DEEPER DIVES #0005 - Rapid Cost Cutting Doesn't Keep You Relevant

Good Morning,

First, as always, thank you for joining.

I’ve been deep into a number of projects this week. Inspired by that work and a number of conversations with different retailers, you’re going to get my uncensored thoughts on the current state of the logistics market for the majors.

I launched my AMA form. This is a way you can ask me questions (anonymously) and I will do my best to answer these through posts on LinkedIn or here in the newsletter (the ones with more meat to them will always be a Deeper Dive)

Here’s what this issue brings:

• Featured Article: The biggest couriers are trying to rebuild their moat. Here’s where I see FedEx and UPS going even though they aren’t saying it

• Broader Focus: What do the retailers you’re selling to actually need to buy?

• From the Community: How much is too much when just starting out

Taking From Tech, How Logistics Is Moving From a Service to an Ecosystem

Being really good at one thing used to be enough.

You could have the best product or the best service and you could build your entire empire on it.

Some of the biggest companies that you see today in eCommerce started as simple features on the Shopify app store.

It worked because everyone loved having a specialized tool for a task, and since you could install as many as you wanted, there was no barrier to getting all of the best stuff.

But these days, that’s not working anymore.

People are tired of having 537 apps via separate installations.

They’re tired of not having full interoperability between all of the parts of their system.

Everyone loves the features, but they also want them all together. And to be able to manage everything all at one.

This is one of the biggest benefits of Apple’s products … “they just work”.

Tired of Transactions

The article I wrote this week about FedEx got tons of attention.

They stated that they were grounding 37 planes as a result of soft air freight volume.

I shared in the article that’s not true. There is no shortage of air freight volume. There’s a shortage of people only going to UPS or FedEx to get it done however.

I’ve spoken with multiple logistics firms all tied to Asia. Air freight requirements are jumping so quickly that everyone is looking to buy planes.

There’s a desire to have more control of the delivery experience. To be able to make whatever promises you feel you need to in order to gain market share and win more customers.

You aren’t going to do that by living by someone else’s playbook.

While UPS and FedEx are both currently involved in massive cost cutting efforts as a result of volume shifts - they aren’t broken up by it.

They know that the volume that they have been moving for the likes of Amazon and others from different parts of the world is transactional - and getting more expensive to secure each year.

The bigger the logo, the lower the price they want to pay.

What’s the point of having a sprawling logistics network if all you are doing year after year is the same activity for less margin?

Forging the Future

While the cost cuts get a lot of attention, it’s the other things going on that are the real story.

Both FedEx and UPS are strategically building to rapidly expand their ecosystem (whether you agree with their strategy or the perceived value that’s a different story).

Their goal is to be an end-to-end system - a one stop shop, with a full service offering for the brands and segments they work with.

• UPS acquires Happy Returns

• UPS and FedEx start shifting service frequencies to rural markets

• Both couriers rejig their air services and commitments

• FedEx signs a deal to use Dollar General Stores as PUDOs

• FedEx partners with Microsoft on a logistics platform for retailers

• UPS is spending billions to further automate facilities

They are facing huge challenges from Wall Street and they know that they cannot sit back and keep doing the same things and hope that customers choosing them over alternatives.

Both are going to get focused on being full managed service providers for eCommerce activity.

They are tired of plugging into everyone’s platform and having any 3PL be able to get the benefit of next day or two day shipping on their backs. In the same way that Amazon used them until they didn’t need them anymore, both FedEx and UPS are going to start taking back more customer control.

Even though each offer a range of solutions, they don’t typically promote or publicize those activities as much as their delivery.

UPS for example has over 35 million square feet of distribution and warehousing space. Over 1,000 locations in 120 countries.

While a lot of these points are currently used as hubs in their network as goods move across the globe, that’s what they are going to change.

Why have someone warehouse with a small provider when you can do it yourself.

Amazon has shown the massive flywheel of benefits they are getting from controlling more points in the value chain and how they are using it as a whole offer in order to continue to strengthen their market position.

Coupang and Alibaba are also re-investing in their logistics capabilities and continuing to develop more “in house” innovation.

UPS and FedEx want in.

By doing this, both carriers are looking to wrestle back more share of wallet while also:

• Enhancing control and coordination

• Improving costs

• Improving data accuracy and insights

• Improving margin by selling more value

• Mitigating risk

• Increasing areas of innovation and customer experience

I would not be surprised to see a major announcement later this year by both of these players after having secured deals with major retailers in the domestic US.

Customer Experience Is Key. Why eCommerce Brands and Retailers Keep Playing It Safe

“The promise to our customer is two days, that can’t change”.

I had this said to me in a conversation last week.

Even though any retailer you speak with will share a host of other objectives, what trumps them all right now is:

1. Price

2. Executing the customer promise

The vast majority of the business out there if you are a warehouse provider, transportation company or a last mile delivery service is with retailers who are afraid to make changes.

While your service may be better, it’s likely more limited in capacity or reach than some of the larger organizations they are already working with.

Having to vet and change suppliers is risky right now.

Brands may not love everything about their current situation, but it’s what they know.

Research into the psychology of choice shows that up to 80% of people will stick with what they know versus trying something new. The fear of uncertainty is real.

That’s a huge hurdle to overcome.

What Strategies Can You Use To Win Hearts and Minds

In order to get these customers to say yes, you need to make a killer offer.

This doesn’t mean you have to be the lowest price, but you absolutely have to price in a way that the value you are putting across is an amazing deal in the CUSTOMER’S mind (not yours).

Next, you need to mitigate the risks. This means starting smaller than you would want to. Maybe even smaller than makes sense for the type of activity you do.

A pilot project is a great way to build confidence quickly with your retailer.

Let them start small with you and see how well you will perform. How there is no risk to their customer base or their current sales trends or operational losses.

Build a solid staged plan to step-up activity at planned intervals - at each stage based on the performance of what is being done until that point. The more aggressive your pricing, the shorter your intervals should be.

Give them more TLC and reporting. Be proactive with how you are going to communicate, measure SLAs and deal with issues. Highlight your contingency plans and what will be the factors that trigger those to activate.

The market is brutal right now. No one wants to lose an inch.

Remember that when any service provider is calling on retailers, everyone says the same thing about why their service is better than anyone else’s.

Move away from telling and asking for big swaths of their business.

Show them you want to earn it.

What Should We Be Focusing On?

That’s a loaded question.

It’s what I got this week from a start-up I’m working with in the US at the moment.

Here’s the thing. There’s always going to be something else to be focusing on.

When I am supporting young companies and teams and they are feeling overwhelmed with everything going on, I always encourage two things.

First. Get the basics right. Every day. 

If you are having service failures, if you are firefighting, or your world is a non-stop whirlwind - always keep your eyes on daily execution and working the kinks out of your processes.

Never build a house of cards.

Second. Three things. That’s it.

Don’t have more than 3 primary goals you are working on at any one time. When you’re a small team and people are wearing many hats, it’s easy to take on too much.

Your business will be better off working on a fewer things doing them with a high degree of quality of design and implementation versus 10 things that were done half right.

Once your foundation is solid, then you go high.

That’s it for this week. Thanks for being here.