CrossDock, July 13: UPS strike, Prime Day 2023, Home Depot cost savings
Welcome back to CrossDock.?
In 1997, a strike by UPS workers sent shockwaves through the US economy, causing chaos for small businesses and hospitals struggling to secure supplies. Fast forward to 2023, and the situation could be even worse, given our heavy reliance on e-commerce. "Disruptive" is an understatement; we're looking at something more akin to a catastrophe. If the Teamsters union and UPS management fail to reach a contract deal by month's end, sellers, distributors, and consumers should brace themselves for a wave of difficulties.
UPS, employing nearly a third of the US shipping and freight workforce, holds a crucial position within the logistics ecosystem. With limited transportation services available, the cost of delivery and fulfillment will soar for almost every business. While some large enterprises might temporarily absorb the costs, many will be forced to pass them on to consumers. Brace yourself for slower deliveries and frequent stockouts in stores.
As the situation unfolds, other transportation companies like FedEx and USPS are ramping up their operations to seize a portion of the forthcoming demand. Will they be able to meet the challenge? Experts can't seem to reach a definitive answer. The true extent of the impending impact remains to be seen.
In this newsletter:?
Freight and Shipping??
Potential UPS Strike Threatens Massive Disruption Amid E-commerce Boom
UPS workers' potential strike, following unsuccessful union contract negotiations, could significantly disrupt the package delivery industry, crucial to today's e-commerce-heavy economy.
UPS Strike: A Huge Blow to Strained Logistics Networks
The world of package delivery has transformed in the last quarter-century. Today, UPS shoulders about a quarter of all US parcel delivery volume, says Gregg Zegras, President of the global e-commerce unit at Pitney Bowes. A strike could therefore trigger widespread delays and complications.
While FedEx and the US Postal Service might cover some of the delivery volumes, the overwhelming demand outstrips the existing logistics network capacity. The strike could cost UPS up to $170 million daily in domestic revenue based on last year's third-quarter earnings.?
With e-commerce now accounting for around 20% of all retail sales (excluding items like gas and vehicles), and up by 25% from pre-pandemic levels, the potential UPS strike threatens to unsettle the booming e-commerce landscape. The courier and messenger sector currently employs 1.1 million people, double the figure from 1997, with UPS employing about a third of these workers.
340,000
Number of UPS workers are expected to go on strike in the coming two weeks, making it the largest strike in the Logistics sector since 1997.
FedEx Accepts Extra Parcel Volume Amid Potential UPS Strike Threat
As UPS workers edge closer to a strike on August 1, FedEx is strategically accepting increased parcel volumes for a limited time.
FedEx Steps Up Amid UPS Strike Threat
FedEx plans to accept additional parcel volume from July 17 to 21, intending to cap volume acceptance to maintain service levels for existing customers during the potential UPS strike. "No single carrier can absorb all of UPS’ volume in the event of a disruption," FedEx noted.
Existing delivery capacity is insufficient to handle UPS's daily package volume. Therefore, FedEx has urged shippers to start using their services. However, absorbing UPS's volume risks leaving FedEx with excess capacity once the strike ends and volume potentially returns to UPS, according to Jeremy Tancredi, a partner at West Monroe's Operations Excellence practice.
Retail and E-commerce???
Amazon's Prime Day Sparks Sales Surge Amid Economic Concerns and Competitive Pressure
Amazon's annual Prime Day event saw a notable increase in U.S. online sales, as customers seized the opportunity to capitalize on deep discounts. This surge reflects an ongoing consumer appetite for discounted items and experiences, notwithstanding current economic factors such as rising inflation and interest rates.
Prime Day Sales and Strategies
The two-day shopping extravaganza raised U.S. online sales by almost 6% to $6.4 billion on the first day. A significant uptick was seen in appliances and toys, with sales surging by 37% and 27%, respectively, compared to daily June sales.?
The average Prime Day spend per order also increased to $56.64 from $53.14 a year ago, according to data firm Numerator. To drive more traffic, Amazon strategically partnered with Priceline, offering travel booking discounts. Adobe Digital Insights anticipates that the total earnings from Amazon's event will range between $12 billion and $13 billion.
Competitor Reactions and Labor Strikes
In response to Amazon's Prime Day, competitors including Walmart, Target, and Best Buy also rolled out hefty discounts throughout the week. Walmart used this opportunity to attract more subscribers to its Walmart+ program by offering a 50% discount on annual membership sign-ups.?
However, amidst the sales frenzy, nearly 900 Amazon workers at a warehouse in Coventry, UK, embarked on a strike from July 11-13 due to a pay dispute. Despite this labor unrest, Amazon has assured that there would be no disruption to its customer service.
领英推荐
Visualized: Prime Day frenzy over the years
While the dust settles and the numbers come in for 2023, here’s a look back at the growth of Prime Day sales in the last 6 years, broken down into US and Non-US.
Supply Chains??
The Home Depot Targets $500M Cost Savings through Supply Chain Optimization
As part of a strategic plan to streamline operations, The Home Depot is embarking on a cost-saving mission that involves substantial modifications to its supply chain management. With a target saving of $500 million, the home improvement retailer aims to balance its pandemic-driven transaction growth with an efficient and sustainable supply chain model.
Efficiency Measures and Cost Savings
The Home Depot plans to reduce its supply chain holding capacity, according to Richard McPhail, EVP, and CFO. The move is part of a strategy to cut fixed operating costs inflated due to the increased transactions during 2020 and 2021. By fiscal 2024, the company aims to complete this endeavor. Moreover, enhancements are planned for its downstream supply chain, including improvements in forecasting, labor management, and leveraging technology and robotics.
Long-Term Benefits and Competitive Edge
Despite the cost-trimming efforts, The Home Depot's investments are expected to bring long-term benefits. Since 2017, strategic investments have allowed the company to offer next-day or same-day delivery to around 90% of the population. The company also improved its appliance delivery by handling it in-house and acquiring Temco, an appliance delivery company. The Home Depot sees significant future opportunities, particularly in differentiating its delivery services.
The Growth and Future of Electric Trucks
Recently Amazon announced that it has successfully completed 150M deliveries using Rivian’s lineup of electric trucks. Additionally, the retail giant has deployed its premier fleet of Rivian trucks in Germany as a first in Europe.?
This got us pondering over the overall landscape of the electric truck market and the tremendous growth it has seen over the years.?
The electric truck market had a size of USD 17.8 billion in 2022 and is projected to grow at a 14% CAGR from 2023 to 2032. This growth is driven by factors such as increasing environmental concerns, stricter emissions regulations, and a focus on reducing carbon footprints. Advancements in battery technology have improved the driving range and charging capabilities of electric trucks, making them more suitable for long-haul operations.?
M&A and Corporate Development??
Prologis to Acquire $3.1 Billion Industrial Portfolio from Blackstone
Logistics real estate operator, Prologis, is set to significantly expand its footprint with a $3.1 billion all-cash acquisition of a substantial industrial real estate portfolio from Blackstone. This move permits Prologis to strengthen its position in key markets while also adding a considerable number of new clients.
An Opportunity for Expansion and Deepened Relationships
The acquisition spans nearly 14 million square feet of space across multiple key markets including Atlanta, Dallas, Las Vegas, New York/New Jersey, Phoenix, Southern California, the San Francisco Bay Area, and South Florida. This substantial addition brings 77 new customers into Prologis' fold and enhances relations with 50 existing clients.
President of Prologis, Dan Letter, highlighted the compatibility of the new properties, stating that they "fit perfectly into our long-term strategic plan for growth." The deal, carrying a 4% cap rate in the first year and a 5.75% cap rate with lease adjustments, is expected to close by the end of the week. Prologis' portfolio, pre-acquisition, covered 1.2 billion square feet of logistics space across 19 countries.
E-commerce Selling??
Amazon Cracks Down to Selling Stolen Goods
Amazon has intensified its crackdown on theft, suspending dozens of sellers accused of peddling stolen goods from major home appliance brands. These sellers, risking significant business losses, deny knowledge of any illegitimate activities.
Sellers Grapple with Accusations and Appeals
The stringent suspensions have pushed sellers to investigate their supply chains for possible links to stolen goods. Amazon's clampdown comes amid a broader battle against counterfeiters and spammers that exploit its marketplace, accounting for over 60% of sales on the platform.?
Sellers face a challenging path to appeal their suspension, navigating a complex process including a rigorous interview and comprehensive document verification. However, clearing their names remains a daunting task. As former Amazon employee Chris McCabe comments, sellers face a "guilty-until-proven-innocent" situation, often struggling to assemble the necessary proof for reinstatement.
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