US express giants pour cash into technology as e-commerce deliveries boom

Express operators are ramping up investments in automation and warehousing to offset margin pressures associated with rising B2C deliveries.

In the US, the likes of FedEx, UPS and US Postal Service (USPS) dominate express services, but while the latter has benefited from the e-commerce revolution, the others have struggled.

B2C accounted for some 48% of UPS’s US domestic package volumes in 2016, year-on-year growth of some 9% – an annual growth rate it expects to continue.

And although FedEx chief executive Fred Smith said “85%-plus of our business has nothing to do with e-commerce”, it was still the fastest-growing area of the company’s business.

In its E-Commerce in the US report, Armstrong & Associates says: “Both companies have experienced margin pressures, with delivery density differences a major factor. The major parcel carriers have raised prices and invested in facilities and technologies to gain efficiencies.”

Last year saw UPS’s capital expenditure increase from $3bn the previous year to more than $5.2bn, with expectations that it could reach $7bn this year, pouring into network optimisation and automation, as well as package scanning and sortation technologies in its 30 biggest hubs.

“It [UPS] also continues to establish facilities close to package recipients to fulfil deliveries faster, and has recently opened, expanded or begun work on facilities in major metro areas,” the report continues.

“Even so, some analysts have expressed concern at B2C-related margin drag and questioned when ROI would be realized on e-commerce-related capital expenditures.”

And despite Mr Smith downplaying the importance of B2C deliveries, FedEx has also put substantial resources into developing its capabilities in the sector. Between 2015 and 2016, capital expenditure jumped 28% to $1.6bn, with a similar increase last year, with sort facilitation noted as a major source of this expenditure.

“To recoup margin in the long term, parcel carriers have ramped up investments in facility automation and expansion,” the report says.

“To help shipper partners get close to customers and ensure quick delivery times, delivery networks continue to shift in response, and carriers continue to develop technology to improve efficiencies.”

However, it should be noted that operations at automated facilities require almost 30% fewer employees.

The full report is available from The Loadstar Shop.