The Rise of the Alternatives in e-commerce last-mile deliveries

As per Pitney Bowes, parcel volume in the USA grew 6% in 2021, reaching a record high of 21.5 billion, up from 20.3 billion in 2020, exceeding carrier revenues of previous years and is forecasted to reach 25-40 billion by 2027, with a 5-10% CAGR from 2022-2027.

Forbes reported that e-commerce sales grew to $870 billion in the US in 2021, representing 13.2% of all retail sales in 2021 in the US. This is an increase of 14.2% over 2020 and a 50.5% increase over 2019.

This pandemic-induced growth, of course, led to a massive squeeze on carrier capacity forcing some of the big national carriers to restrict cargo volume while also increasing charges, mainly in the form of surcharges and assessorial charges.

These additional costs on the back of reduction and restrictions in service created a climate of dissatisfaction in the market. Customers who have been feeling these cost and service pressures have been considering and shifting their business and volumes to alternative regional and local parcel shipping companies that are able to offer similar or better services at more reasonable prices.

Regional carriers

Regional carriers have been making serious inroads into the market, taking advantage of the growth in e-commerce and realizing that they could also enter the market and be profitable ever since the explosive growth in e-commerce demand.

They have been pushing to expand their coverage and cater to the quicker and cheaper deliveries demanded by consumers in the USA, with many carriers moving into the B2C and last-mile delivery market, providing much-needed competition to the legacy carriers who have traditionally controlled the market.

The regional parcel carriers also took advantage of the volume cap placed on consumers by industry giants like FedEx and UPS placed due to the elevated volumes.

The rise of the alternate carriers has also been largely driven by the need from shippers to diversity their carrier networks in order to cater to the increasing demand from consumers for same-day, next-day, or weekend deliveries to certain areas and also late pick-up, something that the bigger operators had to stop due to the elevated volumes.

“Some of our customers are able to save between 15-30% costs using smaller regional carriers for similar services compared to national and international carriers. These regional carriers also have zero to minimal surcharges,” said Chad Schofield, Co-Founder of BoxC, a leading e-commerce logistics management platform.

“While regional parcel carriers still only account for between 6-8% of the parcel delivery market as per industry estimates, their growth is imminent as consumers have seen and tasted the availability of these alternatives and are likely to share some of the volumes with the alternate carriers,” added Schofield.

There are currently more than half a dozen regional parcel carriers vying for customers who have been traditionally shipping with the big national carriers.

Using regional and local carriers has its own pros and cons

Pros

1. Lower last-mile delivery times and costs as shippers are able to ship orders from locations closer to the consumers
2. While regional carriers also face similar market pressures as the legacy carriers in terms of costs and processes, because their operating costs are lower, they are able to offer zero to minimal surcharges compared to legacy carriers
3. Regional carriers have better local knowledge about conditions on the ground than legacy carriers and are able to adjust their operations much more quicker, allowing them greater flexibility and better reliability
4. It is likely that regional carriers can offer customers, some value-added services such as product unpack-repack, additional labeling, and other related services

Cons

1. For customers, additional carriers on their list of service providers mean increased administration, which is both time-consuming and complex
2. Spreading loads among carriers could also mean that customers could lose volume discounts with carriers
3. Customers may have difficulties integrating their software with that of the carriers as some of the systems may not be aligned or compatible and therefore may need to be done manually

The current situation in 2022

While the industry has been reaping the benefits of the increased volumes in the e-commerce market since 2020, 2022 has been a different story, with inflation in the US really doing a number on the buying power of consumers’ eventually forcing the Fed to hike interest rates in an attempt to cool down demand.

The issue of inflation, supply chain issues, and the continued zero-COVID policy in China have created a huge slump in goods coming into the country.

While acknowledging that there is a slump in e-commerce stocks, Morgan Stanley is of the view that over the long term, the e-commerce market has plenty of room to grow and could increase from $3.3 trillion today to $5.4 trillion in 2026.

As per data presented by Augusta Free Press, the global e-commerce revenues are forecast to shrink in 2022 for the first time in the market’s history, with revenues expected to be in the region of $3.74trn in revenue this year, $95bn less than in 2021.

In May 2022, Bloomberg reported that shares of e-commerce companies have been tumbling since after weaker-than-expected quarterly earnings and forecasts, deepening concern that the pace of online shopping has slowed.

As per eMarketer, retail sales growth will slow in 2022 before returning to pre-pandemic levels next year, and e-commerce sales growth to its lowest rate since 2009 to below 10% in 2022. Despite the slowdown, e-commerce sales will hit $1 trillion for the first time in the US.

While the market digests these disparate views, the reduction in demand, however, has not resulted in the drop in emergency surcharges and extra assessorial fees implemented by some of the industry giants during the pandemic as they cling on to these additionals to drive up revenues.

Conclusion

The global last-mile delivery transportation market size was worth US$179.96 billion in 2021. As per Precedence Research, this market is estimated to hit US$ 424.3 billion by 2030 and grow at a CAGR of 10% from 2022 to 2030.

The loss in volumes and earnings of the bigger traditional carriers, the advantages that regional carriers are able to offer, and the fact that retailers are experimenting with non-traditional logistics strategies and startup partners to solve the last-mile delivery problem mark the rise of alternatives in the market on certain routes.

As per market information, as of October 2020, regional carriers were responsible for 30% of shipments and deliveries, versus 4% in Jan 2020.

While regional and local carriers may not be able to solve many of the problems e-commerce businesses face, the rise of alternatives has been noticed in the market, especially by e-commerce retailers who have a widely distributed customer base around the country as using regional and local carriers in those areas can be advantageous.

About the author

Chad Schofield is currently Co-Founder and Chief Digital Officer of BoxC, a logistics startup out of 500 Startups Batch 6 that simplifies the complexity of international parcel shipping that brings together logistics and compliance resources from around the world in a single platform.

Previously, he was the Founder and Managing Director of Three Global, a consultancy to guide and advise companies, trade associations, NGOs, and governments to adjust to changing realities of international marketing, sourcing, and logistics.

As a consultant for USAID/COMPETE Africa, Schofield led strategic planning and global sourcing by having developed a branding and awareness campaign, Origin Africa, to promote African apparel exports to the United States and Europe.