The Big Three legacy parcel carriers — FedEx, UPS and the U.S. Postal Service — are facing unprecedented pressure as their largest retail customers build out residential delivery networks of their own. This shift in shopping behavior has led to a significant change in the parcel shipping industry, with business-to-business shipments now accounting for only 30% of the market, while business-to-consumer (B2C) shipments have risen to 70%. To remain competitive, FedEx and UPS must transform their core competency from being parcel carriers to e-commerce enablers.
The two integrators have made shipment quality a priority by rejecting low-priced last-mile delivery business from Chinese e-commerce sellers and Amazon. Instead, they focus on high-value packages that can support higher rates. However, this approach may not be sustainable in the long run, as the parcel shipping industry continues to evolve.
Investing in e-commerce platforms like Etsy and other similar services could be a strategic move for FedEx and UPS. By doing so, they would sit at the top of the food chain and influence all aspects of fulfillment and delivery for online orders. This would enable them to better compete with sellers using Amazon's marketplace.
The optimized shipping experience will create a virtuous flywheel that generates additional orders from satisfied consumers, driving more parcel business with higher delivery density to FedEx and UPS. This, in turn, could lead to increased revenue and market share for the two companies.
Amazon has taken a broad view of its core competency, investing in Fulfillment by Amazon (FBA) to help e-tailers on its online platform with fulfillment and delivery. FBA has generated significant returns, with about 60% of Amazon's online sales and parcel deliveries coming from merchants supported by FBA.
Similarly, Amazon has extended its thinking to its suppliers, contracting with Air Transport Services Group to operate Boeing 767 freighter aircraft for its logistics network. This move has enabled Amazon to build its own delivery network and secure a significant return on investment.
If FedEx had invested in e-commerce platforms like Shopify earlier, it could have generated significant returns. For example, an investment of $1 billion in Shopify a decade ago would be worth $50 billion today.
Despite the potential benefits of investing in e-commerce platforms, FedEx and UPS may not be able to replicate Amazon's success. However, they can still explore alternative strategies to remain competitive in the parcel shipping industry.
The parcel shipping industry is undergoing significant changes, driven by the shift from physical stores to digital channels. FedEx and UPS must evolve to thrive in this new environment, investing in e-commerce platforms and optimizing their shipping experiences to drive growth and revenue.
The parcel shipping industry is undergoing significant changes, driven by the shift from physical stores to digital channels.
