Technological Disruptions: Challenges and Opportunities in Parcel Delivery
July 26, 2024
Note: We reveal investment insights through the quotes of top business leaders.
Key Takeaways
- E-commerce growth is driving parcel delivery demand, with companies like Walmart, eBay, Alibaba, Shopify, and Amazon reporting significant increases in online sales and operational efficiency.
- Automation and robotics are enhancing operational efficiency and safety, with Amazon, FedEx, and UPS investing in advanced technologies to streamline processes and reduce costs.
- AI and machine learning are revolutionizing parcel delivery, improving demand forecasting, inventory management, and customer service, as seen with Amazon and IBM's strategic implementations.
- Innovations in last-mile delivery are speeding up delivery times, with companies like Roadie, Amazon, and UPS introducing new solutions like drones, same-day networks, and simplified cross-border shipments.
- Environmental sustainability is a key focus, with UPS and Amazon making significant strides in reducing energy consumption, greenhouse gas emissions, and packaging waste.
E-commerce Growth Driving Parcel Delivery Demand
E-commerce growth is significantly driving parcel delivery demand, as evidenced by Walmart's 22% e-commerce growth, eBay's strides towards sustainable GMV growth, Alibaba's 45% increase in overseas e-commerce revenue, Shopify's continuous support for evolving commerce, and Amazon's regionalized fulfillment network enhancing operational efficiency.
"Walmart U.S. also delivered better than expected growth with comp sales up 3.8%, including strong e-commerce growth of 22%, led by store-fulfilled pickup and delivery, marketplace, and advertising." --- (WMT, earning call, 2025/Q1)
"experience and a world class team with the depth and breadth of unique inventory on our marketplace, we're making meaningful strides towards achieving durable, sustainable GMV growth that will ensure eBay is a leading e-commerce destination for enthusiasts for years to come." --- (EBAY, event transcript, 2024/06/20)
"For our overseas e-commerce, AIDC revenue grew 45% and order volume grew 20% year-over-year this quarter due to continued focus on expanding cross-border retail operations and enhancing the consumer experience." --- (BABA, earning call, 2024/Q4)
"Our margins delivered strong growth and Shopify is working continuously to power their success online, offline and everywhere in between as commerce continues to evolve rapidly." --- (SHOP, event transcript, 2024/06/04)
"I'm happy to report that through all our hard work, combined with strong demand from our dedicated customer base and lower inflation, all this resulted in 2023 operating income of $37,000,000,000 more than triple 20 22's operating income of $12,000,000,000 There are 3 primary drivers for this improvement: First, in stores, our focus on reducing cost to serve, which benefited from our shift to a regionalized fulfillment network." --- (AMZN, event transcript, 2024/05/22)
Impact of Automation and Robotics
Automation and robotics are significantly enhancing operational efficiency and workplace safety in the parcel delivery industry. Amazon's robotics fulfillment centers improve ergonomics and skill development, while FedEx and UPS are optimizing their networks and facilities to boost efficiency and reduce costs.
"The company now has Robotics fulfillment centers in 11 countries around the world, and they help improve workplace ergonomics, reduce heavy lifting and repetitive tasks, and enable employees to gain new skills." --- (AMZN, press release, 2024/04/30)
"network as part of Network 2.0 and further enhancing our fleet and automation to improve operating efficiency." --- (FDX, earning call, 2024/Q4)
"And we’re continuing to follow our game plan that we reviewed with you at the investor conference, which is keenly focused on closing down stores, moving volume to our automation and our automated facilities." --- (UPS, earning call, 2024/Q1)
"Amazon's innovative robotics technology creates a safer, more efficient workplace while providing employees with hands-on training to develop new, in-demand career skills." --- (AMZN, press release, 2024/05/24)
"Looking ahead to FY 2025, we anticipate capital spend of $5.2 billion, which will again be down year-over-year as a percentage of revenue and we'll work by prioritizing our capital toward optimizing our network as part of Network 2.0 and further enhancing our fleet and automation to improve operating efficiency." --- (FDX, earning call, 2024/Q4)
Role of AI and Machine Learning
AI and machine learning are revolutionizing parcel delivery by enhancing demand forecasting, inventory management, and customer service. Amazon leverages these technologies to improve efficiency and meet customer expectations, while IBM emphasizes the importance of selecting the right AI models for scalable, cost-effective solutions.
"This sophisticated AI system, celebrated for its advanced machine and deep learning capabilities, is adaptable across a wide range of industries." --- (IBM, press release, 2024/06/21)
"Responsible AI in practice—from new ways of guarding against AI misuse to a new family of models fine-tuned for learning." --- (Google, Twitter, 2024/05/14)
"Advanced machine learning models are used for demand forecasting and inventory management, helping sellers avoid stock shortages." --- (AMZN, press release, 2024/06/21)
"Choosing the right AI model is crucial for success in scaling AI. While large general-purpose models are great for starting on AI use cases, clients are finding that smaller models are essential for cost-effective AI strategies." --- (IBM, earning call, 2024/Q2)
"better serve our ecommerce customers across the globe, "Customers expect effortless 3D downloads visualizations load times and transactions, and by tapping into AWS's generative AI and machine learning capabilities, we can deliver on the needs of customers rapidly, securely, and more cost effectively." --- (AMZN, press release, 2024/04/24)
Innovations in Last-Mile Delivery
Roadie offers fast, flexible, and asset-light logistics for last-mile delivery. Amazon's Same-Day network and Prime Air drones enhance delivery speed. UPS's "Network of the Future" integrates physical and digital changes, while their new e-commerce solution simplifies cross-border shipments. Amazon's innovations have achieved record delivery speeds for Prime members.
"Founded in 2014, Roadie offers businesses fast, flexible, and asset-light logistics solutions for last-mile delivery." --- (UPS, press release, 2024/06/05)
"Our Same-Day network and Prime Air drones are two innovations helping us deliver even more quickly for customers." --- (AMZN, Twitter, 2024/04/22)
"Now, let's turn to innovation-driven. As we've discussed, Network of the Future includes physical and digital changes that will deliver benefits in the short-term and the long-term." --- (UPS, earning call, 2024/Q1)
"Continued to delight customers with fast and convenient delivery. With more than 2 billion global units arriving the same or next day in Q1, Amazon delivered to Prime members at its fastest speeds ever." --- (AMZN, press release, 2024/04/30)
"This is an e-commerce solution for non-urgent cross-border shipment. Here we created a true door-to-door service with customs clearance and delivery fees baked into the solution, making the experience simpler for the shipper and the receiver. In Asia, over the last several quarters, we've made a series of network enhancements with the latest being in Taiwan." --- (UPS, earning call, 2024/Q2)
Regulatory and Infrastructure Challenges
FedEx leverages its existing infrastructure to advance, while UPS faces significant regulatory costs, such as a $94 million tax settlement. Amazon considers investments in infrastructure and technology, potentially affecting liquidity. UPS also highlights the operational cost impact of climate change policies.
"So I think now we have the opportunity to significantly leap forward because of the infrastructure that we have already built." --- (FDX, conference, 2024/05/29)
"One-Time Payment for International Regulatory Matter In the second quarter of 2024, we made a one-time payment of $94 million of previously restricted cash to settle a previously-disclosed challenge by Italian tax authorities to the deductibility of Value Added Tax payments by UPS to certain third-party service providers, a review of which was launched in the fourth quarter of 2023." --- (UPS, press release, 2024/07/23)
"In addition, we will, from time to time, consider the acquisition of, or investment in, complementary businesses, products, services, capital infrastructure, and technologies, which might affect our liquidity requirements or cause us to secure additional financing, or issue additional equity or debt securities." --- (AMZN, sec filing, 2024/Q1)
"have the opportunity to significantly leap forward because of the infrastructure that we have already built." --- (FDX, conference, 2024/05/29)
"end up being an immense waste of time, money and effort. 2nd, that this mass climate change doomsday hysteria, which the company is directly participating in by setting these goals by putting out an anti energy message and by contributing to organizations that advance this agenda generally has a negative impact on the affordability and availability of fossil fuels for everyone everywhere, thereby making operations for the company more expensive and reducing investment in the company." --- (UPS, event transcript, 2024/05/02)
Competitive Landscape and Strategic Positioning
FedEx and UPS are strategically positioning themselves by integrating long-term priorities, reviewing industry dynamics, and enhancing operational efficiency. FedEx focuses on interconnected strategic priorities and capacity management, while UPS emphasizes market trend reviews and delivery matching improvements to stay competitive and profitable.
"So these three long term strategic priorities are interconnected and create even more value when they are all positioned together." --- (FDX, conference, 2024/05/29)
"Our strategic planning approach includes a review of industry and competitive dynamics, market trends and other significant matters." --- (UPS, event transcript, 2024/05/02)
"And we are ensuring that we are well positioned to improve profitability irrespective of the demand environment." --- (FDX, conference, 2024/05/29)
"So right now, if a package shows up at a destination, that particular morning, we will match that package with other deliveries for that day. The option moving forward is to look for additional matching opportunities, and we are very close to that solution so we can actually look further out." --- (UPS, earning call, 2024/Q2)
"Yes, we're always focused on that. We talked about capacity earlier. It's kind of an art and a science to make sure you're able to take and effectively employ the resources you need given the current demand environment, take advantage of the surge, be able to adapt quickly in a downturn." --- (FDX, conference, 2024/05/13)
Customer Experience and Expectations
Companies like FedEx, Amazon, UPS, and Walmart are prioritizing customer experience by enhancing service quality, integrating convenient features, and focusing on perfect order delivery. These efforts aim to meet and exceed customer expectations in the parcel delivery industry.
"Absolutely, we are making sure that our customer experience actually gets better." --- (FDX, earning call, 2024/Q4)
""More consumers can now experience the exceptional value and service offered by Grubhub+, with Prime members enjoying $0 delivery fees on an ongoing basis." Get Your Grub (and Convenience) On Amazon customers can now access Grubhub conveniently on Amazon.com and in the Amazon Shopping app, enabling Grubhub orders without having to download or switch to the Grubhub app." --- (AMZN, press release, 2024/05/30)
"Additionally, we continued to develop capabilities to enhance our SMB customer experience." --- (UPS, sec filing, 2024/Q1)
"So we spend a lot of time thinking about how can we be better for our existing customers. And that goes back to what I said earlier about delivering perfect orders and having a great experience online." --- (WMT, event transcript, 2024/06/07)
"I'm excited about the opportunities ahead as we continue to focus on enhancing our profitability and stockholder returns while providing outstanding service for our customers." --- (FDX, earning call, 2024/Q4)
Environmental Sustainability in Parcel Delivery
UPS and Amazon are making significant strides in environmental sustainability within parcel delivery. UPS focuses on reducing energy consumption and greenhouse gas emissions, while Amazon emphasizes reduced packaging and overall sustainability investments. Both companies are committed to sustainable delivery solutions, highlighting their dedication to environmental goals.
"And we provide additional information about our diversity and inclusion efforts in our risk and opportunities associated with our approach and our progress towards our environmental sustainability goals, including energy consumption and greenhouse gas emissions." --- (UPS, event transcript, 2024/05/02)
"Announced that nearly half of all customer orders fulfilled in India are delivered in reduced or original packaging—meaning less packaging is needed to ensure the deliveries arrive safely, which is better for customers and the environment." --- (AMZN, press release, 2024/04/30)
"Roadie's solutions include local same-day pickup and delivery, delivery from warehouses with in-house sortation, oversized delivery, sustainable delivery, returns, and more." --- (UPS, press release, 2024/05/29)
"I’m proud of all the teams that are working together to make significant strides in our sustainability journey." --- (AMZN, Twitter, 2024/07/11)
"We are committed to and investing in sustainability because it's a win all around." --- (AMZN, event transcript, 2024/05/22)