Transport providers adjusting to Amazon threat

Transport providers adjusting to Amazon threat

Established players in logistics and transportation have adapted quickly to the challenges of e-commerce.

Fears over the prospect of Amazon taking a large chunk of supply chain business away from traditional transport and logistics companies have moderated, according to a new research note from investment bank Citigroup.

The easing of those fears results from the increasing ability of logistics and transportation companies to leverage traditional business-to-business delivery networks for direct business-to-consumer sales, the bank said.

E-commerce will continue to contribute a growing share of the total earnings of well-placed private logistics players as the sector delivers on anticipated growth levels and dwarfs growth in other areas, Citigroup said.

“We see B2C continuing to dwarf growth elsewhere; fueling modest [merger and acquisition activity] and driving rapid innovation,” said the note from the bank’s transportation and logistics research lead in Hong Kong.

“Aspirations of consumers for quicker delivery and greater flexibility over deliveries and returns continue to rise. We also see low level M&A to add footprint and capabilities and synergy opportunities to emerge as B2C delivery density and service requirements approach traditional B2B,” the note said.

Global logistics company DHL expects e-commerce sales growth of around 16 percent per year to 2020, by which time the global market will be worth some $4.5 trillion. Cross-border e-commerce is the fastest-growing component of the business, with 25 percent growth expected annually to 2020, creating a market worth close to $1 trillion.

Citigroup said the private companies that will benefit most from the sector are a mix of established national champions and global players. The bank said it expects the share of revenue from e-commerce for US-based FedEx to rise to 35 percent from around 30 percent today over the coming three years, and from around 15 percent today to 20 percent in the case of Deutsche Post DHL.

“Some companies, like ZTO [China], are 80 percent e-commerce already and for more diversified groups we expect the importance of e-commerce to steadily grow.”

Opportunities for private companies in e-commerce will largely be shaped by the capabilities and ambitions of national postal companies, the bank said. The failure of postal companies to adapt infrastructure, productivity, and capabilities to the new supply chain mode was creating the e-commerce-related opportunities for the private sector.

“In China, private companies have supplanted China Post, the United States Postal Service is largely a last mile provider, and recent privatizations [e.g., RMG and Japan Post] have embarked on post privatization catch-up.  Those, like DP DHL and PTNL, with the necessary technology, capacity, and organization have prospered.”

Questions and challenges largely created by the newness and rapid growth of the e-commerce phenomenon were gradually being answered.

The bank said that demand peaks were becoming less problematic as shippers and consumers adjust behavior and that the “fears of Amazon insourcing delivery, competing for third-party heavy freight elsewhere in the entire supply chain, and delivering by drone has moderated.”

Although home delivery continued to be the primary choice of consumers, consumer surveys were indicating more willingness to explore alternatives, it said.

Contact Turloch Mooney at turloch.mooney@ihsmarkit.com and follow him on Twitter: @TurlochMooney.