 pounds) and have their own drivers deliver the shipments resulting in lower costs, adding that UPS even has this language built into their union operating contracts.

“When the Postal Service raises their rates the USPS may find more shipments diverted to the integrators delivery networks rater than outsourcing to the USPS,” he said. “Operating costs, tracking and consistency of service are the three key differentiators in this space.”

Ross said it is important to note that the question depends on whether one is talking about last mile delivery for packages or heavier and bulkier items.

“As for packages, FedEx just started its Extra Hours Metro service to provide faster local delivery,” he said. “As for big and bulky, they are letting others (like XPO, Schneider, J.B. Hunt, and Ryder) take the lead.”

Martinez made it clear that the key differentiators for FedEx and UPS over new players in last-mile delivery are its dense, global network, technology, breadth of service offerings, and consistently on-time, reliable service performance. 

“Frankly, no other competitors – including Amazon – can compete now or into the immediate future in each of those categories,” he pointed out. “There are some interesting pilot programs being developed: UPS is testing foldable electric scooters to achieve on-time/expedited delivery eliminating the unknowns in congested cities, while FedEx LTL is testing last mile delivery service aimed at larger/heavier online orders.  The big two continue to open high capacity and highly automated sorting facilities across the globe to outperform the market.”

There is a lot here to chew on, to be sure, and, again, unfortunately, space limitations prevented these salient points from our expert parcel trio to be included in the original version. But, even so, it is important for these takeaways to be “out there,” if you will. Both Amazon’s emergence in the logistics and parcel space and the adjustment of services being made by established players to keep current in the last mile market are highly important and critical pieces that are needed for supply chain success. As more and more business is being done through e-commerce, these things require constant monitoring.