Welcome to the December issue of CrossDock, our monthly newsletter that provides you with the most recent stories and insights on the warehousing, and e-commerce sectors.
This year due to the widely anticipated worldwide recession, labor challenges, and ensuing spikes in prices, the e-commerce sector must overcome enormous obstacles before it can eventually get back on track.
Although overall retail remains robust, e-commerce retailers are forced to compete for profitability and enhanced customer experience due to the effect of inflation on consumer spending and the revival of in-store purchasing. The overestimation of retailers' demand forecasts before the holiday season results in inventory accumulation, which slows supply chain operations.
Even though the majority of consumers' top concerns are inflation fears and the possibility of a recession, consumers are not planning significant reductions in holiday spending beginning with the holiday season.
Retailers including Amazon.com Inc. and Walmart Inc. are prepared for slower online growth and more price rivalry in 2023 as U.S. shopping trends reset following more than two years of pandemic-driven disruption. Most popular brands are expanding their omnichannel and focusing on social commerce as it is anticipated to generate $30.73 billion in sales in 2023.
Despite falling short of growth expectations and the pandemic's proliferation, logistics carrier partners and retailers are expanding. This edition unfolds how top market players are overcoming challenges and remaining profitable.
FedEx and UPS are increasing their price per package this peak season, while Walmart is launching drone delivery services. Amazon is poised to become the top delivery service in the U.S.; on the other hand, retailers like Macy’s, Ulta Beauty, and Tilly’s are using their stores as distribution centers to cope with orders.
Below are the top stories that happened in December:
- DHL Supply Chain will let go of Nearly 400 associates from 2 facilities in California
- Amazon is accused of failing to report warehouse injuries by a U.S. regulator.
- Walmart launches drone delivery service in Arizona, Florida, and Texas
- Amazon is anticipated to surpass UPS and FedEx as the top U.S. delivery service by early 2022
- FedEx and UPS see a decline in parcel volumes but an increase in revenue
- More stores are also serving as distribution hubs for online orders
DHL Supply Chain will let go of Nearly 400 associates from 2 facilities in California
DHL Supply Chain is terminating 394 employees across two Livermore, California, facilities. With effect from February 12, 2023, 350 employees from one of the sites in Alameda County and 44 from the other will be laid off.
Impact of Layoff:
The staffing changes are a result of a planned strategy shift. It will impact forklift workers, material handlers, kitting technicians, and other supervisors. The facilities will continue operating despite the layoffs.
Due to the ongoing expansion of the company's overall operations, DHL will provide impacted employees priority consideration for openings at nearby DHL Supply Chain locations.
The previous few years have seen a tremendous increase in the operating footprint of the DHL Supply Chain. In October 2022, the business intended to hire 12,000 warehouse workers to deal with projected peak season sales.
DHL Supply Chain and Locus Robotics announced deploying autonomous robots in September in response to growing customer demand to aid with order fulfillment at two of its Ohio warehouses. DHL will spend $400 million to increase its capacity for cold storage in addition to purchasing a 1 million square foot distribution center in Indiana, making it its eighth site there.
Amazon is accused of failing to report warehouse injuries by a U.S. Department of Labor
The U.S. Department of Labor said on Friday that Amazon failed to accurately record work-related illnesses and injuries at six facilities across five states as part of an ongoing investigation into the company's safety practices.
Amazon is facing $29,000 in fines after being fined by U.S. Occupational Safety and Health Administration (OSHA) for 14 different record keeping infractions. OSHA penalties are often far less severe for record keeping violations and cannot generally exceed $14,500 per violation.
The citations pertain to two facilities in New York, one each in Colorado, Florida, Idaho, and Illinois. As per Amazon, the citations are clerical errors and do not point to a widespread issue with record-keeping. Amazon spokesperson Kelly Nantel confirms that the company spends billions of dollars for worker safety every year.
Accurate record-keeping is essential for maintaining workplace health and safety as per OSHA. Amazon might face significant consequences if the mistake of logging worker injury happens further. Amazon critics claim that the company puts profits over safety as they send their employees to work in unsafe places.
Following the COVID-19 outbreak and the Illinois warehouse collapse during a tornado last year that killed six employees, the company's safety record came under increasing scrutiny. Amazon was hit with a $60,000 fine from Washington's labor department for breaking workplace safety regulations by making warehouse workers execute repetitive motions quickly, raising their risk of injury.
Walmart launches drone delivery service in Arizona, Florida, and Texas
Walmart’s drone delivery service with DroneUp which is now available in Arizona, Florida, and Texas fits the wider plan of building the capacity of delivering 1 million packages each year. The company aims for having drone delivery available across 34 stores in 23 cities by this year's end.
Drone Delivery Service:
Walmart wants to extend the reach of its DroneUp network to 4 million homes in six states. This covers the states such as Virginia, Arkansas, and Utah. In Northwest Arkansas, DroneUp has already established three delivery hub locations at Walmart stores.
Mechanism of Drone Delivery Service:
DroneUp deliveries use a group of pilots operating within Federal Aviation Administration regulations to handle flight operations. The drones use a cable to drop the cargo into the safest place of the customer's house, such as a yard or driveway, to complete the delivery.
Benefits to customers:
The use of drone delivery enables customers to easily purchase last-minute or forgotten products in a package. Customers can use the service if they live within one mile of one of the 4 participating locations in Phoenix, 7 in Tampa and Orlando, and 11 in Dallas.
In as little as 30 minutes, drones can deliver more than 10,000 eligible Walmart items weighing up to ten pounds, including perishable items like eggs. No order minimums apply, and shipping is just $3.99.
Walmart’s effort in Drone Delivery Service:
Regulatory obstacles and technological constraints have made scaling up drones for Amazon challenging. However, Walmart is targeting to break through those barriers while partnering with DroneUp. With more than 4,700 U.S. stores, Walmart boasts a vast physical footprint that will enable it to reach a sizable section of the population within a drone's range.
Amazon is anticipated to surpass UPS and FedEx as the top U.S. delivery service by early 2022
Amazon is poised to become the largest package delivery service in the U.S. by exceeding top shipping rivals UPS and FedEx in early 2022.
Amazon’s logistics service:
Since a holiday fiasco in 2013 left Amazon's parcels stranded in the hands of outside carriers, the company has been slowly expanding its huge logistics and fulfillment operations. Amazon wants to have more control over how packages are delivered to customers' doorsteps.
The retail behemoth now manages thousands of last-mile delivery firms that handle all deliveries for Amazon as well as an expanding internal network of aircraft, trucks, and ships. Additionally, it has scattered air hubs and warehouses across the nation that can expedite product delivery.
Predictions of Amazon’s growth:
Investors and analysts have predicted that Amazon will become a rival to carriers like USPS, UPS, and FedEx. According to Digital Commerce 360, Amazon was expected to be the fourth-largest delivery service in the US in 2019 after delivering 58% of its goods, as anticipated by Bank of America analysts.
Amazon’s shipping operations are rapidly growing; last August Amazon delivered 66% of its packages. In light of the ongoing coronavirus pandemic, a global supply chain crisis, and a labor shortage, this year's holiday shopping season has been exceptionally difficult. As a result, Amazon's internal delivery operations have grown to be a significant advantage.
FedEx and UPS see a decline in parcel volumes but an increase in revenue
The U.S. parcel market has witnessed a shift in Q1 2022 as the average parcel volumes declined. While FedEx reported a 0.1% drop on Feb 28 and UPS underwent a 3% decline in Q1.
These carriers are not worried about their average parcel volume decline as they are focusing on strong revenue quality by leveraging network agility in cost control. UPS had an 8.4% increase in average income per piece to $10.66 per parcel, while FedEx saw a 9.3% increase to $10.62 per parcel.
Investment in automation:
FedEx deployed sortation technology in sorting facilities to boost upstream productivity that helped keep 1.9 million Ground economy shipments out of limited sorts during Cyber Week. The optimization technology of FedEx provides service providers the ability to make decisions in real time that improve their company's daily efficiency.
Meanwhile, UPS is introducing robotic sort induction, automated labeling and bagging, and RFID tagging for every shipment on their 2 automated hubs in Pennsylvania and California. It allows the daily elimination of more than 1,300 trailer loads.
Impact of diversification on parcel volumes:
OnTrac and LaserShip are offering transcontinental service from one coast to the other. The last-mile technological features offered by AxleHire, ShipVeho, OneRail, and GoShare enable shippers to manage their last-mile needs, provide visibility, and save costs. AxleHire has expanded to Baltimore and Washington DC. Now it offers last-mile services in 16 of the top 25 U.S. metro areas.
Amazon has introduced the “Buy with Prime” for their FBA and FBM sellers which will offer faster delivery, free returns, and seamless checkout for eligible orders to Prime customers.
Parcel Volume Outlook in Q3 2022:
UPS projects that parcel volume will increase in Q2. FedEx anticipates solid B2B parcel growth throughout the year. Due to reduced consumer demand, it revised its B2C estimates, forecasting an 8.3% CAGR through 2026 as opposed to the 10% it had initially anticipated. Parcel volume is predicted to expand at a CAGR between 5.5% and 11.5% from 2022 to 2027 due to a slowing economy and skyrocketing prices.
More stores are also serving as distribution hubs for online orders
Retailers like Ulta Beauty, Macy’s, and Tilly’s are making use of their stores while expanding their store fulfillment for delivering online orders speeding up shipments, and streamlining inventory.
Efforts of Ulta Beauty:
It offers the brands offer their customers access to the products that are present in the stores even if the distribution center is out of stock. Ulta Beauty is now using 116 stores as fulfillment centers among 1350 stores as it saves delivery times and taps inventory across its stores and warehouses. The goal is to offer shopping options as per customer preferences.
Benefits of using stores as distribution centers:
Brands can miss out on online sales if a certain product is out of stock in their warehouses but is present in the store. They can speed up their delivery from their physical stores which are present mostly in population centers, closer to customer proximity than the warehouses on the outskirts of a city. Retailers are getting advantages from this strategy as they are not investing millions in new warehouses amidst the economic slowdown.
Ways other brands use this strategy:
Macy's intends to use more spaces in its stores for fulfillment services. It claims to transform 35 of its storefronts into small, semi-automated distribution facilities. To enable customers to purchase a greater selection of additional products during the pandemic, Tilly's ships from its outlets.
Orders for Nordstrom Rack, its outlet-exclusive brand, are no longer being sent from stores. Pickers find it more difficult to locate products in stores than it is to manage inventory in a warehouse as shoppers may pick up items and dump them randomly around the aisles.