DEEPER DIVES: The Biggest Reason Networks Like OneRail Can Never Compete With Amazon

Good Morning,

First, as always, thank you for joining.

The last week’s been busy. I’ve done a few thounsand kilometers making client presentations and setting new meetings.

I’m back in Toronto for the next few days. For anyone part of the community that’s in the area, I’m happy to do what I can to prioritize a meeting if you want to take advantage.

DM on LinkedIn or you can email me.

You might have caught my Domino’s “Rocktman” post. That thing blew up and went viral. Guess people still want to believe there’s a way ultrafast delivery makes sense!

Here’s what this issue brings:

• OneRail pitches itself as giving you the ability to provide the “Amazon Experience”, but are they really?
  

• China’s domestic retail market is grinding to a hault. While they have no problem selling US customers low price / low quality gear, all of the big players are looking to stop the practice back at home
  

• Amazon’s back in the courts. The Consumer Product Consumption Agency dropped a bomb on them.

How Far Can You Get On A “We Can Do It Too” Stragegy?

I used to tag a lot of posts with that quote.

There’s a liberal use of the word innovation these days. It gets applied to everything from small variations to doing the same job but with different tools.

I came across this podcast interview between Mike Bush and Bill Catania (CEO of OneRail). In it, they are talking about OneRail’s network, what they do and how they are creating an Amazon experience for anyone by being a “node agnostic” player.

OneRail is a marketplace that connects shippers (from reatilers to wholesalers) to available delivery capacity.

Having pivoted to SaaS in 2019 after starting out as a courrier company, they have a connected network of over 12 million drivers, 650 carrier/courier companies, and 65+ logistics companies (3PLs).

Being one of the first delivery platform aggregators paid off for them.

Here’s how they work at the core: OneRail uses a Smart-Matching API to "right-size" deliveries to vehicles with the highest-rated, lowest-priced drivers while also dispatching the right delivery to the right vehicle.

With those, they promise to help their clients get deliveries to end consumers anywhere from 30 minutes to a two day service.

The “Amazon” experience is what the end consumer sees.

While it may seem great as a retailer or d2c brand to be able to make this promise, it’s important to understand that you are doing it in a very costly way.

Amazon has been building for over 25 years in order to make the promises that they do. They have invested billions in infrastructure. Billions in proprietary technology. Billions in systems and automation.

And billions on their fleet and DSP programs.

With that investment, they have been able to set consumer expectations.

They also keep raising the bar on those promises because it gives them a competitive advantage.

They either get to offer something their competitors can’t, or they get their competitors to spend more money per package (lowering their profitability).

The reason why Amazon has a cost per package of around $1.25 comes from a finely tuned ecosystem. All of it based on the fact that it’s one of the largest shared delivery networks in every country they operate in.

They use their sales marketplace (for product), their inventory controls, warehouse expertise and last mile fleets and hubs to set consumer expectations.

In every part of the system, they have visibility, conrol and know how.

While a retailer or other shipper can use platforms like OneRail, they should do it knowing it will always be a more expensive option than proper capacitized routing.

Why?

Because all of the activity requires multiple pick-up and delivery events. They aren’t operating warehouses with millions of skus in inventory and ready to ship.

They do consolidate volume where they can and from different retailers, but since those retailers aren’t working together in the same systems and in the same warehouses, you will never get anywhere near the level of optimization Amazon does.

This is a major reason why OneRail has so many people connected to their platform.

The offer they make that appeals to courriers is to pick-up additional volume when and where they need it (i.e. filling holes in other activity they are already doing).

The play here to marketplace unused capacity in all of the delivery networks is well done. Many courriers will take on the additional work because they have dead space in the truck.

That “air” is contributing $0 at the moment. Anything is better than nothing. If a courrier is already going to be in the genral area and won’t incur additional costs for the activity, it can be simple boos.

Here’s are some reasons why can cause challenges for a shipper:

• Courriers have to accept offers. Based on what work they already have going on, and what the offer is, how long it takes to get claimed and by who fluctuates

• You get drivers that regularly accept jobs without fully reading the details, this can impact the delivery quality

• Drivers are incented to be as fast as possible to get more work. This type of pressure system often influences the customer experience

Whether it’s OneRail or someone else, the only way to get closer to a more effective ecosystem is to manage the inventories, orders and warehouses / hubs where product is kept before going to market.

When you can do that with enough customers, you get the ability to create the right levels of density to maximize your ROI.

Infrastrucutre is becoming a key strategic weapon.

What markets you access, where your facilities are located, how is product moving between sites / states and how well can you get drivers loaded and out making deliveires are all key successfactors.

These are the types of thigns you need to explore these days as a retailer.

The danger if you don’t is building your fulfillment strategy around market options that are inherently less efficient than what Amazon, Walmart, UPS, FedEx and USPS offer.

As they raise the bar higher, and strucutre deals to align to their models, you are left with rising fulfillment costs just to look like you are keeping up.

While it may worth it for the volume you have currently, you should always be thinking of your growth and future state.

Do As I Say, Not As I Do. China Wants The US To Keep Buying Cheap Stuff While It Stops The Practice At Home

China has a problem.

It’s not growing like it needs to.

Retail spending and sales growth still outpaces the US, but it’s about half of what it was just a few years ago.

This shift in consumer spending is causing China’s biggest companies to do a 180 on their retail strategy.

eCommerce platforms are transitioning from ultralow prices to focusing on sustainable sales growth.

Douyin, owned by ByteDance (Tik Tok) had its GMV growth slowed to 30%-40% in the first half of the year, compared to over 50% the previous year.

Douyin recognized that its live commerce sales approach couldn’t consistently offer the lowest prices, potentially conflicting with a positive user experience.

Alibaba’s Taobao is shifting from a “five-star pricing system” to a “Store Experience Score” system to reward good service.

Taobao has a seen a rise in buyers through its platform. The changing consumer demographics indicate a desire for quality products versus those made as cheaply as possible.

JD.com is also adapting by focusing on product quality and user retention rather than just low prices.

This brings up two things for me.

1. What is going to be the imapct to Western economies if low cost goods can continue to enter the system with little to no challenge?

2. If vendors/merchants in China start increasing their quality, this will have a negative impact on other countries large brands who have been trying to hold their market share based on quality

When I see these types of shifts in the market, it makes me double down on value.

Brands need to truly connect with their customers in order to thrive. Transactional / opportunistic sales will keep happening, but building your business on them will be risky.

Those that have a strong customer focus, create communities, invest in other avenues to capture attention or to generate revenue in new and innovative ways will be the ones that will prosper.

It’s Sold On Your Site And Through Your Warehouses. You’re Responsible

Amazon is being held accountable for listing thousands of potentially harmful products.

The US Consumer Product Safety Commission (CPSC) ruled that Amazon must initiate refunds and recalls for these items.

Even though these products were sold by third-party sellers, Amazon was deemed responsible as a distributor under its "Fulfilled by Amazon" program.

The CPSC identified over 400,000 dangerous products as part of their investigation and court filing.

The types of products in question include defective carbon monoxide detectors and children's bedwear failing flammability standards.

Amazon took a page out of previous court cases and argued it was not a distributor but a logistics partner (tantamount to ongoing legal challenges of workers being independent contractors or employees).

The judge wasn’t having it.

The CPSC ordered Amazon to notify consumers and remove hazardous products from commerce.

In an official statment, Amazon shared their disappointment and intention to appeal the ruling.

That said, they are still making changings to the “Your Orders” page to more easily and effectively communicate concerns and issues with products you have purchased.

This news totally slid under the radar.

It could have massive implications. eCommerce is full of marketplaces. Over the last few years, fulfilled by options or endorser has become common.

Walmart, Target, eBay, Etsy, Alibaba, etc.

If handling these products becomes a liability to manage, it could serverly limit the interest of retailers to partake - putting them even further behind in a direct to consumer fulfillment world because they lose out on the opportunity to increase the density moving through their systems.

Players like Walmart and Amazon are too far invested. Amazon for example sees about 60% of its sales come from third-party sellers. They will do what they need to in order to comply.

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