The following Supply Chain Matters blog continues our deep-dives into our 2018 Predictions of Industry and Global Supply Chains.  This prediction has had special significance with ongoing developments already occurring in 2018.

For the fourth consecutive year, we were compelled to include a prediction related to global transportation and logistics industry capabilities and their changing industry dynamics impacts on multi-industry industry supply chains and parcel and freight recipients. The reasons are again obvious, namely that immutable multi-industry digital commerce adoption trends, especially in consumer retail and B2B commerce sectors continue to drive both explosive growth in transportation and customer fulfillment logistics and real-estate needs, but at the same time, fuel more rapid forces for industry transformation or consolidation. 2018 predictions

Consumers continue to demand multiple forms of online buying experiences and parcel logistics and transportation is now the lifeblood of completing the retail experience according to customer requirements. The open question remains whether such trends operationally and financially benefit customers, shippers and industry supply chains, or individual carriers, services providers or private equity firms looking to cash-in on the unstoppable march to online.

Because of such forces, we predict continuous developments and announcements in this sector, including new strategic alliances, mergers, added acquisitions and some fallout. Some of these announcements could be significant and far reaching like Amazon’s prior strategic move to institute expanded global transportation and customer fulfillment logistics capabilities.

Background

Two years ago, many would not have predicted that Amazon would become a significant transportation and last-mile logistics and customer fulfillment provider in 2018, and yet that is now reality.  Like Amazon Web Services (AWS) providing an on-demand IT and computing services utility for a diverse collection of customers, Fulfilled by Amazon as well as Amazon Prime are now providers of inventory management, online buying platform, parcel transportation and last-mile fulfillment for goods producers and online retail customers. The same could be stated for China based Alibaba, which owns its own logistics and transportation network capabilities across China and other Asian countries.  Each has become an alternative provider to a DHL, FedEx, or UPS.

As more varieties and sizes of products continue to be offered as an online buying option, specialty white glove logistics and transportation providers have been able to launch new business models to service such needs while competing with traditional global parcel carriers.

Cascading various tiers of respective industry supply chains, ocean container industry leader Maersk Line is in the process of expanding ocean shipping to broader inland logistics and services capabilities.

Likewise, large trucking firms have expanded in specialty services for supporting goods producer needs to support multi-channel online fulfillment. Now, a critical shortage of trucking capacity across the United States, coupled with some positive effects of recently legislated U.S. corporate tax reform, has fueled additional M&A activity.

All such industry movements blur the lines of demarcation.

At the same time businesses remain under intense pressure to protect core product design and management capabilities but seek opportunities to outsource product vale-chains to more specialized services providers including integrated logistics and transportation service providers. Similar to many other industry trends, physical, technology and services network scale and customer leverage has become the corner stone for long-term growth for revenues and profits.

Competing or Converging Networks

Our prediction is that 2018 will the year where major parcel transportation and customer logistics networks step-up their competition for the mindshare and broader influence of larger numbers of online customers or online platform providers.

Up to now, global services providers like DHL, FedEx and UPS have utilized annual rate hikes and added surcharges to meet objectives for both the need for adding more network scale while managing stockholder expectations for more timely returns on their investments and on the growth prospects of the online economy.  That strategy is wearing thin, especially when considering the hundreds of millions of dollars required to sustain and grow such networks and the supporting advanced technology. Added investments in capacity, automation and soon, autonomous transport vehicles including drones, add to the capital investment burden.

The Cusp of Virtual Uber of Networks

Consider today’s analogy of shared rides, where vehicles labeled as branded as Uber Didi Chuxing, Lyft, MyTaxi, BlaBla Car and others, traverse urban streets waiting for online engagement. Consider the notions of a shared network resource, where technology engages the closest available car service, along with choices in total ride cost.

These scenarios now begin to apply to logistics fulfillment platforms with branded names. Consider online customers being offered choices such as same-day or next-hour virtual courier, FedEx, UPS, national postal carrier, each with a cost and service bid offered to the customer. Consider existing online retailer platforms offering the same choices but with owned or contracted carriers.

2018 Takeaways and Trends to Focus On

The takeaway is that 2018 will present additional actions by major logistics and transportation network providers to achieve such scale and influence. That will likely include added strategic alignment of networks, more and larger merger and acquisition announcements in various notions of scale, including larger scale.

Some specialty logistics third-party services and transportation providers will come to the realization that investment is best served by either becoming an extension of a large existing online retailer, or being acquired by such retailers, particularly for specialized logistics services. One example came in December 2017 with the announcement from Target that it would acquire grocery delivery start-up Shipt, a direct competitor to Instacart, for $550 million. Plans call for Shipt to operate as a business subsidiary, and maintain partnerships with existing grocery retailers, an implication that Target seeks to both utilize and grow the online delivery platform. That development has been followed-up with recent published reports indicating that Target and large grocery retailer Kroger were in talks to both utilize Shipt as a means to compete with industry rivals on online order speed.

We would not at all be surprised that integrated online and in-store retailer Walmart partners for shared logistics services for customers, or acquires added last-mile customer fulfillment capabilities, or offers its own premium logistics fulfillment capabilities for online customers.

Further, as Amazon continues with the integration of food retailer Whole Foods as an integral part of its fresh foods retailing strategy, we would not be surprised if a major food broker and distributor United Natural Foods (UNFI) becomes an exclusive partner to Amazon for expanded downstream acquisition and distribution for fresh food products.

In short, 2018 will be the year that features physical or virtual scaling of online logistics fulfillment networks among multiple retail, grocery, and other product and services categories, accomplished by large money flows or technology investments. The open question remains as to which online consumers, providers or existing transportation and logistics platform providers benefit the most in the coming months.

Supply chain logistics and customer fulfillment teams will therefore need to be watchful, diligent, and patient in 2018 as market forces shake-out efforts toward achieving domestic and global scale.

That stated, transportation procurement teams should remain aggressive in rate and surcharge negotiations, reinforcing that enough is enough and that parcel logistics and transportation carriers need to turn to other funding sources for added scale. In the U.S., the current explosion of higher freight rates has become a rather significant challenge for transportation budgets.

 

Bob Ferrari

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