DEEPER DIVES: 2025 Will Be The Last Year Of Operations For Some Last Mile Carriers

Good Morning,

First, as always, thank you for joining.

While everyone is talking about peak season sales, more customers than ever are already starting to look into the new year.

Living the social media highlight real helps drive sales, but behind the scenes, retailers are struggling.

Here’s what this issue brings:

• 2025 is going to be a year of adjustment for eCommerce. Last mile is taking a beating and some of the providers you might be leaning on today, may not be here tomorrow. Let’s dive into the latest news from OnTrac and peel back the layers to show what is going on in the industry.
  

• Six trending areas that I’m watching as the world moves into 2025
  

With Over $1B In Yearly Revenue OnTrac Is Struggling To Stay On Track

This coverage map would win you the US Presidential Election.

But when it comes to last mile delivery, even covering 70% of the US population can leave you bleeding out.

While it didn’t land on a lot of people’s radar, the situation with OnTrac highlights the current state of last mile delivery.

For a while now, industry insiders have been talking about a reckoning coming in 2025.

That for a number of companies, they will get through the 2024 peak season, but that things weren’t looking good much past that.

I’m not going to be naming names in this article. But what I will do is share what’s going on and we’ll use the recent news about Ontrac’s debt refinancing deal to shine a light on what’s going on for a number of carriers right now.

OnTrac Is Looking For More Liquidity

They are one of the largest gigwork (and DSP style) last mile providers in the US. Since their merger with Lasership and their ongoing expansion efforts, they can now reach about 70% of the US population.

But they’re struggling.

Past financing deals and loans used to keep operations going through the merger and expansion initiatives are taking a toll.

If OnTrac had not secured the recent financing agreement, it would likely face significant challenges in continuing its operations and expansion plans.

What did they get?

• Access to new cash. While reported differently from different sources, it looks like this could be up to $300M (maturing in 2029) of new cash which is essential for continuing its aggressive expansion efforts and managing day-to-day operations.
  

• Extending the maturities of existing debts. This can defer repayment obligations, easing immediate cash flow pressures. This extension allows the company to allocate resources more effectively towards growth rather than debt servicing

How does a Gigwork model have high operating costs?

One thing that people may not fully grasp is how OnTrac can have the type of cash burn that they do, given how they go to market for their customers.

Gigwork networks survive by essentially paying minimum wage and only paying for the small burst of activity that they ask a driver to do.

When compared to a structure like UPS, who have company owned vehicles and a unionized workforce representing the delivery people, it’s easy to understand why it can feel like this doesn’t add up.

The problem isn’t wit OnTrac per se (but, I can all but guarantee you that there is efficiency gains and cost reductions that have not been exercised in their operations).

The number one lesson I share with all of the retailers I work with and the service providers that I support is that despite what anyone wants you to believe, logistics (transportation, warehousing and delivery) are essentially fixed cost activities.

The reason I frame things this way is to help everyone understand that in order to be able to make a service offer, you need to have some type of network in place. This means that you will commit to sortation facilities, middle mile movements and of course, sub-optimal last mile delivery.

No matter what size of business you are, there are always points where you have more business than your current capacity and you need to expand out. When you add more however, rarely do you have enough volume to immediately get you into a position where the newly added activity is covering the costs.

So, you start to sell again.

And the cycle repeats over and over again as you grow.

But eCommerce Is Growing, How Can Anyone Provider Be Struggling?!?

Volume growth is one thing.

But volume growth with an acceptable quality of revenue is another.

There are a number of factors that are putting massive pressure on last mile delivery partners right now.

And because of that, more providers than they care to admit have signed deals and taken on volume with an atrocious quality of revenue.

Basically, they have been hoping that they can stop the bleeding and plug the holes long enough to solicit and win business from more profitable partners.

But this isn’t happening.

Why?

• General Volume: While eCommerce continues to grow, it’s a much different trajectory than it was during the pandemic where a lot of these providers established themselves.
  
  To share an idea from a few weeks back, it’s easy to hide sloppy operations when you have a lot of volume or a client base that is so focused on getting anything out the door, they weren’t paying attention to the details
  

• Capacity Oversupply: Simply put, there are too many options in the delivery space. To be even more clear, there are too many options that are essentially only offering the same thing - basic drop and go delivery. Sure, people try to dress it up, but frankly, there’s next to no differentiation out there.
  

• Price: Most of the smaller or regional providers got in the door on price. They took advantage of the arrogance of UPS and FedEx and sold their services as “the same but cheaper”.
  
  While this strategy worked initially, it’s turning out to be a disaster as more players are going even lower to try to capture any volume.
  
  Add to this even more pressure now as UPS and FedEx are competing HARD on price and are offering rates that make these gigwork offers irrelevant for most large shippers (why wouldn’t you take advantage of the UPS of FedEx network at the same price as the gigwork model?)
  

• Efficiency: Amazon, Walmart, UPS and FedEx are all pouring BILLIONS of dollars into robotics, automation and other tech driven systems to reduce costs and eliminate errors. By not having these options to offer potential clients, service providers have to over leverage price in order to have a seat at the table.
  
  Additionally, they are still having to agree to SLA standards that will be next to impossible for them to live up to without some creative KPI tracking.

2025

The challenges you are seeing with OnTrac aren’t unique.

Every last mile delivery provider that you see operating a gigwork model or in a small fixed region is struggling.

Everyone is trying to race to form partnerships / alliances or to expand themselves.

The gigwork models are focused more on expansion as it’s the only real advantage they have over more traditional asset based models.

An asset based carrier would have to invest even more since they would have all of the same commitments with sort centers, trucks and labour costs, but would also have the addition of the vehicles, maintenance and fuel.

With major retailers also looking to pull back on some of the diversification focus that dominated the last few years, the market isn’t looking good for your average, run of the mill service provider that doesn’t have any unique selling proposition.

The smaller carriers don’t have enough of the market to be extremely attractive to the retailers with the largest volume.

While more attractive to smaller customers, they don’t necessarily have enough volume to keep the size of the operation going (and it’s always harder to win 100 customer contracts than 10).

What will really seal the deal is that the market is already picking the favourites when it comes to financing. UPS, Amazon, FedEx and Walmart aren’t going to allow themselves to lose on the massive investments they’ve made.

Entities like USPS are under extreme pressure to stay relevant.

Providers like OnTrac and Veho have already received hundreds of millions of dollars in funding.

Everyone is going to double down on where they have already pushed their chips into the pot.

This means that there will be even less volume and opportunity going around for the players that haven’t already locked in their market position if all they are offering is a basic service with no other benefits.

Want to know if how your provider is lining up?

Ask yourself if they really do anything that someone else isn’t already flooding your inbox promising.

Transportation Trends To Be Watching

Outside of a massive shift in activity the holidays bring, my other favourite part of the holidays is that it’s a year end.

This gets people shifting their mindset from what was to what will be as a new year (and new opportunities) open up for everyone.

Logistics has been having a rough go for the last few years.

While a lot of sites tout 2025 as a year that things rebound, I don’t think that’s what we will be seeing for most of the industry.

There are a number of challenges that are coming from the customer base that directly impact the logistics market.

The biggest in my mind are those around delays and indecision.

With a shifting US political market and a widespread shift by most first world countries to make aggressive changes to import regulations, businesses are delaying investments and holding back on strategic decisions until things become more clear.

Here are trends that I recommend paying attention to in order to maximize your business results in 2025:

1. Commercial Transportation
   The overall freight market is still depressed. Excess capacity is still in the system. Because of this, prices aren’t rebounding as analysts hoped. Until the capacity is balanced out, this won’t charge.
   
   The other side to this coin are private fleets. While the market has never been more accessible thanks to technology and platforms, more and more shippers are getting into private fleets in order to have more control over their supply chain.
   When I was in the food industry, we kept a really tight control over transportation and delivery movements. Supporting that dedicated fleet of activity just for our business allowed us to have the most control possible and keep costs in line with what the organization could support.
   Private fleets in the US drive about 40% of the total market volume these days. That’s a lot of freight that is locked up and never hits the open market.
   

2. Increased Demands From Shippers
   When it’s a shipper’s market, they set the rules. In order to keep costs in line and to maximize shipper side efficiency, more business than ever is coming with VERY strict expectations. And while this might seem like “no big deal” when you are trying to close the sale, too many service providers are getting into relationships where they have over promised and do not have the capability to perform at the level of operational excellence to profitably serve these shippers.
   

3. Warehousing
   Skyrocketing demand to get product closer to consumers. Shippers / Brands / Retailers and to have a more unified view of their inventory and to be able to manage across multiple sites as if it were one.
   Being a land locked single footprint provider is going to get more difficult as more brands and retailers look to better align with social commerce and regional different amoungst their customer base.
   

4. Tech & Automation
   Everyone is investing. To go into meetings these days and to not be able to have these options available to the clients you are looking to serve sets you back. Way back.
   Service providers need to lead from the front and to start making investments into the future of the network and play the same type of long game that UPS and FedEx are realizing is required (Amazon and WM have been doing it for a while now).
   

5. Sustainability
   No one will pay more for it, but they all want it.
   

6. Cost Containment
   There’s no relationship in the world that will have a shipper overpay to a significant degree past market.
   
   Some will pay for the additional services and how well you integrate with the business, but no matter how well you are doing, everything has an upper limit.
   
   Operational excellence and a strong discipline around your strategy is absolutely essential if you are going to be a strong provider in the market that will resonate well with the brands you serve.

Trends and always one of my favourite areas of discussion.

Feel free to drop any comments in the AMA (link at the top), to respond to this email, or share your thoughts on LinkedIn (in a post or, EVEN BETTER … with Matt and I any Monday morning on Wake Up and Deliver!)

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