Robert Foster looked out over the cavernous exhibit hall at the Home Delivery World annual conference in Philadelphia yesterday and remarked that nearly all of the vendors were there to support, in one form or another, the last-mile fulfillment and delivery of heavy goods.
“I’d say it’s about 90-10 [percent],” the senior director of business development of Miami-based Ryder System, Inc.’s (NYSE:R) last-mile division, said in reference to the ratio of exhibitors pushing heavy goods over those selling into the traditional parcel business, which is how e-commerce and final mile delivery got started and which still dominates the trade. Foster noted that neither FedEx Corp. nor UPS Inc., the parcel industry’s twin behemoths, had booths at the show (they had exhibited in prior years). Amazon.com, Inc. (NASDAQ:AMZN) had no booth. The U.S. Postal Service had a small one.
Yet brokerage and third-party logistics giant C.H. Robinson Worldwide Inc. (NASDAQ: CHRW) had a booth. As did truckload, intermodal and logistics provider J.B. Hunt Transport Services, Inc.’s (NASDAQ:JBHT) final-mile division. So did Schneider, Inc. (NYSE: SNDR), and HNRY Logistics, the new brokerage and third-party logistics (3PL) arm of less-than-truckload (LTL) carrier YRC Worldwide (NASDAQ:YRCW). The exhibit hall at the Pennsylvania Convention Center had no shortage of physical equipment on display that was clearly designed to haul bigger stuff.
In its seventh year, and with attendance that has grown more than 12-fold since 200 people showed up at the inaugural event in 2013, Home Delivery World is experiencing a change in the narrative. The focus is now on the goods segment that previously was a blip on the e-commerce and final-mile radar screen. Parcels, which are conveyable, symmetrical and easy to deliver, has become, in relative terms, child’s play. Besides, the space is dominated by a select group of very big guns. The competitive moat is wide.
By contrast, the last-mile delivery segment of such non-conveyable items as appliances, treadmills and building materials is relatively open, though newbies do have to deal with XPO Logistics, Inc. (NYSE:XPO), the acknowledged industry leader. Unlike the low-margin parcel space, heavy goods has fatter revenue and profit opportunities, mainly because the work is more labor intensive and challenging than just dropping off a package. Delivery firms can charge hundreds of dollars for delivering, setting up, installing and taking away large-format items. And its where the LTL and truckload carriers will converge to do battle.
FedEx and UPS don’t directly play in the heavy-goods space, though Foster said they’d like to and probably will. FedEx Freight, the company’s LTL arm, has plans to roll out a last-mile service for heavy goods in the coming months. Word is that UPS has similar plans on the drawing board. FedEx Chief Financial Officer Alan B. Graf Jr. said on the company’s most recent analyst call that the company loves big, heavy freight. That may be because FedEx, as well as its chief rival, can charge a fortune in both base rates and hefty accessorial charges.
Heavy goods deliveries, now a $8.94 billion a year market, grew 10.5 percent from 2017 to 2018 after 9.4 percent growth from 2016 to 2017, according to the most recent data from consultancy SJ Consulting. Growth in the segment has compounded 9 percent per year since 2012, according to the firm’s data. This number is expected to increase substantially in years to come as new e-tailers come on line, and perhaps more significantly, traditional retailers throw open their entire SKU portfolios to online ordering.
Not everyone will win. Foster cautions that the biggest challenge is that large consumer non-durables were “not meant to be shipped” across the country, and instead were confined to very short-hauls from a department store to a nearby residence. Many will struggle to balance the cost to serve with the need for speed to satisfy customer requirements, especially from younger consumers who expect heavy goods deliveries to be executed with the same speed and precision as delivering, say, a mobile phone. Expedited delivery windows will further jack up expenses that are escalating across multiple fronts, Foster said. The problem, he said, is “that everyone thinks they can do it,” he added. Ryder has been in the home delivery market for 45 years and was Home Delivery World’s first major corporate sponsor.
Another challenge is that delivery firms are likely to be called upon to do more than deliver, and they will be pressured to perform at the speed of today’s business. For example, in June 2018 Ryder won a contract from luxury bedding e-tailer Boll & Branch to develop, from scratch, a last-mile delivery network supported by total end-to-end visibility for a new line of high-end mattresses. The product launch was set for September 2018, meaning Ryder had about six weeks to seamlessly integrate the information flow between the supplier’s factories, Boll & Branch and itself, a project that would typically take months. However, Ryder pulled it off, Foster said. As the heavy goods last-mile market grows, so will customers’ demands. It remains to be seen if delivery firms entering the space can work their own miracles.
What is no longer a question, at least in some minds, is the direction that home delivery is heading. “Heavy goods is the new parcel,” said Tony Dattilo, vice president of supply chain management firm Innovel Solutions, Inc.