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Wake-up Call for Logistics Firms

Published on August 12, 2016 by Prabaldeep Paul

E-commerce pioneers such as Amazon and Alibaba have been steadily spending on and building capabilities and infrastructure to control all aspects of the supply chain, thus emerging as direct threats to retailers and FMCG companies. In response, big brands in retail and FMCG (read Walmart, Unilever, and the like) have made multibillion-dollar acquisitions to shore up their defenses against the e-commerce giants.

The battle lines have now been extended to logistics.

Over the past year, we have been hearing about Amazon gradually building in-house logistics – freight-forwarding license in China, drone delivery, leasing aircraft, preparing a fleet of Amazon-branded trailer trucks, etc. Last week, the company unveiled its own cargo airline, Prime Air (same name as that of its drone program). Wake-up call for logistics firms

Alibaba also has all the resources to expand its logistics capabilities. Cainiao, an Alibaba-backed logistics company, has supply chain investment plans worth $16 billion.

Surprisingly, unlike the retail industry, the logistics players seem to be in no hurry to address this threat to their business. In fact, most players, including FedEx and DHL, have been downplaying these developments. One may argue that the threat posed by Amazon and Alibaba to the pure-play logistics players is not as immediate as the threat they pose to the retail incumbents, and that while Amazon and Alibaba can influence almost all aspects of retail, they may be able to influence only certain aspects of logistics.

But things are changing – fast.

Deutsche Post/DHL has lost about a third of its market share to Amazon after the latter started delivering its own parcels in Munich. If this service is expanded throughout Germany, Deutsche Post is likely to lose 40-50% of its home market share. Similarly, Royal Mail was forced to lower its forecast after Amazon launched a similar program in the UK in 2014. This program can be easily replicated elsewhere across the globe.

Both Amazon and Alibaba have a treasure trove of data from their delivery networks across thousand cities across the globe, which they are using to address, among other things, the “last mile problem” and are also increasingly targeting the middle and first miles of the shipping chain – not to mention the benefits and new opportunities arising thereof.

Also, the target is not just conventional delivery – they are looking into drones, using robots in warehouses, trying on-demand delivery (Amazon Flex, GoGo Van, etc.), all of which can drive efficiency and costs. Sooner or later, Amazon and Alibaba will bring the full force of their knowledge to bear on the logistics industry, and therefore, it is time for the logistics industry to wake up and act.

Acuity Knowledge Partners has been assisting logistics firms with technology-tracking and assessment services to help meander through this fast-changing landscape of converging logistics and technology. We have helped companies understand the impact of business and technological developments, both internally (functions) and on external business, and identify opportunities arising from these developments, at an early stage, so as to create an advantage and differentiation for the firm.


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About the Author

Associate Director, Strategy Research and Consulting

Prabaldeep Paul leads the Strategy Research and Consulting practice at Acuity Knowledge Partners. He has over 11 years of experience working on assignments related to growth strategy formulation, go-to-market strategy, market entry and expansion (buy/build options), benchmarking, business transformation, process improvement and related areas.

He works closely with management, strategy, corporate development, competitive intelligence, innovation, procurement, and client teams across multiple industries, with focus on logistics and procurement, CPG and retail, hi-tech and digital services, private equity, and industrial goods.

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