Why Tech Giants Are Focusing on Trucks, Drones and Ships
Business Insider’s scoop on Amazon creating an Uber for Trucking app isn’t a surprise. LogTech venture capital investments have been growing rapidly these past years, as recently reported by CB Insights. What’s more, Alibaba founder Jack Ma announced earlier this year that the Chinese giant would invest nearly $16 billion dollars in logistics over the 5 to 8 years, while a Chinese logistics provider in which it invested $256 million dollars is contemplating an IPO. To top it off, Uber’s own Uber for Trucking app was soft launched just weeks ago.
The takeaway is clear – companies that have focused on ecommerce and fulfillment are expanding across the supply chain, leveraging vast amounts of capital to expand their future business.
- Increased customer expectations
- The Ecommerce Cold War
1: Increased Customer Expectations
Ecommerce sales have grown wildly over the past two decades, reaching nearly $2 trillion dollars annually (that’s more than the United States’ annual exports). This was driven by growing Internet access and customer education, while mobile devices are enabling purchases anywhere, anytime (1/3 of Black Friday’s sales were made on mobile devices this year).
Ecommerce’s popularity is upping the ante, with delivery playing out as one of the major battlegrounds. A full 50% of customers admit that delivery factors, like delays or costs, are enough to tank a purchase. As a result, two day, same day and then two hour delivery have gradually rolled out across the ecosystem, first as a benefit and increasingly as a bare minimum.
Drone delivery is the next frontier, whether by air or land. Amazon first announced the concept of Amazon Prime Air leading up to 2013’s holiday season. While it seemed years away, this week the first “pilot” drone delivery took place, delivering a small package in the UK within 13 minutes of order time.
But drone delivery comes at a price – an estimated $0.22/mile for delivering a 5 lb package. According to Freightos Marketplaceresearch, it could costs as little as $0.22 to ship a 5 lb package the full distance from Shenzhen to Los Angeles. Basically, the 7,236 miles from China to the US may have the same shipping costs as the last mile.
Amazon hasn’t shied away from expensive shipping; it spent a full $3.9 billion on shipping in Q3 2016. But there’s no such thing as free shipping. That spend will need to come from either the customers, who will pay for the convenience, or reduced from other points in the supply chain (which is where less-sexy but more impactful supply chain innovation comes in).
2. The Ecommerce Cold War – Jack and Jeff
Alibaba and Amazon are shaping up for a global battle.
In 2015, Amazon opened a storefront on Tmall, a website owned by Alibaba. But the powerful lure of the growing Chinese middle-class, as well as the fact that a full 6% of Chinese ecommerce purchases were cross border (a number expected to increase to 25% by 2020), was a compelling enough factor for Amazon to launch Amazon Prime services in China this year. Global expansion is a key priority for Amazon, as it consolidates the US market and continues to grow, putting it directly at odds with local markets.
One byproduct of this is that a supply chain that spans the world can provide a huge competitive advantage in new markets. Helping foreign sellers gain access to global markets appears to be at least one of the factors in Amazon registering as an international freight forwarder late last year, while also indicating that it views logistics companies as potential competition.
Alibaba isn’t taking this sitting down. With an 80% market share in China, it’s been working on building an underlying physical infrastructure in the US with investments in Jet.com, Lyft and Groupon. It has encountered difficulties while doing this, including a sale last year of 11 Main, a local marketplace. Alibaba’s real competitive advantage may lie in its anticipated rapid development of the local Chinese logistics infrastructure, which could give it ownership of low origin prices for exports as well as fulfillment on shipments to China.
3. Everything as a Service
One result of the Ecommerce Cold War is an attempt to expand services across the supply chain. Amazon started with online sales, before expanding to fulfillment, warehouses and then delivery. Each time, it leveraged technology and market penetration to replace existing vendors and reduce costs.
Despite the 10+ Uber for Trucking solutions out there, none have Amazon in their name. And none come close to the volume that Amazon already reaches. Problems in Amazon holiday shipping in past years pushed it to lease a full cargo plane fleet; there’s no doubt that excessive spend on trucking, as well as the ability to better serve the growing Fulfilled By Amazon (FBA) service the accounted for 50% of sales on Amazon last year, are a good incentive to enter the trucking fray.
If successful, this business could scale beyond Amazon. The company has a track record of taking internal tools it builds, rolling them out to broader Amazon usage and then turning it into a service (think Amazon Web Servers and FBA).
Beyond using Amazon’s Uber for Trucking service and drones for freight delivery and last-mile package shipping, there’s a chance that existing trucking companies and USPS may be threatened down the line by these platforms.