News / Warning to the 'big three' as new tech eases parcel fulfilment

@Dreamstime

Despite predictions of year-on-year volume growth in the upcoming peak season, the integrated express carriers are facing changes that threaten to erode their market share.

New technology enables online merchants to open new sales channels with ease, and the integrators’ efforts to compensate for cost pressures through frequent surcharge hikes drive shippers to alternative fulfilment solutions.

According to ShipMatrix, parcel volume this holiday season is set to rise 5% over last year ,to 2.3bn packages.

As far as the major carriers are concerned, the spoils will be divided unevenly. ShipMatrix founder and president Satish Jindel projects gains of between 5% and 8% for Amazon and FedEx, whereas UPS and the US Postal Service (USPS) will see flat volumes.

In part, this reflects the trend of the first half of the year, which produced increases of 6.1% and 5% respectively for Amazon and FedEx, bit -5.4% at UPS and -6.7% at USPS. This lost volume eclipsed the gains at Amazon and FedEx, indicating that other carriers absorbed some of this.

And Mr Jindel sees ongoing challenges for UPS and the USPS that will hamper growth and augurs further traffic loss to rivals. He pointed out that FedEx had managed to bring down its cost structure to handle B2C traffic, which makes it more competitive than UPS in this segment, which has risen to command 70% of today’s parcel market.

“The carrier with the lowest delivery cost will prevail,” he believes.

As for Amazon, its role as a seller/marketplace of ecommerce means that the volumes it moves will grow as ecommerce continues to expand, albeit at a slower pace than in previous years, he said.

A recent survey of 1,000 consumers by Plus One Robotics found 75% trust Amazon most to deliver their purchases on time, far ahead of other retailers.

The ecommerce giant is also beefing up its parcel handling capabilities for the peak season again this year by hiring an additional 250,000 workers for its fulfilment and transport network.

The integrated express carriers have placed much emphasis on the SMB segment in recent years, as margins there are significantly higher than with large customers, and technology has been a key lever for them to attract this clientele. However, this is diminishing as third-party tech solutions are on the advance, opening new avenues for expansion to online merchants.

Victoria Wilcox, sales development representative at Pipe17, a tech company focused on ecommerce, said shippers were abandoning legacy order management systems for newer solutions that can bring down operating costs by up to 85%, and that firms are employing no-code solutions to route orders, synchronise inventory and scale faster than before.

Launching new sales channels, which used to take three months or more, can now be done in less than 30 days, “with zero IT lift”, she added.

“This isn’t just about replacing systems. It’s about building ops that actually match the pace of modern commerce,” she explained.

The ability to open or latch on to new sales channels rapidly has huge appeal to merchants always looking for inexpensive ways to acquire new customers, said Rick Watson, founder and CEO of RMW Commerce Consulting.

The momentum is often breathless. “You can easily go to half a dozen [channels] before you realise it,” he observed.

This augments the complexity of sellers’ logistics networks.

“Order management can be a challenge. You have to integrate with all these channels. All your sources of inventory, your logistics and warehouse providers, have to be integrated,” he said.

When it comes to connecting to existing sales channels, sellers can utilise their own or third-party fulfilment providers, or use those employed by the platform.

“The more mature the channel, the more fulfilment options. Newer channels may have people they integrated with, but not unique fulfilment options,” Mr Watson noted.

Terms of engagement are another issue. A foray into a new channel may prove short-lived if the results don’t live up to expectations, resulting in the termination of the logistics arrangements.

Mr Watson said that typically, smaller sellers that latch on to an existing channel tend to go with the fulfilment service attached to it, given that low volumes at the outset make it difficult to obtain attractive rates.

“For a small business it’s always good to start with rates that have been negotiated by someone else. The more volume they have, the more inclined sellers are to have their own rate arrangements,” he said.

When it comes to embracing a third-party provider, many sellers use ShipStation, a platform that leverages third-party drivers for deliveries, he noted. He expects technology to continue to open new avenues to sell merchandise online as well as manage the logistics.

“I believe there are ways to go with AI to new solutions,” he said.

For the integrated express carriers, this means SMB shippers will rely less and less on them for technology to manage their traffic. This could accelerate the erosion of customer loyalty from the steady stream of surcharge increases that the integrators have been imposing on their customers. ShipMatrix has a stark warning for them.

“If the current levels of peak surcharges continue in future years, Amazon and Walmart, and carriers like OnTrac, Better Truck, Jitsu, DoorDash and Uber Eats, will be delivering more parcels than the big three [FedEx, UPS, USPS] combined by 2027.”