“Why do I have two pallets of sod on my dock? I’m a white-glove delivery guy!” The plaint of Steve Howard, president of Miami-based Esquire Express, captures the angst of the final-mile delivery segment confronting the unintended consequences of e-commerce run amok.
Almost everything available to buy can be bought online today. This means final-mile providers must gear up, and fast, for demand many of their networks weren’t structured to handle. Increasingly, they find themselves behind the curve, struggling to keep up with unprecedented ordering waves and do it profitably. There are numerous potholes: customers that can’t give them advance notice when order patterns surge; difficulty finding final-mile drivers; the higher cost and increased scarcity of warehouse space needed to accommodate greater volumes of big stuff; and meeting the requirements of consumers conditioned by Amazon.com, Inc. (NASDAQ:AMZN), which calls much of the tune because it controls about half of the more than $500 billion in U.S. e-commerce orders, to expect next-day, same-day, or even 2-hour delivery.
The peak holiday season has become, for some, a curse. Volumes can double from weeks 46 to 52, putting enormous planning and budgeting pressure on many last-mile providers unaccustomed to running a delivery business with seasonal spikes that are becoming more pronounced. Surging capacity requirements catch even the most prudent planners off-guard. The challenges are amplified by customer forecasting that is, at best, cloudy. “About 95 percent of our customers are way off on peak activity,” said Howard, who added, perhaps with some understatement, that it’s “hard to make money” during the season, which, by the way, kicks off in less than five-and-a-half months.
Finding available and affordable industrial property, both for peak and year-round, has become a challenge. Kelly Picard, CEO of Mobile, Alabama-based Hackbarth Delivery Service, said her company doesn’t want to sign leases beyond three years. However, most landlords of warehouse space insist on five-year leases, she said. Strong demand and tight supply has pushed rents to all-time highs and vacancies to all time-lows in many markets, though more capacity is entering the market this year, which should bring some modicum of rate relief.
Hackbarth is fortunate, Picard said, in that many of the buildings it acquired years ago – though it probably overpaid for them at the time – come cheaper than anything she can lease on the market today. The company employs a property broker to identify and negotiate suitable properties, she said during a panel discussion at the Eye for Transport’s 3PL and Supply Chain Summit Wednesday in Atlanta. This is not standard operating procedure for delivery companies.
The issues are likely to persist as long as demand continues. And demand for big and heavy goods ordered online appears to be just getting started. Unlike small parcel delivery which is an established business dominated by four companies – Amazon, FedEx Corp. (NYSE:FDX), UPS Inc. (NYSE:UPS) and the U.S. Postal Service, the” large-format” delivery segment is growing at a faster relative pace, albeit off a much smaller base than small parcels. The segment, which is potentially lucrative but challenging to execute, is wide-open for competition; XPO Logistics, Inc. (NYSE:XPO) is the largest player, but it is by no means super-dominant.
Everyone, it appears, is interested in understanding how the segment ticks. The panel included a supply chain manager from search and advertising giant Google (NASDAQ:GOOG), a unit of Alphabet, Inc. The executive, David Lopez Sr., explained that his role is to improve the unit’s internal processes for delivering its equipment.
There are silver linings. Technology, which is a critical need in the large-format space, will proliferate in the coming years as the business becomes more attractive for information technology providers to invest in. Less-than-truckload (LTL) carriers either entering final-mile, or expanding their services, have better information technology connectivity with their final-mile partners than has existed in the past couple of years, Pickard said.
There will also be no shortage of business for high-quality last-mile providers, particularly from the LTL carriers who feel they need to be in final-mile delivery but whose hub and route systems are not configured to cost-effectively handle the business. Many believe that unless LTL carriers find ways to commingle last-mile deliveries with their regular traffic so their drivers don’t have to go off their schedules to deliver to residences, executing without partnering with last-mile specialists who understand the requirements and can position the right assets to manage the move will be a losing proposition.
Chuck Moyer, president of Birmingham, Alabama-based last-mile provider PACE Runners Inc. said some LTL carriers are soldiering on by themselves, but in a couple of years they will realize the error of their ways. “Very few [LTL] companies can do it on their own,” he said. LTL carriers don’t really want to be in final-mile, but have been wedged into it because their sales forces have pushed it as another arrow in the value proposition quiver, he added.