Parcel Forum 2019 and the Negative Flywheel of eCommerce

Ravi Shanker of Morgan Stanley on Impact of Amazon Logistics

Sometimes you're lucky enough to ride a big wave.

That was perhaps my most immediate thought as I returned from a couple of days at the Parcel Forum this week in Dallas.

This was the 17th edition of the event, first launched in 2003. I believe I have been to this event only once, not long after that inaugural year, where there were a fairly small number of attendees, probably a mix of catalog companies and those in the then dominant parcel area of B2B shipping. eCom was just really emerging.

Gilmore Says.... Shanker said between air cargo planes delivered, on order, or as options to existing orders, Amazon would have about 60-70% of USP current air capacity. What do you say? Click here to send us your comments

Now here in 2019, ecommerce has sent the parcel world on fire with the volumes, the costs, delivery expectations and more.

There were by my very rough count a solid 800+ attendees, and 117 trade show exhibitors, with 31 new vendors on the floor.

It's almost always better to be lucky than good, but this year's Parcel Forum was pretty good too.

I will also note that while I know a number of them, I had no idea there were so many companies in the parcel shipping software business. You have lots of choices, from well-known names to many companies you are unlikely to have heard of.

There were a number of solid breakout sessions, based on my own experience and the available choices, though mixed in that were a number of vendor-oriented sessions.

But I am going to start my report on the Tuesday keynote session from well-known Morgan Stanley analyst Ravi Shanker, who follows FedEx and UPS for the firm, on the topic of the impact of Amazon's growing logistics might.

It was an excellent session that nicely summarized all the dynamics, though I am happy to say Shanker didn't cover a whole lot that SCDigest has not reported on in some detail.

I think it has been out for some time, but I had not heard Shanker's concept of the "Negative Flywheel of ecommerce."

It captures the current dynamic in an Amazon-led world where for many shippers and by extension the parcel carriers, the sad reality is that consumers now expect free delivery. And this is unlikely to change, especially for millennials, who unlike we more seasoned consumers can't really remember how it worked before Amazon Prime.

I often note in my own presentations remembering when shipping use to be a profit center.

But the negative flywheel is also driven by expectations, again of course led by Amazon, for ever faster delivery cycles.

Combine free shipping with ever faster delivery, and no one can make any money. And that of course includes Amazon, which though recently achieving some overall profitability, about all that is coming from its AWS web services and paid advertising businesses, not core ecommerce.

I liked this: Shanker noted that not all that long ago, you could get 4-5 day shipping for free, and pay for 2-day. Then 2-day became free, and you paid for 1-day. Now one day is becoming free and you pay for same day. And probably before long, that will be free to and is already in some cases.

Of course we all know it isn't really free, but what's the point of that anymore? Well, maybe because Shanker said the path being driven by the flywheel "is unsustainable" financially.

But we could have said that five years ago, and here we are today. And we'll probably say it still five years hence.

Shanker said most retailers are continuing to offer free shipping and investing in more rapid deliveries "hoping they can hold out longer than the competition," at which point maybe things change.

I will just say I don't think Amazon is going away any time soon.

There was some discussion in the QA about how often same day or next day shipping is really required. And on a surface level probably rarely, such as when the power cord on my laptop failed.

But I don't think that really matters in the end. I may not need next day, but it's still better than 2-day. And most all of us are being conditioned.

As you would expect, Shanker's presentation was full of interesting facts and figures.

For example, in Q3, UPS's ecommerce parcel volumes exceeded its B2B numbers for the first time outside a peak season quarter.

But what really surprised me in that chart was the fact that UPS B2B volumes have basically flatlined in recent years, and in fact are down a bit from 2008 levels.

Why is that? Shanker wasn't completely sure, but speculated - I think correctly - the answer in part is parcels that normally went to a store or other business are now going direct to consumer.

Shanker also used numbers to support his position that he has no doubt Amazon will at some point release its own external parcel capability. When he asked the audience how many of them had been approached by Amazon for parcel shipping business, a significant number of attendees put a hand in the air.

Just look at the facts. Amazon has already placed an order for 20,000 Amazon branded delivery vans, which will be leased by its relatively new Delivery Service Partner (DSP) program, where entrepreneurs build local delivery businesses with Amazon's help.

But more amazing, Amazon has ordered an incredible 100,000 all electric trucks from a company called Revian - though the trucks don't really exist yet - for delivery from 2021 through 2024.

So add 20,000 and 100,000, and you get 120,000 vehicles.

Shanker said UPS has about 123,000 trucks, including long haul tractors. And of course, Amazon is moving there too, with photos taken in recent weeks of Amazon branded heavy duty trucks in the lots of a couple of OEMs.

What about air? Shenkar said between air cargo planes delivered, on order, or as options to existing orders, Amazon would have about 60-70% of USP current air capacity.

Amazon is spending $1.5 billion in Q4 alone to build out its new free next day Prime delivery service. Shenkar also said Amazon right now can deliver a package from China to a US customer's front door with its own capabilities, though to be clear that would involve planes and ships owned by others but managed by Amazon as a licensed global freight forwarder.

What is a company to do? Shenkar said there is some hope for retailers able to leverage their own stores for fulfillment.

I sort of agree, but many etailers have no stores, while Amazon's FC footprint is more formidable than many retailers' store networks. And Amazon is hardly done.

So I say a "negative flywheel" indeed.

There was a lot more of course at the conference, including an interesting presentation on the new model of "Unified Commerce" from Gartner's Bart Demuynck and a good session on the growing divergence between UPS and FedEx in terms of pricing strategies from enVista's Mark Taylor that I hope to get to in a few weeks.

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