The pandemic accelerated e-commerce and served as an alternative to closed stores and a way for consumers to avoid the COVID virus. The impact on parcels and the last mile was immense, resulting in record business-to-consumer (B2C) volumes, shortages in last-mile carrier capacity, delivery delays, and higher surcharges to manage the accelerated demand.
As a percentage of total retail sales, e-commerce reached a high of 16% to a seasonally adjusted $211.5 billion for the second quarter of 2020. Since then, e-commerce has settled at 14.3%, but higher sales, seasonally adjusted, at $231.4 billion as of the first quarter of 2022.
As the pandemic eased, consumers returned to stores, and as a result, many retailers such as Macy’s and Walmart noted slowing year-over-year e-commerce sales during the first quarter of this year. This caused many industry observers to question if e-commerce was normalizing after two years of crazy growth.
However, the normalization of e-commerce today is much higher than in the pre-pandemic first quarter of 2019, when it was $137.7 billion.
FedEx and UPS Response
Much of this e-commerce growth is due to omnichannel investments that retailers have made. According to FedEx analysis presented during the company’s investors’ meeting on June 29, omnichannel represents about 60% of the market, and the remaining 40% is Amazon and other e-commerce pure-plays.
FedEx is focused on the omnichannel market and noted that its market growth rate, 29.6% in 2021, has been greater than pure e-commerce, 20% to 22%.
To support this focus, FedEx has:
• In-housed its SmartPost parcels
• Expanded deliveries to seven days a week to 95% of the US
• Expanded Ground network
• Introduced FedEx Freight Direct for big and bulky deliveries
• Introduced drop-offs and pickups from Walgreens and Dollar General retail stores across the US
• Acquired Shoprunner
UPS has also made significant investments in e-commerce and omnichannel delivery services, including expanding its Ground network and deliveries seven days a week and acquiring Delivery Solutions. This platform offers shippers, among other things, multi-carrier and same-day delivery options.
In addition, UPS has expanded its digital access program, DAP, which includes such partners as EasyShip, Shopify, and BigCommerce. More than 500,000 new DAP customer accounts were created in the first quarter, three times the number of new accounts created in the first quarter of 2021.
Also, during the first quarter, UPS began shipping DAP packages that originated outside the US. DAP is now available in 27 countries. UPS’ DAP revenue target is $2 billion by the end of this year.
However, both providers face volume declines and higher operating costs as the economy slows. In response, FedEx and UPS will focus on revenue management. In addition, FedEx plans to emphasize bundled services such as Express and Ground.
Outlook
Just like FedEx and UPS, omnichannel retailers are also having to mitigate costs and may have to look beyond UPS and FedEx for shipping services that not only meet their needs but also fit their budgets.
Buy Online, Pick Up in Store (BOPIS) has proven successful for many retailers as a no-cost shipping option for customers. In contrast, other retailers, such as American Eagle, have acquired logistics and delivery capabilities to help reduce their last-mile costs.
FedEx and UPS remain the largest US nationwide last-mile delivery carriers. Still, options continue to grow as retailers diversify their last-mile carriers to satisfy service requirements and shipping costs.
E-commerce and omnichannel sales will continue to grow but perhaps not at the rapid pace we’ve seen over the past couple of years. Morgan Stanley expects the e-commerce market to increase from $3.3 trillion today to $5.4 trillion in 2026. However, can last-mile carriers provide the right services at the right prices for retailers while also financially benefiting?
With over 25 years of supply chain experience, John Haber has helped some of the world's leading brands drive greater efficiencies throughout their supply chain operations. After a successful UPS career, John founded Spend Management Experts, now a part of Transportation Insight.
This article originally appeared in the July/August, 2022 issue of PARCEL.
