Third-party logistics (3PL) providers and last-mile delivery companies are unlikely bedfellows. Many 3PLs don’t understand what last-mile carriers do and who they are.
Out of necessity, however, the status quo seems likely to change. Last-mile delivery demand continues to explode in the wake of the COVID-19 pandemic. Amazon.com Inc. (NASDAQ:AMZN) is elevating customer expectations and continually raising the retailer performance bar. The response to these secular and intertwined trends will spawn alliances that were unimaginable five years ago.
The Transportation Intermediaries Association (TIA), the leading trade group of transportation-based 3PLs, and the Customized Logistics and Delivery Association (CLDA), which represents last-mile delivery companies, exemplifies the new state of courtship in what has become “delivery nation.” On Tuesday, TIA and CLDA released a joint white paper that concluded the two groups were effectively made for each other, with TIA’s critical mass of shippers becoming a fine fit for the expertise of the approximately 8,000 last-mile delivery firms, many of which offer logistics solutions to demanding and specialized distribution problems across a wide range of verticals.
Combining the strengths of the two groups will foster deep relationships that go beyond shippers and 3PLs buying a last-mile firm’s services, the white paper said. This will allow them to carve out an increasingly powerful niche that big parcel-delivery companies would find hard to penetrate, the paper said.
In addition, 3PLs and last-mile carriers will gain business as big carriers cherry-pick their traffic and shed what they consider to be marginally profitable accounts, said Jason Burns, expected to be CLDA’s next president and the corporate development officer at Dropoff, a last-mile delivery company that operates in 22 states through a network of owner-operator drivers.
“There’s a huge opportunity over the next three to five years,” Burns said in a phone interview. TIA officials were unavailable to comment at press time
Yet both groups face tough challenges. Third-party providers have struggled to integrate with disparate technology systems in a fragmented last-mile delivery market. Their shipper customers also are pushing them hard to expand their last-mile offerings. Burns said that the technology gap has narrowed somewhat but that it remains an issue.
At the same time, final-mile carriers are faced with Amazon chomping at their market share, the by-product of its landmark move in 2018 to launch a Delivery Service Program (DSP) in which it seeded startups to start local delivery services.
The DSP concept is designed to compete directly with FedEx Corp. (NYSE:FDX) and UPS Inc. (NYSE:UPS). However, final-mile carriers that chose to remain independent would now have to deal with similarly scrappy entrepreneurs that had Amazon’s might behind them. The program today spans five countries, with more than 1,300 delivery firms and 20,000 delivery vans distributing goods from more than 390 warehouses, according to the white paper.
TIA and CLDA said the mission is to differentiate their portfolio from Amazon, and to offer alternatives to the national networks of FedEx and UPS, which last-mile carriers don’t really compete with. “We are not going to compete with FedEx [on] pricing,” said Tim Cocchia, COO of Tucson, Arizona-based Xcel Delivery Services, in the white paper. “We don’t do low-dollar-type jobs.”
However, there might be some degree of competition on the geographic front as last-mile companies with limited infrastructures build scale through internal growth and acquisitions, the groups said.
The white paper was also an outreach of sorts to final-mile carriers that had hooked up with Amazon’s DSP and had built their businesses around the company, only to then discover how easy it was for Amazon to cut them out of the picture. John Rydel, who sold his company, Priority Express, to Atlanta-based 3PL Capstone Logistics last October and established a last-mile division within Capstone, explored the Amazon DSP model in late 2018 but couldn’t figure out a path to profitability.
Rydel also said that he was put off by Amazon’s treatment of its DSP partners.
“We started to hear horror stories of businesses that were providing good services and then Amazon would just pull the business from them,” he said in the white paper. “Some went out of business.”
Amazon, said Burns, has “bled out a lot of people” in the last-mile segment. The pattern of use and discard should be a cautionary tale to TIA and CLDA members that it is much better to build a different mousetrap than to erect a similar one. “Don’t chase the fool’s gold,” he said.