LOGISTICS MARKET STUDY
Logistics and the parcel delivery market
“No one in the space has given anyone any reason to care…In short, they all work.”
Logistics – Parcel delivery market study
Logistics, particularly as it relates to the consumer delivery business, is a two-horse race. FedEx and UPS duke it out, in effect, having a duopoly over an entire category. One might argue that the US Postal Service should be included in this group as well. But FedEx is one of the USPS’s biggest customers, co-opting its last mile delivery.
However, the industry is in a state of flux and all players, regardless of size, should take note.
The state of FedEx and UPS, the leaders of logistics
By all measurements, both FedEx and UPS continue to strengthen their market dominance. FedEx accounts for about $50 billion in revenue with UPS doing about $10 billion more. There are an ample number of customers to keep FedEx and UPS fat and happy for a while, especially with more and more consumers turning to online retail.
With that being said, what are these two saying about themselves to both preserve and attract new customers? First, let’s take a look at FedEx:
FedEx’s two main divisions, FedEx Express and FedEx Ground, are each on display here. FedEx is huge sponsor of the PGA and, during golf season, there are many ads like the first one. The ad touts the technology of FedEx Express with its app where you can reroute packages to a local FedEx store. As if that is more convenient.
The second touts the price savings FedEx Ground customers lord over UPS Ground. While price is a sensitive issue for most businesses that ship a lot of products, it’s difficult to believe that the price differences between FedEx and UPS are all that significant, if they really exist at all. Each is going to do what it can to keep or attract new business.
For UPS, it’s much of the same, ads trumpeting technology and cost savings. UPS played around with the idea of “What can Brown do for you,” which was a good segue into the idea of owning logistics. After all, isn’t what these delivery companies do, logistics?
But even now, UPS drops the “brown” theme, focusing instead of fast delivery. A table stake in the category of logistics.
No reason to choose
What is lacking is any real reason to choose. Like many categories, the major players try to outmaneuver each other by claiming the very attributes that all players in the industry, regardless of size, possess. In fact, they are the bare minimum that any player must own. How can you be in the shipping business if you are not price competitive or have the technology deliver packages quickly?
More over, both FedEx and UPS (especially UPS) tell their stories from the perspective of the consumers who are receiving the package. Do consumers have much of a choice as to who actually ships the packages? That decision is often based upon price and when the consumer actually wants the item delivered.
Most typically, customers don’t have a choice between FedEx and UPS. The entity shipping the package makes that choice.
Being basically a logistics duopoly affords both carriers the luxury of building larger and more sophisticated networks capable of delivering more shipments. All the while each tries to woo more businesses to choose it over the other.
FedEx and UPS brand meaning
The FedEx and UPS brands both accomplish the same thing – getting stuff from one place to another. The FedEx brand feels a bit more sophisticated and harkens back to one of its old messages. “When it absolutely, positively has to be there overnight” is ultimately about piece of mind.
UPS feels more like the hard-working blue-collar challenger even though it actually ships more often than FedEx and has greater revenues.
Neither brand has proven over time to be superior to the other. They both work well and neither has really given customers a compelling and unique reason to choose one over the other.
Regional logistics players are becoming more sophisticated and integrated
While FedEx and UPS continue to grow and optimize their networks, regional courier and LTL (less than a truckload) shippers are doing the same. Regional companies like Dicom (Eastern Connection), LaserShip, GSO, OnTrac and even Pitt Ohio once exclusively dealt within their own geographies. Now, those regional players are transporting parcels and freight that originate with another carrier. This model is not completely unlike the US Postal Service delivering packages the final mile for FedEx or UPS.
The regional advantage
Regional players can ship most things quicker and less expensively than UPS and FedEx. The caveat is that, in most cases, the package must originate and arrive in the same coverage area in order to get these benefits.
While these regional players present an alternative to the major players, they have a much more difficult climb. First, while they are known in certain circles and industries, what little awareness they have is limited to these niches. Their awareness pales in comparison to FedEx and UPS. Few actually choose them. Secondly, they all regurgitate FedEx and UPS sales messages – innovative technology and cost savings. Therefore, their awareness remains low because sporting the same messages as the market leaders means you get ignored. There’s simply no reason to notice you.
Regional logistics players can’t out FedEx FedEx
When these regional players and their associated national networks act like FedEx and UPS, the best they can hope for is to be viewed as an equal. But that’s not really the case. The market leader(s) remain the default choice in any category when the competitors are simply aping them. Retailers, for example, who play on price always lose to Walmart.
There is a unique advantage the regional players are not effectively exploiting. Each of these regional players should possess innate knowledge of their regional customers that is unique to the region in which they operate. The brand should always be from the perspective of the customer not the company itself. No regional player has positioned itself like that.
Local disruptors in the market
More companies are getting into the delivery business. Some with familiar names like Uber and others with not yet familiar names like Roadie. Using the same blueprint as Uber, these companies take a preexisting work force, drivers going from point a to point b, and pay them to move packages across town. (Or across the country, in the case of Roadie.)
None of these are being taken seriously as a competitor for traditional shoppers because they have not reached the needed critical mass. But the major players should take note, and they are.
While FedEx and UPS have an extensive driver and delivery network, they lack the driver density of the likes of Uber. Uber has the ability to pickup and deliver (on a local level) in real time, on-demand. Even the traditional bicycle courier can’t do that to the degree Uber or even Lyft can do it. FedEx and UPS can promise same-day delivery but Uber could be as close to instant as possible. That is, until we develop the coveted transporter.
A Major Development
Amazon is quickly ramping up its own delivery network. It recently unveiled its new 767 plane with the words “Prime Air” written across the side. Amazon claims having its own delivery network only augments its existing relationships with its current partners. But can Amazon be trusted?
The reality is that Amazon wants to own the entire supply chain. You don’t have to look much further than its expansion into private label products and cloud-based computing services to understand that. Amazon’s business is about getting stuff from one place to the other. Amazon doesn’t really make anything at all. Doesn’t that sound familiar?
The actual shipping part of delivering that stuff is expensive. It is good business for Amazon to control the costs of that. After all, it is by far the largest e-retailer in the US and is second in the world only to China’s massive Alibaba. As more consumers move to online shopping, Amazon becomes a stronger influencer on the entire logistics industry. (More than 220 million of Americans are expected to shop online in 2018.)
Replacing Amazon’s current delivery partners
Ultimately, Amazon does not want to augment anything with its current delivery partners. It wants to replace them. And quickly and quietly, it is developing its own network to be able to do so. Its grocery delivery and same day Amazon Prime deliveries are examples of this. Amazon trucks deliver products ordered through Amazon.
What’s more, the Amazon brand gives it permission to go down this road. In fact, its brand dictates the necessity for it to do so. But there is are two problems. First, severing the important relationships Amazon has with FedEx and particularly UPS could be problematic. Secondly, and more importantly, Amazon must convince other retailers to use it over FedEx or UPS.
The first issue is pretty cut and dried. Amazon will reach a point where it does not need FedEx or UPS except for special circumstances. At this point, Amazon will be all in with its delivery model and there will be no turning back. It’s doubtful that either FedEx or UPS would welcome Amazon back anyway.
The second is much more difficult. Once Amazon gets really good at delivering its own stuff, it will reach out to other retailers who need delivery services.
This will be a tough nut to crack. Retailers will likely be hesitant to partner with a competitor that could use the delivery information as a competitive advantage. Amazon’s success is in part because it knows what to do with data. Any additional data it can get on its competitors won’t just be sitting there without Amazon using it for its own competitive advantage.
There still is real brand opportunity in this space. The natural default for most shippers is either FedEx or UPS and you can throw in USPS in there too. The reason those choices are always the default choice is simple. No one in the space has given anyone any reason to care. Fast delivery and price are really the only two things that matter at the end of the day because no one has given customers a different reason to choose. Further, most, if not all of the players regardless of size, are reliable and cost competitive. Cheaper options might take a bit longer but packages still get there. In short, they all work.
If you think about it, how do you define the FedEx customer? How is the UPS customer any different than a FedEx one? Those are the definitions that make up a powerful brand built to create preference. The scary part for these delivery behemoths? Amazon already has that brand meaning in spades. If both fail to connect with customers emotionally, Amazon will come out ahead.