How will the continued growth of e-commerce impact our industry? How will local providers cope with the Amazon Effect? How do providers know when a new opportunity is right for them?
These are the kinds of questions tackled by a panel of industry leaders at the CLDA Annual Meeting. They polished up their crystal balls for a sneak peek at our industry’s future and found good news.
Led by moderator Chris MacKrell of Custom Courier Solutions, the panel included: Jim Berluti, VP Sales, US, Dicom and Founder/CEO Eastern Connection; Steve Wilson, E-commerce Analyst at Tompkins International; and Brian Surber, Priority Dispatch, VP Operations.
MacKrell: No one can look into the future of this industry without talking about the impact of e-commerce. Talk about that.
Wilson: Nobody’s going to go back to the brick and mortar model of retailing, and that’s good news for those of us in the transportation industry. The package delivery numbers generated by e-commerce are incredible. The volume will force us to consider new financial models and to ultimately confront the need to build fulfillment centers to support e-commerce. We know Amazon and other online retailers understand the compelling need for local inventory. They know they need to keep up with customer expectations (yes, they, too, are wrestling with the Amazon Effect). And they understand that they will need fulfillment centers near their customers to lower their delivery costs and make same-day feasible. They are already doing that. But here’s the opportunity for the rest of us right now: those fulfillment centers haven’t all been built, so they can be located where they make the most sense: in and near local markets. Amazon has already begun that process in larger markets, but they won’t get to the smaller ones for a while. There’s a window of opportunity for local and regional delivery companies.
Amazon is also selectively in-sourcing parts of their supply chain. They are shipping directly to some of your hubs. They are inducting into the postal system. They are doing deliveries of food through Amazon Fresh and offering one and two-hour deliveries through Amazon Flex. Right now, that means they are giving you more business to meet those needs, but what does the future hold? They are buying their own planes and tractor trailers. They think they can do it better and cheaper than you in the future. If they think they can do it, they will do it. Consider how that will impact your value proposition. What will you do in the face of that competition? How will you adapt? What will you offer that they can’t or won’t?
Amazon’s concepts aren’t new. Some logistics service providers have eight or ten fulfillment centers and can lower the cost of delivery by being closer to the markets. But here’s the good news for you: retailers are beginning to understand that they have to take drastic action in the face of Amazon’s continued rise. And they will need to work with last-mile delivery companies to do that. With the help of third-party providers like you, retailers will engage in fulfillment-sharing and pooling business models with local delivery. YOU are the key to helping them store and quickly deliver more volume to their local delivery markets.
MacKrell: How does a carrier decide whether these and other business opportunities are right for them?
Surber: Right now demand exceeds supply in our space, and I forecast that trend will continue for the near term. However, not all business is good business for every provider. So, how do you guide yourself? What acts as your compass to ensure you create a mutually beneficial relationship with the shipper? It’s taking the time to reflect and create a strategy that’s founded on the motto “Know thyself.” Look, this space is confusing by default. The last-mile space acts as a liaison to a variety of transportation genres. You need to gain clarity on your core competencies. You’re going to have to understand what niche in this industry is your strength. Review your revenue stream. Break it out by service verticals. What drives your profitability? What’s next? Where will you grow based upon the results of your review and what the market is telling you? Be absolutely intense and disciplined on direction once defined. Let your strategy guide you.
Berluti: I agree with Brian. When I was the CEO of Eastern Connection, I knew we had to continually reinvent ourselves. At one time, we focused our attention on the B-to-B end of our business. But when we looked at revenue per stop, it turned out B-to-C was actually more productive due to the focus on the medical home delivery market segment. For us, that was where the opportunities were. The Affordable Care Act presented us with one of them. The numbers were staggering: 10,000 people per day will be turning 65 for the next 15 years. And the Affordable Care Act is designed to have patients cared for at home. That opportunity was right in front of us. We were already doing home delivery of medical products. So we asked ourselves, “What can we do to add value to those deliveries? “ So we began offering to set up the equipment and show people how to use it. That business was very good for us. It was recurring and included multiple stops.
That “Know Thyself” motto guided us when we looked for ways to grow our business and was the reason we welcomed the acquisition by Dicom. What they brought to the party was expertise and support so that helped us build up our facilities to make them into distribution centers. As Brian mentioned, it’s allowed us to offer pool distribution to retailers. You have to know yourself and where you can make money. There’s so much out there and it’s so dynamic that it’s hard to figure out.
MacKrell: What are the long-term implications for this industry from what Alibaba’s doing? Do you think it will affect the supply chain in this country?
Wilson: The world is a small place. We can learn from China. There’s a lot of innovation coming from Asia. There’s no question that Alibaba is a model retailers will need to respond to. Amazon could respond or Alibaba could come over here and play a leadership role. I think it’s important that we understand how they evolved. It was never in Alibaba’s plans to do deliveries. They wanted to remain a marketplace and leave the delivery assets to others. But the logistics infrastructure wasn’t keeping up. They didn’t have the technology infrastructure that tied together logistics providers and warehouses. They saw a void and they felt they had to create something to fill it. Someone’s going to see that opportunity and do something similar here in the US.
MacKrell: I want to talk about something else that’s top of mind for shippers and carriers — the current low pricing of fuel. Is this a positive or a negative?
Surber: Strangely enough, the answer is “both.” You have to look closely at what’s melded into your base rate. It’s much cleaner for all parties involved to keep surcharges, of any nature, separate from base rates. If you have transparency, it’s much easier to talk to your clients about their rate structure. You can educate them about what you’re up against. A shipper could say, “I need a reverse fuel surcharge since gas prices have gone down.” You need to know if that’s possible. You need to be able to draw a line between your base rate and your other charges so you know the role fuel costs play in that rate. If you’re fortunate enough to have started relationships when fuel was $4 a gallon and your fuel charges were baked into that rate, then you need to celebrate this scenario with your contract partners. Not doing so creates an unsustainable reality. When fuel prices bounce back, expectations will exceed what the market can bear. It’s important to “normalize” expectations now.
MacKrell: Jim, Eastern Connection recently joined the trend towards taking advantage of cross-border opportunities by becoming part of Dicom. Tell us how this gives us a look into the future of our industry.
Berluti: We believe there are big opportunities for cross-border shipments as a result of the acquisition and now being part of the Dicom Transportation Group. Eastern Connection’s location was an asset here, as it’s on the border of Quebec. It was in a perfect position to take advantage of the growing potential of cross-border trade between the Northeast and Canada. I believe those opportunities will attract other companies that are looking for ways to drive up yield and increase profitability.
MacKrell: Speaking of acquisitions, I’d like to talk about the influx of interest by private equity firms in this sector. What are your thought on that? Is it positive or negative?
Surber: It’s an opportunity for all of us. However, a direct relationship with a VC may not be for everyone. Take a look at your strategy, value proposition, and succession plan. What are your ultimate goals? Is it to cash out and move on? Or to build a business that you and your family will keep for generations? Priority is a family business. We like steady sustainable growth for the long-run. For us, being too opportunistic means watering down our value proposition. We’re not interested in doing that.
This is still a cottage industry. VC capitol is good for it. Companies that take advantage of those opportunities are paving the way for everyone in our industry. Many of the entities are being acquired by the same firms and creating regional networks through these synergies. Shippers realize that we offer a true alternative to the “duopoly.” Supply exceeds demand and these regional carriers are reaching out to us. Who better to partner with than a room full of proven entrepreneurs in the last mile space? We are doers. VCs love that.
In a market in which demand exceeds supply, there exists a wealth of opportunity. Like everything else that’s coming over the horizon, it’s going to be a matter of picking the right course, the right partners, and the business model that’s right for you.
Andrea Obston is the Director of Public Relations, CLDA. She can be reached at AObston@aomc.com.