Recent press suggests FedEx and UPS may be negatively impacted as Amazon and other retailers move operations closer to their customers. Although this may have some consequences for the small parcel providers, it is perhaps too early to determine how significant it will be. FedEx and UPS have introduced such services as SurePost and SmartPost as well as undertaking partnerships with retailers and couriers to test same-day delivery, delivery to alternative locations, the provision of reverse logistics solutions and other innovative solutions.
As retailers move closer to customers, transportation networks will alter as distribution networks incorporate ecommerce into the mix of goods which retailers sell. Currently, brick and mortar retailers are connecting their physical store-fronts with their online store fronts in order to compete against the likes of Amazon. The belief is that brick and mortar retailers will have a competitive advantage by offering pickup and return points in the store, along with home delivery or delivery to an alternative location.
One such example is Wal-Mart. While certainly one of the largest retailers in the world, it arrived at the ecommerce party late and, as a result, is racing to catch up and surpass Amazon. It has a long way to go. Amazon’s 2012 sales were $61bn, while Wal-Mart’s ecommerce sales were $7.7bn. Wal-Mart is now undertaking a metamorphosis of its logistics network to catch up.
This new strategy will involve a distribution network that shares inventory information between its 4,000 stores and 158 warehouses and to implement IT solutions that will determine the most efficient way to deliver goods. This “flow path optimization technology” as the company calls it, will determine the optimal fulfillment point for a specific order, SKU and geography which could be a traditional distribution center, an ecommerce distribution center or a local store. In turn, this will determine the transportation and delivery requirements.
It is estimated that two-thirds of the US population lives within five miles of a Walmart store. As such, it will be interesting to monitor the results of Wal-Marts’ ecommerce efforts. The company already allows for pick-up of online orders at its stores and is installing lockers as an additional way to pick up goods. Also, through a partnership with FedEx, customers can pick up online orders from 660 FedEx Office stores in the US. Wal-Mart is also testing same day delivery with UPS.
Clearly, there is no blueprint for brick and mortar retailers to compete in this new retail environment. Similarly, there is no blueprint for small-parcel providers either. Particularly, as rumors abound of new entrants in the delivery business. True, small parcel delivery is a significant chunk of what FedEx and UPS offer, however, both companies provide complete end-to-end supply chain solutions for retailers in which small parcel delivery is just a part.
While it is still unknown what the financial impact of retailers getting closer to customers may be for FedEx and UPS, one thing is for sure; both companies are working closely with their retail customers such as Wal-Mart and are testing new solutions to demonstrate their willingness to adapt to a new retail environment.