Editor’s note: Written by Dan Khasis, a technology entrepreneur and the founder and CEO of Route4Me, a logistics software company. This is one in a series of periodic guest columns by industry thought leaders.
To set the delivery service benchmark even higher, Amazon is expanding its internal shipping services to offer a one-day delivery service. That is a step up from its default two-day delivery service to all Prime customers.
Not only that, soon after Amazon announced plans to expedite shipping services, it also announced incentives for employees to quit their jobs and start up their package delivery service under its delivery service partner program.
Delivery carriers are already viewing this announcement as a strategic move to exclude competition and position Amazon as the core infrastructure provider on which everyone depends.
By making these announcements, Amazon is playing its A-game. The company’s growth trajectory is high, and this move will help it stay competitive for quite some time. Customers’ interests for faster deliveries have also been considered. However, aren’t other logistics providers bearing the brunt of Amazon’s competitiveness?
THE EQUATION
Before we answer that, let’s consider this equation: One-day delivery service equals a $24 billion increase in revenue
RBC Capital Market analyst Mark Mahaney believes one-day delivery service will boost existing Prime members purchased and motivate others to sign up for Prime memberships. This could grow Amazon’s annual revenue by almost $24 billion. Since Amazon is bullish on expanding its internal delivery infrastructure, this doesn’t sound like good news for logistics providers.
THE LOGISTICS MARKET
Amazon lost almost $7.2 billion due to shipping costs in 2017, but the company had enough revenue from other sources to cover the top for these losses. However, not all logistics providers have that same comfort. Therefore, for most delivery carriers, the goal is just to stay in the game. Once they are stable, they will think of competing.
COMPETITIVE STRATEGIES
Here are some of the strategies logistics providers might implement to fight Amazon’s increasing dominance.
To counter the Amazon Effect, logistics providers will have to make their delivery experiences as frictionless as possible. However, this does not mean just offering faster deliveries but aiming to improve the overall delivery experience.
For instance, you could offer an alternate pickup location with flexible hours. You could also consider offering discounted delivery for a minimum amount spent, or on specific products. Free shipping is still the number one option for online shoppers. Nearly half of all shoppers will add items to their carts to qualify for free shipping. While that service might come with initial costs, you are more likely to see a return in extra purchases. Since free shipping may not be possible with same or next-day delivery, providing affordable- but slower- options may help you win and retain customers.
PARTNERSHIPS
Leveraging local delivery carriers can reduce transit time to specific markets and cut transportation costs. A lot of these providers operate within specific markets that often correspond to particular population densities. However, due to geographic constraints, logistics providers must carefully assess how well a regional carrier fits into the national distribution network.
Adding the wrong carrier may impact revenue-based discounts. Packaging, parcel dimensions, and weight can also affect shipping costs. Before you tie-up with a local provider, get an understanding of how to optimize each carrier to keep costs low.
FOCUS ON PROCESS AUTOMATION
Automated solutions are already being implemented in warehouses, and their level of sophistication is increasing. Providers will need to ensure that all the labor-intensive processes — from warehousing to last-mile delivery — are automated to ensure fast and cost-effective delivery. Package delivery could also make use of automation, so could route planning. Why make your drivers spend hours on the road when a simple route optimizer can help them plan faster and more efficient delivery routes?
INVEST IN HIGH-TECH WAREHOUSES
The traditional concept of fulfillment centers located in rural areas is fast changing. Logistics companies are now looking for warehouses that are built in the heart of major urban areas instead of massive warehouses in the suburban areas. If the warehouse location limits a logistics company to a 3-day shipping situation, they may lose out to competitors who are better located and can ship faster.
In addition to the warehouse location, automation is becoming crucial for logistics companies to deliver on their promises of faster and cheaper deliveries. The global warehouse automation market will grow from $13 billion in 2018 to nearly $27 billion by 2025. Updated tools and software such as sensors, scanners, RFID tags with automated material handling, and warehouse control systems will be the way forward for increasing warehouse operational efficiency.
One-day delivery is both an opportunity and a challenge for logistics providers. By taking a look across their fulfillment processes from order capture through to delivery management, providers can identify the gaps in your process and integrate systems accordingly. Making the right decisions and applying the best strategies can give providers enough flexibility not just to survive in competition with giants like Amazon, but to thrive.
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