We think it is relevant, even at this early stage at the commencement of 2018, so close to the 2017 holiday season, to note that the e-commerce explosion will continue in full force and will in the natural course of events bring transportation intermediaries more into the 3PL space in the delivery of fulfillment services. This is inevitable for those who intend to survive and grow. Larger multinationals are already substantially involved. However, it is especially important for small and mid-sized intermediaries to recognize that they must embrace digitalization in their industry even more so than they currently do in order to compete in this environment. The current view is that small and mid-sized intermediaries can survive and thrive in this new competitive zone.
The future of E-commerce. The extended and most recent seasonal experiences dictate that this is an area that intermediaries cannot easily overlook. The numbers are too compelling, and the phenomena involves the large scale movement, storage and distribution of cargo across international borders and domestically, which is the traditional arena for the forwarder, NVOCC, Customs Broker, Indirect Air Carriers, and other intermediary entities. These numbers should not be overlooked:
- Per the U.S. Department of Commerce, U.S. purchasers buy at the pace of $1.2 billion a day online;
- This number has doubled in the last five years;
- It is projected to double again in the next five (we think that this projection may be too conservative);
- During this last (2017) Black Friday/Thanksgiving Day $7.9 billion worth of goods were sold via e-commerce;
- Alibaba Global “Singles Day” Sales (2017), which is a day selected by them for special sales events, reached $25 billion in e-commerce sales for that day;
- The Industry has forecast $107.4 billion in holiday sales for online orders this year, making 2017 the first to reach the $100 billion mark.
The value of these numbers is not just the raw dollar data, but rather the fact that these numbers represent the movement of substantial quantities of cargo which normally would be handled through more traditional channels which are now moving and being handled through a growing number of fulfillment centers. These fulfillment centers here and abroad are being developed not only by Amazon and large multi-national logistics companies, but also by smaller and mid-sized companies, many of which are now providing 3PL services. These are companies that previously were solely acting as ocean, air intermediaries, and Customs brokers. There are also a large number of 3PLs which are relative newcomers to the field specializing as fulfillment center service providers which do not come from the forwarder/broker ranks, but are IT proficient. In view of these dramatic shifts our firm has developed expertise in negotiating realistic fulfillment agreements by having in depth knowledge of the needs of both the logistics 3PL companies which operate fulfillment centers as well as the retailers for whom they provide these services.
The Warehousing Upsurge. E-commerce has also put a premium on strategically located domestic and global warehousing distribution operations, thereby, explaining the current explosion on purchasing and leasing of warehouses that our firm is experiencing on behalf of its clients. This new environment also puts a large premium on service efficiencies and cost-consciousness. Our firm, which traditionally provides services to larger intermediaries in this arena, is now also providing these same or similar services to many mid-sized and smaller entities which are also now engaging in this relatively new field of fulfillment services. Warehousing negotiations can employ different strategies depending on whether the operations are intended for a dedicated use by a single customer, usually a large retail company, or for multiple users.
Last Mile Solutions. The last mile delivery functions are also becoming more and more varied, creative and competitive with a focus on same day deliveries. In fact, large retailers, in competition with Amazon and others are now in the process of acquiring these companies which complement their retail footprint. The most recent significant acquisition being reported in the financial press is that of XPO Logistics being possibly acquired by Home Depot. XPO Logistics is a recognized major player in the “last mile” delivery services of large packages, in addition to being a player in the traditional forwarder, NVOCC, Customs broker arena. It is in the midst of increasing its last mile hub capacities from forty something locations to 85 by the end of 2018 which will place it in a position to service over 90% of the U.S. population. In the small package arena, in addition to the traditional small package air couriers, FedEx, UPS, DHL, the U.S. Postal Service (USPS) plays a vital role in last mile delivery. USPS has a facility for this service since delivery to all locations in the U.S. is merely an incremental cost to services they are already providing. Sunday deliveries are now routinely performed by USPS in view of e-commerce demands.
Integrated IT Requirements. Tech companies are also fast developing software platforms that address the integration of order and inventory management, shipping delivery platforms and customer transparency, all important components for fulfillment service centers. These Tech companies are increasingly becoming necessary resources to retailers that are expanding their e-commerce capabilities to ensure a seamless exchange and tracking of data with their intermediaries, including 3PLs. The use of a holistic software package is becoming an essential component for e-commerce enterprises in the integration of the order management functions, with the inventory, delivery and customer transparency functions as the pool of players and service providers becomes more diverse. Our firm has substantial experience in protecting our clients’ interests, whether it is a software company, retailer, intermediary, or other member of the supply chain, in providing advice relating to, and negotiating terms of, software licenses and other technology or data usage agreements related to e-commerce activities.
The Digital Advantage. In Logistics Management’s article , dated August 29, 2017, “Top 25 Freight Forwarders 2017: Digitization & E-Commerce Continue to Reshape the Marketplace”, citing the new “Global Freight Forwarding 2017 Report” compiled by the London-based think tank Transport Intelligence (Ti), they relate that Cathy Morrow Roberson, President of Ti, “. . . maintains that the advent of non-traditional players riding the wave of e-commerce growth—such as Amazon, Alibaba, and the many new tech-based startups—are changing the face of forwarding.” Cathy Morrow Roberson further states that “[a] big plus for digitization is that it levels the playing field for small- to medium-size forwarders as well as the larger ones.” We agree.
In any case, if you are already in the fulfillment service space, or intend to become involved in that endeavor, whether a multi-national or a small or mid-sized logistics company, keep an eye on developments in this arena so that your company can take appropriate steps in this competitive space which is only growing. Keep an eye on Amazon and other sizable companies in this industry! Watch your competition whether multi-nationals or small and mid-sized competitors, and especially, watch customer experience (CX) since this is a driving force in this industry. It is a consumer customer driven industry which will continue to dictate the scene. Lastly, as a technology based industry, changes at a fast clip are inevitable, and companies need to stay abreast of these changes to remain competitive. For more information contact Carlos Rodriguez