Online retailers are starting to handle their own shipping (FDX, UPS)
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The shipping industry is incredibly complex, but retailers are still diving head first into handling their own shipping.
Carriers are not doing an acceptable job of meeting demand, so retailers are deciding to take matter into their own hands. Consumers are shopping online more frequently, so more packages must be shipped. This has provided a significant boost to shipping companies, but they have struggled to deliver these packages on time.
FedEx had to deliver almost 15% more packages during the 2015 holiday season than the 2014 season, while UPS had to deliver 10% more. Peak shipping volume was so great during the 2015 holidays that UPS could only deliver 91% of packages on time the week before Christmas Day, while FedEx delivered 95%.
The problem for the retailers is that they bear the brunt of the blame from consumers, even though that anger should go toward the shipping companies.
Furthermore, poor customer service, which includes slow delivery, can affect a retailer's bottom line. In fact, 66% of consumers are willing to spend more money with a company that provides them stellar customer service, and 60% say they have chosen not to complete an intended purchase because of a poor customer service experience, according to Microsoft.
The parcel delivery industry — a segment of the shipping sector that deals with the transportation of packages to consumers — is booming thanks to e-commerce growth, and players outside the industry want a piece of the pie.
Cooper Smith, senior research analyst for BI Intelligence, Business Insider's premium research service, has compiled a detailed report on the future of shipping that looks at efforts by Amazon, Alibaba, and Walmart to handle more of their own shipping and concludes that big retailers are well positioned to disrupt the parcel industry.
Here are some of the key points from the report:
- Transportation and logistics could be the next billion dollar opportunity for e-commerce companies. The global shipping market, including ocean, air, and truck freight, is a $2.1 trillion market, according to World Bank, Boeing, and Golden Valley Co.
- There is much at stake for legacy shipping companies, which have seen a boom in parcel delivery as e-commerce spending has risen. Twenty different partners currently share the duties of shipping Amazon's 600 million packages a year, with FedEx, USPS, and UPS moving the most.
- Amazon, Alibaba, and Walmart have so far focused on building out their last-mile delivery and logistics services but are increasingly going after the middle- and first-mile of the shipping chain.
- Amazon has already made major moves across each stage of the shipping journey. It launched same-day delivery service, which it handles through its own fleet of carriers, cutting out any third-party shippers. The company also recently began establishing shipping routes between China and North America.
- Walmart's interest in expanding its transportation and logistics operations is almost purely related to cost-savings. It's begun leasing shipping containers to transport manufactured goods from China and is making greater use of lockers and in-store pickup options to cut down on delivery costs.
- Alibaba has begun leasing containers on ships, similar to Amazon's Dragon Boat initiative. This means that Alibaba Logistics can now facilitate first-mile shipping for third-party merchants on its marketplace.
In full, the report:
- Sizes the market for the shipping industry.
- Explains how the industry operates in broad terms.
- Suggests why major e-commerce retailers should disrupt the space.
- Outlines the shipping initiatives of Amazon, Walmart, and Alibaba.
- Concludes how these moves might impact traditional carriers.
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