E-Commerce Strains Logistics and Fulfillment
The ecommerce boom in the United States is changing the dynamics among supply chain components, and it’s far from clear this will all play out. That’s the main conclusion of a recently-released report third party logistics (3PL) research organization Armstrong & Associates (A&A).
Consumers’ expectations for free and fast delivery, encouraged by the advent of Amazon Prime in 2005, has put a strain on fulfillment and logistics companies across the United States, according to the report.
3PLs are especially feeling the heat. According to the report, companies need 40 to 50 warehouse nodes in their networks for next-day delivery and 80 to 100 locations for same-day delivery. Last-mile shipping now contributes 30 percent to 40 percent of the overall cost of transportation.
Amazon has been expanding its own 3PL services, Fulfillment by Amazon (FBA), which it launched in 2006. A&A estimates that around 12 percent of business-to-consumer (B2C) e-commerce shipments are fulfilled by FBA, and its popularity is growing internationally.
But the report has good things to say about the US Postal Service. “There is no better way to get close to the ecommerce customer” than by using the USPS, the report said. “No company can match its route density through its residential delivery network.”
Amazon has entered the logistics space in a big way in recent years, developing its own trucking and aircraft fleets and competing with express carriers FedEx and UPS.
FedEx CEO Fred Smith, who is quoted in the report, said that Amazon’s potential to disrupt the express delivery market has been exaggerated. Eighty-five percent of FedEx’s business “has nothing to do with e-commerce,” said Smith. “Concerns about industry disruption continue to be fueled by fantastical…articles and reports. In all likelihood, the primary deliverers of ecommerce shipments for the foreseeable future will be UPS, the US Postal Service and FedEx.”
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