The figures are nothing short of staggering.
E-commerce sales in the United States totaled $453.5 billion in 2017, an increase of 16% from just one year earlier, the Census Bureau reported. That included a record $6.5 billion in sales during “Cyber Monday” alone and an overall gain of 17% for the entire holiday shopping season, according to data from Adobe Systems Inc.
“The peak e-commerce season is stretching the limits of the nation’s freight and package-handling capabilities,” research firm Stifel Financial Corp. wrote in a note to investors.
As consumers become more accustomed to faster deliveries, carriers and shippers are being forced to develop a more time-definite supply chain. It is creating a race to conquer the “last-mile” space, with parcel carriers, traditional fleets, and startups seeking the most efficient ways to deliver small packages as well as oversized and irregularly shaped goods directly to consumer’s homes.
During a recent Fleet Owner webinar, Al Hemmelgarn, director of operations for wholesale distributor Pollock, said e-commerce “pushes our customers into an entirely different type of distribution.”
Rather than large shipments, a shift to delivering thousands of smaller packages requires greater use of warehouse automation, and smarter packaging technology to ensure accuracy and avoid damages.
Amazon.com remains the company most often cited as fueling the e-commerce boom, leading to changes throughout the freight transportation network.
“It is becoming increasingly clear that Amazon’s lead over the traditional retailer is only growing,” Evercore analyst Anthony DiClemente wrote in a report. “This lead is likely to take on greater importance as billions of e-commerce dollars come up for grabs in the coming years from greater penetration of [fast-moving consumer goods] categories.”
Amazon continues to purchase trailers and airplanes, and it has spent billions on warehouses and related projects. The company also is expanding use of drop-off lockers at locations such as Whole Foods, which Amazon purchased in 2017.
Despite these steps, Amazon’s fulfillment expenses—the cost of storing, packing, and shipping goods—rose in 2017 to $25 billion. As a result, it has reportedly considered raising fees for suppliers of bulky products that are expensive to ship, and making it more difficult to buy small orders of inexpensive items that are difficult to sell profitably unless they’re part of a larger purchase.
Stifel Financial said that Amazon will bring more transportation operations in-house in the future, but U.S. Postal Service, FedEx, and UPS will remain significant service providers.
Another player in the space is Deutsche Post AG’s DHL, which announced in March it was launching a delivery service for online retailers in eight major U.S. cities. DHL Parcel Metro service will make same-day or next-day deliveries from retailers and fulfillment centers directly.
Parcel Metro uses third-party contract couriers and app-based driver pools to pick up products. It offers delivery windows ranging from two hours to same-day and next day, and could add a Saturday delivery option, the company said.
Cowen & Co analyst Helane Becker hinted Amazon may be working with DHL, noting its U.S. hub is in Cincinnati, the same location where Amazon is building an air hub.
The nation’s largest parcel carrier, UPS, said it delivered 750 million packages between Thanksgiving and New Year’s Eve, an increase of nearly 40 million from a year earlier; however, network bottlenecks that delayed some deliveries during the holiday season cost about $125 million. The company said it plans to invest millions to modernize its network to better handle e-commerce shipments. It is also among the growing number of companies testing drones and other alternative methods for final mile delivery.
FedEx said it continues to see an acceleration of online orders for large items like furniture and exercise equipment moving to the FedEx Ground network. It has more than 10,000 locations, including FedEx offices and retailers such as Walgreens where customers can pick up and drop off packages.
“We are pleased with how the retail network performed [during the peak season] and expect this extensive convenience network to be a key part of e-commerce deliveries in the future,” said Raj Subramaniam, executive vice president of global strategy, marketing, and communications at FedEx.
In late March, FedEx announced the $130 million acquisition of United Kingdom-based e-commerce firm P2P Mailing Limited. “By adding P2P to the FedEx portfolio, we will be able to effectively serve even more elements of the e-commerce market,” Carl Asmus, FedEx Cross Border chief, said.
As e-commerce sales soars, the company’s freight unit is stepping up purchases of 24-ft. straight trucks with lifts as more shipments are delivered to residential neighborhoods.
Mike Spence, senior vice president of fleet services for Fleet Advantage, has noticed some shift in truck-buying patterns. “Many more companies are starting up to handle these shipments, as well as incumbents adding to their fleets to handle the additional business,” he said.
This is helping boost Class 5-7 truck sales, as more companies focus on final mile deliveries, he explained.
XPO Logistics has a large fleet for the delivery of heavy goods and makes 12 million deliveries through its last-mile network annually. CEO Brad Jacobs said e-commerce is the company’s biggest growth driver and makes up 29% of total revenue. XPO plans to open 30 new hubs in its North American network by the end of this year, bringing its total to 85.
At LTL carrier ABF Freight, residential deliveries represent about 15% of overall business, but soared 40% year-over-year in the first quarter of 2018.
Truckload carriers are also expanding as operations gain a larger e-commerce slice. Werner Enterprises last year launched a “white-glove” service that uses uniformed team drivers to deliver large or heavy items to homes and businesses using straight trucks equipped with liftgates. Schneider acquired Watkins & Shepard and Lodeso to expand its services into last mile delivery, while J.B. Hunt Transport Services purchased Special Logistics Dedicated.
“This acquisition will also allow our customers to deploy ‘big and bulky’ inventories into key markets, improving order fulfillment times for final mile deliveries and further enhancing our e-commerce delivery capabilities,” John Roberts, president and CEO of J.B. Hunt, said.
Traditional retailers, including those with sizable private truck fleets, are tailoring operations to e-commerce needs.
Walmart has made several acquisitions, including Jet.com and logistics startup Parcel. Though its online sales have continued to rise, the growth pace has slowed, leading Walmart to announce a plan to repurpose 10 Sam’s Club locations as e-commerce distribution centers.
Similarly, Target Corp. purchased grocery-delivery startup Shipt Inc. for $550 million to accelerate the rollout of same-day shipping. That deal followed the acquisition of software firm Grand Junction, which manages local and same-day deliveries.
“With Shipt’s network of local shoppers and their market penetration, we will move from days to hours, accelerating our ability to bring affordable same-day delivery across the country,” John Mulligan, chief operating officer of Target, said.
Shipt serves about 20,000 customers through partnerships with retailers including Publix, HEB Grocery Co., Kroger and Costco.
Meanwhile, this year Walmart has begun scaling back a plan that forced trucking fleets to meet specific delivery requirements or face a 3% off-invoice penalty.
Some carriers raised concerns about being penalized for delays on the supplier’s end, or passing the off-invoice charge to the shipper.
Walmart has begun testing a program to automate scheduling delivery appointments to distribution centers in the ongoing effort to ensure its supply chain remains nimble enough to meet customer’s expectations.
This article is part of a series on e-commerce originally published in Fleet Owner's May 2018 print edition.