E-commerce turns up the heat on fulfillment companies

The e-commerce boom in the United States has already irrevocably changed the traditional dynamics between supply chain members, but we are still far from seeing how these dynamics will re-form – if ever – after the dust settles, according to an in-depth report released last week from third party logistics (3PL) research organization Armstrong & Associates (A&A).

The new expectation from consumers for free and fast delivery, birthed from the advent of Amazon Prime in 2005, has put a strain on fulfillment and logistics companies across the U.S., the report said.

3PLs, specifically, are feeling the heat emanating from the transforming market. According to the report, companies need to have warehouse networks of 40 to 50 locations for next-day delivery and 80 to 100 locations for same-day delivery in order to deliver packages on time – contributing to the 30 to 40 percent proportion that last-mile shipping contributes to the overall cost of transportation.

Meanwhile, Amazon has been expanding its own 3PL services, Fulfillment by Amazon (FBA), which it launched in 2006. A&A estimated that, today, about 12 percent of business-to-consumer (B2C) e-commerce shipments are fulfilled by FBA, and the popularity of its service is growing internationally.

Still, the report points out: “There is no better way to get close to the e-commerce customer” than by using the U.S. Postal Service. “No company can match its route density through its residential delivery network,” A&A added.

Amazon has also endeavored to develop its own trucking and aircraft fleet, competing with express carriers FedEx and UPS, which have been – and continue to be – pillars of Amazon’s express delivery model.

CEO of FedEx Fred Smith, however, was quoted in the report as saying that Amazon’s potential to disrupt the market is a bit overblown. In Smith’s words, 85 percent of FedEx’s business “has nothing to do with e-commerce.” He added: “Concerns about industry disruption continue to be fueled by fantastical — and I chose this word carefully, articles and reports… In all likelihood, the primary deliverers of e-commerce shipments for the foreseeable future will be UPS, the U.S. Postal Service and FedEx.”

The report detailed various other insights about e-commerce and its future implications in the U.S. logistics industry, concluding that the industry has a long way to go before new dynamics will begin to settle again. To read the full version, visit A&A’s website.