Market Overview

Delivery And Logistics Poised To Take Center Stage In New Decade

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Delivery And Logistics Poised To Take Center Stage In New Decade

The 2010s started with logistics in its traditional place toward the back of the bus. The decade ended with logistics behind the wheel.

It began with the sector, like the rest of the U.S. and world economies, digging out from the worst recession in more than 70 years. E-commerce existed but was hardly mainstream. Amazon.com, Inc. (NASDAQ: AMZN) sold stuff and used others to ship it. XPO (NYSE: XPO) were letters in the alphabet before they became linked with its founder, Brad Jacobs, who did the unthinkable in this business by buying and integrating 17 companies in just four years. Consumers were effectively told how, when and where their packages would arrive, and had to pay for the privilege of receiving them. Logistics real estate was what it always had been, namely big bulky warehouses located near interstate highways and often in the middle of nowhere. While logistics was gaining relevance up the corporate ladder, most business didn't embrace it as a competitive differentiator.

The world has flipped as 2020 dawns. Project44, which took wing during the decade by mastering a lightning-fast communications technology called Application Programming Interface, or API, dubbed the current environment the "Delivery Economy." More goods will be delivered to more residences and businesses than ever in human history. Accelerating IT advancements, fueled by an estimated $30 billion of venture capital and private equity in 2019 to foster tech-driven businesses, have helped to lower barriers to entry. Today, anyone with a vehicle can deliver stuff. Consumers control how, when and where their goods are shipped. Shipping costs, at least those costs directly borne by the consignee, are a thing of the past. Land in densely populated cities — known as "urban infill" — is now at the top of industrial developers' lists. The old-style suburban warehouse has, in some ways been usurped by its urban counterpart that's closer to the new nerve-centers of commerce: Consumers with a seemingly insatiable desire for fast delivery.

The latter years of the decade were marked by changes in the long-time use of retail space. These changes will be more pronounced during the 2020s. Shopping malls and physical outlets may have seen their best days for foot traffic. However, they have been given a new "lease" on life as fulfillment locations. Retail giant Target Corp. (NYSE: TGT) uses virtually all of its 1,900 stores as fulfillment locations, and about 80% of its online orders are fulfilled through a store. The new decade will see an increasing convergence of digital and physical operations as brick-and-mortar locations are positioned as hubs closer to the customer and e-commerce sites direct more package delivery to retail outlets, ABI Research said in a late December study.

As e-commerce takes an ever-larger share of total retail sales, the strategy and execution of delivery networks will become the axis of success. Regardless of the industry, logistics will increasingly be the difference between an enterprise's success or failure.

The decade was shaped by Jeff Bezos, Amazon's chairman and CEO, who launched an in-house shipping and logistics network after deciding that fewer outside hands should touch Amazon's packages. Most of the changes wrought during the 2010s stemmed from Amazon's initiatives and the competitive responses to them.

But if the past decade was a transformative period for Amazon, the 2020s will be a decade that defines it. Delivery demand continues to swell along with order volumes, yet more than ever Amazon is going it alone. Starting in late 2018 and extending into mid-2019, it took $600 million of delivery business away from XPO and moved the traffic in-house. It severed its air and ground delivery relationships with FedEx Corp. (NYSE: FDX) during 2019. UPS Inc. (NYSE: UPS) remains an important Amazon delivery partner, but no one should be surprised to see the two end their marriage during the decade as Amazon builds out its air and ground fleet, and UPS tires of a partner that is also interested in competing more aggressively with it.

Amazon will continue to raise the bar on delivery speeds, and will channel more goods ordered through its Prime service into one-day shipping. Amazon's breakneck delivery ambitions will continue to draw scrutiny from rivals, regulators and lawmakers eager to examine the alleged corner-cutting practices it employs to meet its goals, and the impact these practices may have on public safety.

For the many companies whose operations are in some way touched by Amazon, a larger question could be how Amazon's delivery execution would be affected as it takes on more of its own volumes, and ever-larger volumes to boot. Amazon has set the bar for customer expectations. The challenge in 2020 and beyond will be to clear it. Amazon's immense power as a platform would be diminished if outsized delivery problems occur.
However events shake out, one point of certainty is that technology will play a central role in the narrative. Benjamin Gordon, CEO of Cambridge Capital, a private equity firm that invests in logistics and technology companies, expects record amounts of capital to flow into a transport and logistics segment that remains "ripe for disruption."

The 2010s were about innovation, but the 2020s will be about scale, Gordon said. "If we see $60 billion invested in logistics IT companies in the 2020s, at least 70% will come from private equity buyouts rather than venture capital startups," he said. Those investments will help solid IT firms achieve scale and will, in general, foster a more stable operating environment, Gordon said.

But it won't be a free lunch. At the same time that billions will pour in to fund new dreams, hundreds of logistics technology companies, whose dreams ran out of funds to support them, will go bankrupt, he said.

Image by Gerd Altmann from Pixabay

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