By Rob Starr, Big4.com Content Manager
Driven by the continued swell of e-commerce and increased hyper-local, start-up delivery models, venture-capital funding has pumped billions into the post and parcel industry in the last twenty four months. This from a new Accenture report.The New Delivery Reality: Achieving High Performance in the Post and Parcel Industry, has supply chain and logistics start-ups enjoying an increase of more than ten fold in the amount of venture- capital funding from US$266 million in 2013 to US$2.78 billion in 2016. Brody Buhler, managing director who leads Accenture’s global post and parcel business, mailed in some answers to our questions via cyberspace.
Why have billions of dollars in venture-capital funding poured into the post and parcel industry in the last two years?
There are 3 conditions we’ve seen that are driving the significant increase in venture capital.
- Erosion of barriers to entry. One of the most significant barriers to entry historically has been the need to acquire significant assets to create a nationwide network. The investment in building and trucks was simply enormous and was required to be a legitimate competitor in the market. As retailers invest in inventory proximity they reduce the need for an end-to-end domestic network to move goods from their distribution centers to more distant points. That allows these asset-lite entrants to compete for all of the content that is local – an increasingly larger percentage. The prevalence of smartphone technology is also playing a big role because they can coordinate and optimize the labor while also offering important features like track and trace without having to invest in a PDA fleet. That also allows them to tap crowdsourced labor which is becoming more readily available. That allows the need for a last mile fleet. Combine these and you have an asset-lite competitor and investment barrier is minimized.
- Growth market. Investors love high growth sectors and B2C eCommerce shipping is one of the highest growing in the market. As they look at factors driving that growth they are all predicting acceleration and our research would support that as well. As eCommerce players address barriers to an online purchase like frictionless checkout, same day/next day delivery for free, alternative delivery options and consumer last-mile control features they predict a larger addressable market and higher growth. In the meantime, brick-and-mortar retailers are closing stores (decreasing convenience) and reducing SKUs (decreasing relevance) making their retail experience less appealing to consumers. Combine these and you have conditions ripe for exponential growth. Investors love those conditions.
- Higher quality at lower cost. Right or wrong, venture capital is betting on being able to offer
in-demand features at a lower cost point. They are using lower cost labor and are investing in technology to better orchestrate that labor. They know they can source spare capacity from the existing competitors when they need it or get a delivery they cannot economically handle. They are built for speed, control and flexibility – all features that consumers and therefore retailers are demanding. Venture capital is betting these features will continue to be important and they can manage quality with a different type of workforce.
What does the change in consumer behavior have to do with this?
Changes in consumer behavior is a big catalyst to the change. I call it the Uberization of consumer expectations. They are becoming accustomed to a mobile enabled experience they control from start to finish. Think about the change in paradigm – you see where your taxi is at all times. You never have to guess if its headed in the right direction either before it arrives or after you get in. As consumers realize they like that they are demanding faster delivery, last-mile control and a mobile enabled experience. This puts pressure on retailers to offer these features. Retailers know that if they can offer a better customer shipping experience that it will become a competitive advantage from a market share and loyalty perspective. But they also know they can’t charge for these features so they continue to explore options to take out shipping costs.
What are the relevant pressures on existing delivery organizations?
Existing delivery organizations have a huge opportunity but they will need to act quickly. Their brand is a huge advantage as well as their broad asset base. They must focus on quality and utilization. They must get smarter at pricing, taking advantage of where they have a comparative advantage. They must consistently work at “variablizing” their network with the ability to add and shed capacity at much lower cost points than they can today. Finally, they need to be investing in the consumer experience to deliver these features consumers are starting to require.
What can you say about the new M&A trend that has emerged?
It appears the M&A trend is here to stay. Post and parcel companies are realizing sometimes buying capacity or capability is easier and less costly than building it. As B2C growth continues, many are finding they need capacity faster than they can build. This is particularly true in cross-border eCommerce and 68% of M&A activity has been outside their home country. They also realize these companies have features, skills or technology that can be differentiating. Our research shows we’ll continue to see an active M&A market for the foreseeable future.
What’s in the future?
There are two technologies we are watching closely for the future.
- Artificial Intelligence. This is a no-brainer for post and parcel call centers. Chat bots will be able to very effectively handle the “where is my parcel” question – we believe 85% of those questions – in addition to several others that are common to these call centers. We also see AI as an emerging threat for last mile delivery as these start-ups experiment with much more sophisticated orchestration capabilities that AI enables.
- Autonomous Vehicles. Driverless cars are closer than you think and will be enormously disruptive. Last-mile experiments become devastating if they are able to eliminate labor from the last-mile (labor is typically more than 60% of the cost in a traditional post and parcel operator). We predict you’ll see mainstream driverless vehicles enter the market in the next 2-3 years, accelerating the resolution of some of the current challenges like regulatory and ethical questions. Resolution of those questions is the hardest to predict – the technology will definitely be ready. Investments in automating the last meter are almost certain to pay off in the next five years.