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Delivery on the run - keeping pace with the speed of imagination

Delegates from the logistics and delivery sector will gather in Arlington, Virginia, on March 21-22, 2017, for PostalVision 2020/7.0 – Business NOT As Usual. Ahead of the conference, John Callan (left), co-founder of the PostalVision 2020 initiative, explores the disruptive influences and innovators that have shaped the modern postal sector.

The current rate of change in our global postal ecosystem is dizzying. A barrage of daily newsfeeds seems to feature yet one more startling initiative by Amazon just about every day. Taking my eyes off my laptop screen for a minute makes me feel the way I do when reading email on my iPhone in an Uber driving around Washington DC: it makes me nauseous – motion sick. Yet when I keep my eyes on the horizon, I am OK. Actually exhilarated! These are thrilling times for our industry if we keep a clear open view of where we are going.

I have always embraced change. My excitement about alternative ways things could be delivered began early in my career – in the 1970s. I was a witness, actually an active participant, to the dawn of a twentieth century industry invented by youthful entrepreneurs Larry Hillblom of DHL (Dalsey, Hillblom and Lynn) and Fred Smith of Federal Express (now FedEx). These daring and iconoclastic visionaries changed the world by “binding it together” faster, more completely and more securely than any postal service or air freight forwarder ever could. And they did it by breaking conventional transportation “rules of the road.”

Hillblom moved mail swiftly overseas on scheduled commercial flights by enlisting onboard couriers wanting to ‘hitchhike’ from A to B, (an early sharing economy model); and Smith provided coast-to-coast delivery service – ‘Absolutely, Positively, Overnight,’ – through the first national hub-and-spoke air cargo system, connected by a dedicated fleet of Dassault Falcons. It was a bold unimaginable vision backed by the largest venture capital deal ever closed at the time. Both high-risk business models ultimately succeeded only when the airline industry was deregulated and the Civil Aeronautics Board was abolished.

Looking back over my 40-plus years in this business, I recall those disruptive days of unbridled invention and innovation in mail and parcel delivery as the most exciting. No other era has come close – until now.

 

21st century delivery e-rupters
Today’s 21st century delivery disrupters, the creators of Google, Amazon, and more recently Uber, are turning conventional B2C supply chains upside down. By enabling consumers with increasingly empowering digital tools, traditional business models are going topsy-turvy; marketplaces are ‘e-rupting!’ Like Hillblom and Smith before them, these brash young dreamers, Sergey Brin and Larry Page (Google), Jeff Bezos (Amazon), and Travis Kalanik (Uber) are radical rule-breakers and iconoclasts.

From a personal and admittedly undisciplined Google Earth-like point of view, observing the industry in its entirety, I suggest that these phenomenal world changers are succeeding by deliberately ‘doing business NOT as usual’. They differentiate themselves from established, entrenched delivery institutions in three distinct fashions.

 

1. They break the rules
From their inception, each of these private, venture-backed firms has moved boldly forward, disregarding conventional business-as-usual approaches to creating value for customers, acquiring more customers, and getting paid.

Google began by providing consumers free online information and email as a way to learn what interested them, in order to then feed-back offers in a revolutionary paid advertising model.

Amazon began by completely reinventing the retail book merchandising supply chain with the Kindle, putting established big-box retailers out of business along the way, and has continued to rewrite just about every conventional rule in a completely new retail book.

Uber allowed consumers to bypass inefficient conventional taxi hailing and dispatching services on their smartphones while enlisting ‘crowd-sourced’ part-time contract drivers, thus breaking municipal licensing rules and labor practices in many jurisdictions.

 

2. They’re digital platforms
The ideas for these marvelous new services came from what their founders imagined could be done by harnessing the power of digital data. They learned how to acquire and manipulate critical information at levels never before dreamed. They established entirely new data driven platform-based businesses that enable the sharing of information, resources and access to new business opportunities for a myriad of partners. New economic terms like sharing economy, crowd-sourcing, surge pricing, two-sided markets and cloud storage are now commonplace when analysts describe how many new ‘asset-lite’ businesses have learned to rapidly scale and acquire millions of customers all over the world through algorithms designed to manipulate their data.

The power of these revolutionary information-agile capabilities heightens anticipation about what should come next. Why invest in capital intensive cars, trucks and airplanes when they already exist – and can be accessed through inventive new contracting partnerships and space-sharing relationships? Why waste environmentally unfriendly carbon-based fuel when load-optimization tools can fill half-empty vehicles? Why worry about hiring career dependent workers when reliable, well-meaning and often well-educated part-time help is available from students, retirees and individuals needing second jobs?

Digitally driven platform-based businesses like these game changers can minimize cost, expand, grow and scale fast, acquiring customers through application provider-partners, social media, and through search and general internet access.

 

3. They really do focus on the consumer
When founding Amazon, Jeff Bezos wanted to name the company Relentless. And although he did not, his focus on the consumer has been nothing but! The empowerment Amazon’s business model gives consumers results in a reversal of the conventional source of power, when media, advertising and merchandising were pushed toward consumers. Now it is all pulled.

Remember when online purchases required payment of ‘shipping and handling’ charges? Consumers would often abandon their shopping carts thinking they could avoid these expenses by driving to a store themselves. So Amazon announced free shipping, initially for a single minimum purchase amount. Then, to encourage repeat shopping at Amazon as it continued to build out its product inventory – to nearly 500 million stock keeping units (skus) in the USA today – Prime membership was offered providing buyers with free-shipping plus additional benefits like streaming video.

All the while Amazon was providing shopping ideas and reminders to re-order household products that may have run out. By increasing familiarity with consumers’ needs and preferences, Amazon was systemically building a one-to-one relationship.

 

The elephant in the room
Of all the exciting changes we are witnessing, Amazon’s impact on the entire retail industry and the dependent industries that serve it– like advertising, real estate, fulfillment, logistics and delivery – is nothing short of tectonic. Every new move it makes shakes the ground all around it.

In our postal-parcel-logistics-delivery space, what began as a single central distribution center dependent on reliable 2-3 day B2C delivery services provided by UPS, FedEx and the United States Postal Service (USPS) nationwide, and by DHL worldwide, evolved into an ever expanding regional network of fulfillment centers positioned to provide same-day delivery to all major metropolitan areas.

The incumbent carriers eagerly positioned themselves to accommodate a growing demand for: new service levels, for example, USPS introducing Sunday delivery and same-day groceries; and for reduced residential delivery costs, as illustrated by FedEx SmartPost and UPS SurePost both handing off to USPS.

 

 Amazon drones could one day be launched from dirigibles

 

Yet, where the established carriers couldn’t meet particular needs fast enough, Amazon began coming up with its own solutions like locker boxes in 7-Eleven stores and Uber-like Amazon Flex on-demand same-day crowd-sourced delivery. And looking not so far ahead, Amazon is considering deliveries by drone dispatched from a dirigible airship warehouse hovering above. So did it really surprise anyone when its ‘Dragon Boat’ strategy was revealed, describing a plan designed to fully integrate its supply chain from Chinese manufacturer, to sea-container, to customs clearance, to ground and/or air transportation, to fulfillment center, and to local home delivery in its own branded vans? Subsequent press releases have announced the introduction of Amazon’s own fleet of chartered aircraft and development of its own US air hub in Cincinnati, Ohio.

Amazon taking its parcel volume away from the service providers that helped build its network could be damaging enough to these carriers, but what if Amazon begins taking on the volume that other shippers are tendering to the incumbents as well? Doesn’t its track record of inviting competitive merchants onto its Amazon Marketplace and fulfilling their transactions through Fulfillment by Amazon (FBA) suggest that these shipments will be transported and delivered by Amazon itself as well?

 

Why is this exhilarating?
I wonder if Clayton Christensen, when he coined the term ‘disruptive innovation’, ever imagined how disruptive the digital revolution would become. I wonder if Jeff Bezos ever imagined he’d be delivering shoes to consumers from a blimp. So much is happening so quickly now that I think we’re all reaching a point where we do expect to soon see driverless vehicles, robots and drones playing key roles in logistics and delivery. The rate of change we are all living through in this new e-commerce driven economy is simply astounding. Yet, keeping pace for established institutions isn’t easy.

What can the established posts and carriers do to keep up? UPS is feeling the pressure as the surge in lower margin e-commerce driven home delivery is outpacing its more profitable B2B segment. Significant parcel volume gains at USPS seem like good news, but they come with much higher unit handling costs. As an apparent move to head off some of Amazon’s encroachment, FedEx just announced FedEx Fulfillment, a logistics network for small and medium-sized businesses where participating businesses will store their products at FedEx warehouses for immediate shipping when orders are placed.

If delivery incumbents are to succeed in this new digital economy, they must learn from the current champions how to begin breaking rules. They must apply digital power and applications to their platforms. And they absolutely need to recognize and appreciate that the consumer is their customer.

To register for PostalVision 2020/7.0 – Business NOT As Usual, click here.

February 21, 2017

 

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