We want what we want, when we want it. And since retailers take this as a personal charge to win customer loyalty, we have high expectations.
Most of the growth in shipments stem from e-commerce orders, which increasingly need to travel from a warehouse to a nearby home overnight. This has shifted focus in efficiency of last-mile delivery over freight.
Interestingly, there does not seem to be a consensus among major e-commerce retailers or residential delivery providers of how to implement the most efficient method of speedy endpoint transportation.
Source: Business Insider Intelligence
Retailer Approaches
Amazon (Tii:AMZN)
A hybrid between e-commerce retailer and shipping company, Amazon has launched next-day and same-day delivery on thousands of items in ever-expanding geographical areas across the country. Prime two-day shipping is officially so 2018.
Amazon, arguably the leader in e-commerce, has had a “take it into their own hands” approach since the beginning. Success for Amazon is contingent on building infrastructure. For years, they have been building logistics operations with the goal of keeping more deliveries in-house. This includes purchasing planes, trailers, vehicles, building warehouses, hiring sorters, drivers, etc. The retailer even launched a strategic research initiative for identifying the location of their next headquarters which turned into a national competition by major U.S. cities. Unfortunately after announcing Queen’s Long Island City was the lucky pick, Amazon quickly abandoned plans due to lack of local support. Still, making the case that Amazon is not afraid of capital investment.
Despite their goal, deliveries are not fully independent and Amazon relies on UPS and USPS for roughly 50% of its last-mile operations. Amazon delivered less than 15% of their orders in 2017 proving they are moving in the right direction.
True to Amazon's vision of being earth's most customer-centric company, when traditional delivery methods just aren’t cutting it, Scout, Amazon’s autonomous delivery robot will get the job done.
Source: Business Insider Intelligence
Scout, Amazon’s autonomous delivery robot.
Walmart (Tii:WMT)
A later adapter, but adapter nonetheless, Walmart knows it is imperative to remain competitive in the e-commerce space. Their unique approach to delivering all one-day orders are initiated from one of six U.S. fulfillment centers. Walmart claims their research has shown it to be cheaper and more efficient than shipping product from their retail stores. Not all products are available for this service, but those that are qualify for free shipping with a $35 minimum purchase. Customers who can take advantage of next-day shipping, are geographically limited, but Walmart expects to reach 75% of the U.S. population with this service by year end. Walmart has implemented same-day delivery for a limited number of grocery and general merchandise, but this is also geographically limited.
In addition to cost saving via limiting the number of centralized distribution centers, Walmart favors next-day to two-day deliveries for the same reasons claiming they can consolidate all items ordered into one box instead of multiple, reducing costs.
Walmart has partnerships with FedEx, UPS, & USPS to deliver their e-commerce orders so for now, freight is their only in house road warrior.
Target (Tii:TGT)
Target is testing all methods of fulfilling e-commerce orders and the variety of options seem to be disconnected and overwhelming. However, the advantage Target has over Walmart or Amazon is their same-day delivery on groceries.
Quick on the draw, Target purchased Shipt in 2017 and has been expanding what consumers can order through this service to more and more general merchandise items. For next-day orders via their Restock program, Redcard users can access this complimentary service with a minimum order of $35, or a small fee of $2.99. Additionally, a variety of items qualify for free two-day shipping with a $35 minimum purchase.
Like Walmart, Target utilizes FedEx, UPS, & USPS for their next-day and two-day shipping needs, but of course, turns to their Shipt community for same-day delivery.
How are Shippers Keeping Up?
United Parcel Service (Tii:UPS)
UPS was early to embrace e-commerce shipments and has been heavily investing to upgrade its network ever since. They have also been spending billions to add capacity, modernize their sorting facilities, and move more packages by aircraft. UPS Express provides services such as Next-Day Business by delivery times of 8:00am, 10:30am, and 3:00pm. UPS Express Critical can ensure same-day service from light to heavyweight shipments around the world via transportation methods such as air, surface (ground), & hand carry.
UPS, which handles about 20% of Amazon’s U.S. packages, wants more business, however, this seems to be at odds with Amazon's goals. The worldwide shipper is also deepening ties with the U.S. Postal Service by tapping the USPS delivery fleet to help roll out home delivery on Sundays.
FedEx (Tii:FDX)
Is seems as though the classic shipping company hasn’t quite honed their competitive approach just yet. FedEx has been late to embrace where their industry is headed, being slow to build additional infrastructure to accommodate growing last-mile demand. With key customer turned competitor, FedEx stopped delivering nearly all Amazon packages in the U.S., letting contracts worth $900 million in annual revenue expire.
Instead, FedEx wants to be known as the shipping company who is aligned with Walmart, Target and other Amazon competitors. They also plan to bring to customers’ doorsteps many of the packages they currently drop at local post offices for last-mile delivery. Strategic plans include deliveries seven days a week starting in January.
U.S. Postal Service
Meanwhile, it seems as if USPS is just taking anything they can get as they have been under financial hardship for years. From the outside looking in, it's hard to see the problem when this government service has the lowest cost for last-mile service and already has the infrastructure to deliver to 159 million addresses daily. Some industry experts suggest they focus on their competitive strengths by using last-mile efficiencies to their advantage and only delivering packages that fit inside of a mailbox, leaving larger packages to FedEx & UPS.
To remain competitive (or maybe relevant) the U.S. Postal Service, has considered expanding package delivery to seven days a week. USPS currently delivers packages on Sundays for Amazon year round and for other shippers during the holidays. As mentioned above, USPS also services Walmart & Target.
Challenges
Aside from the efforts retailers and shippers are making to achieve faster, cheaper shipping, they still face many challenges.
Ultimately, shipping can be unreliable, especially under tight time constraints. Consider how many major weather disasters have impacted the country this year alone; all causing shipping consequences. Getting third-party carriers to agree to terms is a struggle because someone has to assume the risk of not meeting delivery deadlines.
Another challenge is that one-day shipping is often defined by when a shipment is received from the carrier, not from when the order is placed, laying a heavy burden on retailer stocking and efficiency.
Most of the mentioned companies have realized that success depends on infrastructure, and infrastructure is expensive.
The jury is still out: some claim one-day vs two-day may not make much of a difference in winning consumers, while same-day delivery is the only option that matters. Others make the case that the speed of delivery is relatively flexible as long as it's free. Time will tell where the true value lies.
Source: Business Insider Intelligence
Source: Business Insider Intelligence
The Future of Shipping
We’re by no means shipping or logistics experts here at TiiCKER, but it will be interesting to watch e-commerce deliveries evolve. While it is very convenient to regularly leverage online retailers, I’m going to predict an eventual structural change from the way we are currently meeting demand.
Ordering a single stack of post-it notes, packaged in a shoe-sized box, partially delivered by a driver who is paid per mile, across roads that our states can never seem to find enough money to maintain, with vehicles spewing emissions exacerbating the global warming crisis, shipped for free, “because I can” is not only wasteful, but unsustainable. Do we really need that toaster, planter, socks, or super glue tomorrow? Just because retailers can offer same-day, or even same-hour delivery, I feel we are going to struggle with the ethical, environmental, and economic impacts at some point in the future.