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Sent Items #102: Monday, September 21, 2020

Hi All!

95 days to Christmas

66 to Thanksgiving

43 days to the Election

No shortage of headlines affecting ecommerce and logistics companies in the coming weeks. 

As different local and national economies gradually reopen and spending behaviors begin to normalize, evidence is pointing to a deceleration in ecommerce growth following this summer’s peak (see FedEx commentary below), which benefited from stay-at-home directives, temporary store closures and government stimulus. Which companies are best positioned (Amazon?) and which may be at most risk in a recovery scenario (HD, Wayfair?) is the big question. 

For those who’ve been subscribed to Sent Items for more than a few issues, you know you get a little politics and opinion sprinkled across a host of ecommerce and logistics headlines. So here is this week’s plug from my friend Hunter Walk - see here or click this link for the original tweet.

Speaking of Twitter, I came across this tweet Saturday afternoon and thought it summed up ecommerce + shipping pretty, pretttty, prettttttty well. 


- Matt


Is the Mail Getting Slower? We’re Tracking It - New York Times

  • In July and August, when a public outcry rose over late mail, there was indeed slower delivery from the United States Postal Service.

  • Since then, on-time delivery of the mail has improved slightly. But for first-class mail — like letters and postcards — the system has remained slower than it was earlier this year.

  • The recent national slowdown dates to early July, around the time that postal workers were ordered to change the longstanding practice of holding trucks at sorting facilities until all of that morning’s mail was on board. Beginning in July, trucks were ordered to depart on time, potentially leaving some mail behind. 

  • Experts said other changes — like declines in approved overtime for mail handlers, and reductions in mail-sorting machines used in some plants — might have also contributed, but probably had smaller effects.

  • The Postal Service has also experienced local, but more severe, disruptions in mail because of coronavirus outbreaks in New York, Philadelphia, Detroit and other hard-hit parts of the country. Over all, the pandemic does not appear to have had a large effect on first-class mail nationwide. But in locations where many postal workers have been sick or unable to work, delays might have stretched well beyond the national numbers shown.

Trump says Amazon costs the USPS 'billions,' but internal docs tell a different story - CNBC

  • President Trump has routinely blamed Amazon for problems with the US Postal Service, but new documents obtained by American Oversight show Amazon remains a large and lucrative customer for the USPS.

  • Amazon was the USPS’ “largest customer” in fiscal 2019, generating about $3.9 billion in revenue and $1.6 billion in profit, the documents show. The relationship between the USPS and Amazon grew strained in April, amid the coronavirus pandemic, as Amazon asked the Postal Service to answer questions about its financial viability. 

  • The USPS circulated “fact-checking statements” internally that buck Trump’s criticisms of Amazon and shed new light on its relationship with the company. Trump has claimed that Amazon costs the Postal Service “billions,” but the USPS said in the fact-checking statements, circulated earlier this year, that Amazon was the Postal Service’s “largest customer” in fiscal 2019, generating about $3.9 billion in revenue and $1.6 billion in profit. 

  • The Postal Service also countered Trump’s oft-repeated argument that it needs to raise prices to make money on deliveries, the documents show. By contrast, the USPS said it had the largest price increases “in recent history” from 2018 to 2019, including a 10% price increase for its Parcel Select service, which is used by Amazon.

  • According to the documents, the agency also expressed concern in April that, if it were to raise prices, it would “cede ground” to competitors and Amazon’s growing logistics network. “Amazon has been aggressively insourcing volume with Amazon logistics, sending two billion-plus packages in fiscal 2019, which primarily cuts into USPS’ share,” the documents state.

  • Amazon relies on several carriers to deliver packages, such as UPS and FedEx, and is building its own network of contracted delivery partners. But the documents illustrate how Amazon continues to rely on the Postal Service.

  • The Postal Service delivered more than 1.5 billion Amazon packages, or roughly 30% of its total volume, in fiscal 2019, according to the documents.

FedEx Logs Record Revenue on Surge in Packages - WSJ

  • FedEx posted the highest quarterly revenue in its history as the coronavirus pandemic spurred residential-shipment levels normally seen during the holiday season. FedEx shipped 31% more packages a day through its Ground network during the summer months (11.56 MM shipments daily!) The extra cargo boosted profit more than 60%.

  • Ecommerce fueled substantially by this pandemic is driving the extraordinary growth. In fact 96% of the U.S. growth is expected to come from ecommerce. While ecommerce as a percentage of total retail has declined from its apex in April, it remains elevated. Ecommerce as a percentage of total retail for Q2 calendar year 2020 is estimated at 21% compared to 15% in Q2 calendar year 2019.

  • FedEx expects the trend to stick. It now projects an average of 100 million parcels will be shipped daily in the U.S. across all carriers sometime in 2023, compared with its previous forecast of hitting that milestone in 2026.

  • The Express business, which ships packages and cargo by air, received a boost from the sharp decline in international passenger flights, which used space in their bellies to ferry shipments across the globe. With fewer commercial flights, shippers are paying to use jets flown by FedEx and its rivals. International volume in the Express business rose 16%.

  • The carriers and the U.S. Postal Service are trying to manage the expected shipping volume with new peak surcharges aimed at some of the largest shippers. The higher fees are also meant to offset some of the added costs of delivering packages and operating during the pandemic. In the latest quarter, FedEx spent about $100 million on protective equipment, additional cleaning and other measures to protect its workers.

  • Delivery companies are also hiring more workers to help with the expected seasonal surge. FedEx is increasing its annual holiday hiring goal to 70,000 extra workers, up from around 55,000 in previous years. UPS, meanwhile, is hiring about 100,000 workers over the next few months after adding nearly 40,000 earlier this year.

Amazon Plans to Put 1,000 Warehouses in Suburban Neighborhoods - Bloomberg

  • Amazon plans to open 1,000 small delivery hubs in cities and suburbs all over the U.S. The facilities, which will eventually number about 1,500, will bring products closer to customers, making shopping online about as fast as a quick run to the store. It will also help it take on a resurgent Walmart.

  • Amazon couldn’t fulfill its two-day delivery pledge earlier this year when ecommerce flooded the company with more orders than it could handle. While delivery times have improved thanks to the hiring of 175,000 new workers, Amazon is now consumed with honoring a pre-pandemic pledge to get many products to Prime subscribers on the same day. With the holidays approaching, the company is doubling down by investing billions in proximity, putting warehouses and swarms of blue vans in suburban neighborhoods.

  • Historically, Amazon gnawed away at brick-and-mortar rivals from warehouses on the exurban fringes, where it operated mostly out of sight and out of mind. That worked fine when the company was promising to get products to customers in two days. Now Walmart and Target are using their thousands of stores to beat Amazon at its own game by offering same-day delivery of online orders. Walmart also recently started its own Prime-style subscription service, called Walmart+.

  • Beyond Amazon’s retail rivals, the mass opening of small, quick-delivery warehouses poses a significant threat to UPS and USPS. Being fastest in the online delivery race is so critical to Amazon’s business that it doesn’t trust the job to anyone else and is pulling back from these long-time delivery partners. Amazon is basically duplicating UPS’s logistics operation. Many of Amazon’s new hubs are within walking distance of UPS facilities.

  • Some estimate that Amazon will deliver 67% of its own packages this year and increase that to 85% next year. Amazon keeps spreading itself around the country, and as it does, its reliance on UPS will go away. Their dedicated last-mile delivery network just delivered its 10 billionth package since launching over five years ago.

  • The company’s appetite for real estate is so strong that many analysts have speculated that Amazon would convert vacant department stores into distribution centers.

  • Amazon usually puts new delivery stations inside existing warehouses or signs long-term leases with development firms like Prologis to build them to its exacting specifications. Typical delivery stations are about 200,000 square feet—about one-fourth the size of one of the company’s giant fulfillment centers—with large lots where workers can park their personal vehicles and Amazon can stage delivery vans. About 20 tractor-trailers arrive each night to drop off packages, which are loaded into hundreds of vans each morning before drivers fan out to make their rounds. In the afternoons, hundreds more Amazon Flex drivers, who use their own cars, arrive to deliver whatever’s left. A typical hub can generate more than 1,000 vehicle trips each day, often in areas where roads are already congested.

Lineage Logistics raises $1.6 billion amid demand surge for cold storage - Crain’s Detroit

  • I’ve written a lot about cold storage 3PL Lineage Logistics as they’ve gone from small player to leader in a short few years. They’ve now raised $1.6 billion from investors as COVID pressures the food supply chain and increases the need for cold storage.

  • The company plans to use the capital to expand and build new sites, and continue its acquisition strategy. It also plans to invest in technology that would make it the most innovative player in the industry in automation, customer visibility and key performance indicator management. 

  • Lineage has 320 facilities with 1.9 billion cubic feet of storage capacity across 56 million square feet of real estate. That compares with rival Americold Realty Trust's 183 facilities and approximately 1.1 billion cubic feet of storage across 45.2 million square feet.

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© 2020 Second Marathon Consulting, LLC
Matthew Hertz is the founder of Second Marathon.

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