I have spent a large amount of time in 2020, researching and writing about logistics. In a recent project, I have had a front-row seat to see its strain on brands. The stepchild of e-commerce is not flashy and visible by consumers but can make or break customer perception. The final mile has an enormous impact on consumers’ experience, and in Q4 2020, it will become more critical.
Logistics is somewhat opaque currently, and in most cases, it can lead to many breaking points. Amazon has changed customer perceptions based on speed. On-demand startups such as Darkstore, FLEXE, and Flowspace also add complexity, which the customer does not see.
The sector is a low margin, capital intensive part of commerce that is due for innovation. It’s a topic that is not cool, nor does it get the attention it deserves.
Amazon – The logistics stepchild
A macro look into the logistics sector highlights incumbents such as FedEx, DHL, UPS who have invested billions into moving packages. Currently, these networks are running at 95%, which has lead to surcharges. We will see record numbers of customer complaints on deliveries not being on time in the coming festive season.
Amazon’s logistics service is gaining scale in the UK away from US competitors in the background. If Amazon launches its logistics network in Q2 2020 (if my calculations are accurate), it will disrupt. Amazon has shown that it is investing in logistics by first building fulfillment centers outside cities on cheap land. Now it is moving into the suburban USA, and that should scare FedEx and UPS.
Amazon has conquered package delivery at scale and speed no such a level that offering the service to others will impact the sector.
A look into the future in China
I recently wrote a logistics piece for TechNode related to how they have innovated a supposed mature sector. Using the Internet of Things devices, 5G technology, and automation Cainiao Network and JD Logistics have accelerated package delivery. They use drones and autonomous delivery, not for PR reasons but to improve customer experience.
I will admit that in China, Alibaba and JD had the benefit of building their logistics from the ground up. JD had a historical advantage through earlier investment and then spun off the logistics business, which I think Amazon could do.
Post Office Oh Post Office
Logistics are challenging, but brands will have to think hard whether they want to add complexity through warehouse space aggregators such as Darkstore, FLEXE, and Flowspace. While these startups have created perceptions of innovation, simple things such as cross-border labels, access to package locations are either impossible or unclear.
Brands, Q4 will be messy, and you are going to have to think about fall-over solutions if your current 3PL partner or logistics company has no capacity.
Investors investing in logistics startups, demand aggregators, and services like Amazon FLEX remains an excellent long term bet. Why? E-commerce penetration will continue to grow.