More and more online retailers setting up their own delivery services
Online retailers unanimously consider the last-mile to the customer the biggest challenge, driving both costs and customer service. The general trend for retailers is to outsource their e-commerce logistics to 3PL companies. However, over the last couple of years we have seen e-commerce giants like Amazon and Alibaba developing their own in-house last-mile logistics operations.
Last December, Amazon trucks hit the road to transfer shipments between the company’s warehouses and sorting centers. Amazon executives argue that this strategy allows them to improve the delivery efficiency particularly during the peak periods. Some speculate that Amazon may even want to cut out FedEx and UPS entirely by having its own delivery service, as already is the case for the Amazon Prime Now program, which delivers items in as little as an hour.
Alibaba, the leading Chinese e-commerce company, has spent over $6.3 billion on logistics related deals in the last three years investing in leading logistics companies like Cainiao, Singapore Post, YTO Express. India's biggest e-commerce company Flipkart plans to invest $2 billion in logistics over the next four to five years. These companies are acquiring start-ups to mid-scaled logistics firms in their sole endeavor to put their logistics solutions in a better and competitive position. In Netherlands also, last week, we saw Coolblue started offering home delivery of white goods with their own fleet.
So why are these e-commerce companies moving towards owning their own distribution infrastructure? One reason can be possibly to have better control on the supply chain end-to-end particularly on the downstream as customer complaints always stem out from the final delivery services. So, e-commerce companies see the investment in own last mile deliveries as an efficient way of retaining and growing the customer pool. Also, the investments made into the 3PLs help the e-commerce companies to have better control on operational issues like system integration, delivery updates etc.
Another reason which might as well service also influence this trend among the e-commerce companies to have the deliveries on own is the branding and post-sale service. When an Amazon truck will go around the city to do the delivery instead of UPS or FedEx, it will boost their marketing in its own right. Also people often order bulky items like furniture or electronic items, which need to be set up once delivered. Though some 3PLs might offer this kind of service, it comes at a premium price to the shippers. But, when the e-commerce company takes ownership of the deliveries and provides training to the delivery messengers to provide the service, the same can be achieved in a better and cost-effective way, thereby gaining a competitive edge in customer experience.
Having said that, it is also pertinent to mention that no matter how fast and big the e-commerce giants are investing on building their logistics infrastructure, the traditional 3PLs will still be influencing the logistics scenario as the old saying goes, it is tough to be Jack of All Trades and Master of all as well. However, it is definitely high time for the 3PLs to up the ante with seamless integration with shippers, real time delivery update and definitely timely deliveries. If every e-commerce company starts owning their own logistics service, it might hamper the sustainability of the system as a whole both in terms of economy (cut-throat competitive rates bringing down the profitability of the market) and environment (more traffic congestion). There is no absolute thumb rule for any firm to decide on outsourcing logistics or not, it all comes down to what’s right for business and for customers. It will be really interesting to see how this new trend shapes up the logistics sector of e-commerce industry.
My research focusses on the development of mathematical models to support the development of sustainable last-mile delivery services for the e-commerce industry. I am fascinated by the ongoing developments in this field, particularly upcoming new technologies, operational strategy changes of big firms and the dynamics ushered in by the plethora of start-up firms. I use this blog as a platform to share the developments in research and practice. Hope you will enjoy reading!
