How can ECP ( Express , Courier and Parcel ) business ensure Profitable Revenue Growth from the growth in E-Commerce Business

The E-comm business is growing like never before with Amazon ruling in US which is now the second biggest market after China maintaining it's position as number 1 closely followed by JD.com of China and Macy which has done well to shut it's stores and shift the resources to E-comm . Alibaba is number 5 just behind Walmart which is the biggest retailer followed by Apple ( yes Apple is the 6th largest E-comm seller in terms of revenue because of the sheer pricing power of it's products ) .

Priceline and E-bay are the other 2 American companies at 7th and 8th position followed by the twin Otto which is a mail post delivery based out of Germany and France .

Japan's Rakuten is the 10th largest and these rankings were based on 2016 numbers which would see changes in the way Amazon and Alibaba has grown themselves

The total Global size of the E-comm in 2016 was USD 2671 Billion and had grown by over 18 % over previous year . To put the numbers in perspective the total human population above the age of 15 years is 5.5 billion out of which 65 % use internet and 26 % buy through the E-comm companies which is 1.46 billion .

If we look at these numbers the average spend per person actually buying through E-comm is USD 1800 appro

So if we extrapolate these numbers with same growth and population growing at 3 % and Internet users buying growing to 35 % , ( growing at the current growth rate of around 20 % ) by 2020 the market will easily grow to USD 4000 Billion . If we now look at the Logistics billing itb should be on a very conservative basis 5% to 7 % which means USD 200 to 250 Billion . Adding the B2B and C2C the total market size should be around USD 500 Billion.

If we look at the number of the present three biggest players their courier / express cargo turnover is around USD 120 Billion out of the total pie of USD 200-250 Billion . So there is clear opportunity to grow this by 100 % plus .

The major share of this market is broken / divided as follows

Country Wise :

USA , China and UK : In totality they have 68 % of the total market

All other countries put together is 32 %

Domestic accounts for 75 % whereas International accounts for 25 %

This includes all three B2C , B2B and C2C with the largest share presently with B2B but shifting very fast towards B2C . C2C is mainly into auction and 2nd sale goods which is a small segment comparatively

But after looking at all these glorious projections and great news for employees and shareholders and shareholders cum employees the only element which worries is the profitability . Even with all this growth the Profit margins on an overall basis for the industry is around 5% to 9 % with UPS having the most healthy margins .

So from the above data it looks amazing times for companies with the Networks in place to pick up the goods from one place , ship it and deliver it to the end user.

Money is seldom a issue as the custody of goods is with you in B2B and you can control the credit limits . In B2C it is either prepaid or COD .

So both sales and collecting cash looks promising unless the finance team or the sales team does something terribly wrong.

But still the industry faces challenges on it's profitability and it is largely on account of 4 to 5 major reasons in my views and with my experience in this industry where we turned around the results quire successfully achieving sales growth, profits and also collections and achieved all the three Vanity , Sanity and Reality remembering what my boss taught me that " Sales is Vanity , Profit is Sanity , but Cash is reality "

Sorry for digressing from the topic but you feel good when you are able to demonstrate something positive the taste stays with you. And it is always better to live with good memories rather than bad ones.

The biggest reasons in my views are

1. You sell price to the customer and not your competence .

2. Your Freight Accounting is wrong where you are billing the customers at say X , whereas the cost charged by the Airline is Y ( either due to volumetric or missing/under billing etc etc)

3. The third reason is when you don’t know the costs of getting your goods from one city to another and pay 3 times the cost and also not take tax benefits on VAT charged.

4. And last but not the least when you are unable to sell and need re-sellers and that too at high discounts and high credit .

5. The cost of last mile delivery both at Origin and as well as Destination.

While the first four are abnormal generally controlled with exceptions which any commercial and analytical minded person can see and correct the last one is something which everyone is facing a challenge.

And it is because of the too much choices given to customers

1. Where s/he needs it in a particular time and in fact all of them during the time they are free 

2. They have a right to refuse and ask for a re-delivery

3. They can also chose the location 

4. They are in control of the entire process with very little leverage with the delivery companies

Though all of us the E-comm and courier now understand the problem the situation is that of putting the bell in a cat’s mouse and who will take that risk knowing very well that all these E-comm companies do not produce anything but customers .

So let us look at the technicalities of the same

First there are certain peak hours when most of the deliveries are required

The vehicles needs to be shared , So Uberization of delivery trucks is one solution , Common small storage points ( like UPS my store may be used to store in various areas where if customers want they can pick up too )

Second there are no fixed places and customers sprout anywhere on the delivery maps

Customers would add on and there would a pattern emerge sooner than later as E-comm buying is also as much of a habit/hobby as a need and there would be repeated deliveries / pick ups from same persons and then once you get friendly they don't mind if you are a little late or deliver to their old granny too.

Thirdly there are non deliveries even after going to the customer at designated places

As long as you are paid it should not be a issue and reverse logistics is a great business to be in which creates sales of courier .

The routes are too much front and back to serve as per customer's wish list

Once you understand the timing flexibility , routes and implement it more scientifically through a optimized Route based software like Orion you can overcome that too.

The last issue is excessive demands during peaks and how to manage that

UPS has already introduced an extra charge for the same and others will follow soon and with that we need to hire temps .

So how to tackle them ( suggestions after each of the problem in Italics )

After thinking it through I have few suggestions for the same and I am sure if they are implemented ( reward . penalty based ) it would certainly help this cost go down and the companies will have a healthier bottom line also.

Nevertheless to say UPS is the clear leader managing all three consistently quarter over quarter year after year .

Please note that these are my personal observations and do not have any correlation with any of my previous jobs.

@Logistics#UPS@Courier