A Tsunami Running Through the US Home Delivery Industry?

You need to read the recent DC Velocity Article “Amazon plans revamp of U.S. shipping with mix of private fleet, regional carriers, USPS” by Mark Solomon. If this scenario plays out, the relatively stable home delivery industry is in for a big change over the next several years. We are going to see a challenge to the traditional norms and a lot of logistics delivery strategy segmentation for home delivery in an effort to drive service levels up while maintaining cost levels. Interestingly, the UK is undergoing a similar transition. Now is the time to take a good look at your delivery strategies for the next 5 years because the home delivery game is changing.

Here are some of the takeaways you need to keep in mind.

Micro versus macro economy of scale. The macro economy of scale view is that UPS and Fedex have breadth and depth in their networks that make them the natural choices for nationwide distribution. What is being proposed by Amazon is essentially a micro economy of scale perspective. They see the opportunity to operate as their own delivery service in the top 40 markets where they believe their delivery “scale” is competitive with the big players. The rest of the country gets handled by commercial carriers.

Omni-modal distribution. I wrote about this in my “Logistics Excellence Predictions in 2014” post in December. The whole idea of Omni-modal distribution is that the traditional product/delivery segmentation mode segmentation approaches will give way to planning and execution ACROSS the modes to drive up service levels and drive down costs. Amazon will leverage its food delivery network for delivery of non-food items. This creates further economy of scale as is tough for commercial carriers to emulate.

Rebirth of the regional courier. Traditionally, the regional courier market has been littered with poorly run and under-capitalized companies. This is changing as venture capital firms have been rolling up this market. Online sales continues to grow aggressively and there is a general belief that home delivery will grow at an aggressive rate, providing opportunities for reinvented regional couriers to also grow quickly and capture market share. Other leading retailers besides Amazon are considering taking advantage of this market change.

Different markets, different service levels. Don’t believe all of the hype around same-day/next-day - at least not on a nationwide basis. It doesn’t make good business sense and is fairly easy to deduce from the DC Velocity article that Amazon will have different delivery strategies and service levels based upon population density.

Private/dedicated fleet is back. After years of shedding of fleets because of costs and balance sheet issues, it’s time to rethink fleet. High levels of logistics service come with a high degree of integration and control. For those markets that have extremely tight time windows, dynamic delivery and same/next day delivery expectations, commercial carriers are not as good of a fit.

Home delivery capacity finally “hit the wall” last year and will be stretched for the next 5 years. I believe that Amazon has come to a similar conclusion and is taking some bold steps to change the home delivery game. From conversations with other large online retailers, they are drawing the same conclusions. Challenges always present opportunities. How is your home delivery strategy changing? Let me know.