Amazon Final Mile - It is All About The Brand

I keep being asked why in the world would Amazon start their own home delivery / final mile service (See Amazon Logistics)?  Everyone questions this as a stretch and even Fed-Ex could not help themselves when they stated Amazon (they did not specifically say Amazon but we all knew who they meant)  does not understand what it takes to have a dense delivery network like Fed-Ex or UPS. 

UPS chose to be in denial by having the CEO say:

"We don't believe that Amazon's strategy is to do it themselves and the reason we believe that is we have this huge infrastructure, we're investing in technology, we have a great mutual relationship with them," 

I think most of the analysis, and the response from Fed-Ex and UPS miss three critical points:

1. Branding
2. Capacity
3. Drop Ship
   

Branding:  When a final mile company delivers to the consumer's home the consumer sees it as an extension of the company the item is purchased from, the product and the purchase experience.   The consumer does not see "Fed-Ex", "UPS", "JB Hunt Final Mile" or "XPO" and certainly they do not separate the delivery from the entire purchase experience.  If the product is late, damaged, delivered in a truck that looks like a get away vehicle from a crime, is handed to you by a person who is a felon, etc. etc. the consumer will be very disappointed and will always relate this experience to the store (whether on line or physical).  If Amazon is to protect their brand they need to own more and more of the fulfillment chain  This allows them to do that. 

Capacity:  UPS and Fed-Ex have disappointed at the crunch seasons more than once and I believe Amazon is just sick of it.  At some point you have to take destiny into your own hands and take control of it.  Part of this is what stage the companies are at in their development.  UPS and Fed-Ex are in the "protection of business" stage and Amazon is still in the "Grow.. grow.. grow " phase.  What does this mean?  It means UPS and Fed-Ex are big companies who only invest when they know 100% it is a "sure thing". 

Amazon, on the other hand, is investing like mad.  Therefore, UPS and Fed-Ex cannot keep up with the explosive growth and maintain all their other businesses.  This shows itself in a lack of capacity at crunch times and so Amazon, as they always do, have taken their destiny into their own hands. 

Drop Ship: In Amazon's statements what is also clear is they want to control the drop ship experience from vendor's warehouses.  In this case the consumer orders from Amazon, the order is passed to a vendor, the vendor maintains the inventory and warehouses it but a Amazon truck picks it up and delivers to the customer.  Think about this as the touch points the customer is directly involved in are:

• Order experience
• Delivery experience
• Payment experience

In the case I outlined above, Amazon owns all three and the burden of back room logistics (versus front room logistics - I feel like I should trademark those two terms) is kept by the vendor.  This is brilliant and well outlined in this short article in Industrial Distribution Magazine.  

As logisticians and supply chain people we always look to the operational aspects of a strategic move.  In this case, it goes far beyond logistics operations.  

Read all my postings about Amazon as I have tracked this development for years:  Amazon Coverage on 10xLogistics

Fuel Prices Go Down... UPS and FEDEX Raise Fuel Surcharges

If there ever was proof that the entire industry's structure of fuel surcharges is just a bunch of smoke and mirrors, this event proves it.  Recently, both FEDEX and UPS announced they are raising the fuel surcharges even though their fuel costs are down by over 30%.  They offer this absolutely absurd argument that it is this way because of the increase of heavier packages going to more retail locations.  Both they claim increase fuel consumption.

Of course, they do not give you a reduction when the new engines provide better fuel consumption or they use CNG vehicles or any of the other many things that reduce fuel costs.

The bottom line is that the shipper should know that even in the truckload and intermodal space industry fuel surcharges in no way have anything to do with fuel.  They are built on false indices, with bad data and the shipper has just had to accept it (unless you use Breakthrough Fuel in which case you are one of the leading shippers who are really taking ownership of your fuel costs).

The argument that FEDEX uses is really laughable.  Watch out as these companies are going to continue to add charges, adjust tables and overall just obfuscate what you pay in packages to justify what appears to be a pretty bloated cost structure.

We will keep an eye on this and report as it continues to develop.

Full Disclosure:  I was an employee and customer of Breakthrough Fuel.  I bring them up because still to this day they are the only company (literally the only one) that appropriately deals with these ridiculous charges.

Why I Thought FEDEX Was Best For My 3D Printing Model

I received a lot of comments about my post yesterday concerning 3D printing and how I think FEDEX is really set up to exploit this opportunity.  Many of the comments pointed out there are other similar companies to FEDEX (such as DHL) who could do the final mile delivery.  However, I have not found the discussion compelling as none of them possess the extensive storefronts which are set up as printers already.

Yes, UPS purchased Mailboxes etc. to try to do something similar however there is a big difference.  The FEDEX Office (formerly Kinkos) locations are set up to print and produce where the UPS offices are essentially private post offices.  The keys to being able to exploit the advent of 3D printing are:

1. Locations which are local and already established to do the printing.
2. A brand which is already very trusted.
3. A process which people are already familiar with such as sending your documents for printing. 
4. An integrated final mile delivery network to do the final delivery of the "printed" material. 

Think of the FEDEX office location as the "transporter room" in the enterprise for Star Trek.  In the United States, no one has such an extensive and integrated network.

I have no idea if FEDEX is thinking of this however my speculation is they are keeping a good eye on the developments. 

Is The Trucking Industry Rebounding?

There is anecdotal evidence based on an informal count of trucks on the NJ turnpike showing an increase in truck traffic.   I warn you, this informal study reported on CNBC is about as informal and non scientific as you can get however when you tie it to other evidence (i.e, FEDEX financial results - profit doubles) you see some coalescing evidence that the economy is picking up and trucks are moving.

However, if you take the comments by FEDEX CFO Alan Graf at his word, evidence is the economies of the world are not growing fast enough to offset things such as high unemployment

There is a mixed bag I guess.  I chose to believe the former rather than the later.