Sent Items #138: Sunday, April 23, 2023

Hi!

Apologies for the two-month lapse in writing. Shortly after my last issue I became a U.S. Citizen. While that wasn’t necessarily a reason to slow down, I used it as an opportunity to catch my breath and celebrate. But then came another significant milestone: I got married two weeks ago.

I am thankful for the milestones I’ve been able to celebrate. It has also been a challenging month for my city (Nashville) and state which has consumed some of my attention and energy these last few weeks. Then there’s Mailchimp suddenly charging fees so I’ve been searching for an alternative (free!) platform to migrate to, and Howard Lindzon has been repping Beehiv and it looks great. So this is where this issue is coming from. Apologies if there are any blaring goofs - please share any feedback.

Below are my thoughts on stories that have caught my attention in the world of eCommerce and logistics over the last few weeks.

1. Quiet Platforms. It wasn’t long ago I was reading about how Quiet Platforms (wholly owned by American Eagle) was becoming a logistics behemoth. They were building a proprietary platform combining logistics, technology, maybe AI and ML. Now we’re learning of Executive departures (link) and an internal “reset” (i.e. layoffs, downsizing, and… trouble).

Shekar Natarajan, President of Quiet Platforms, who has also been leading the Quiet Platforms and AirTerra logistics businesses, was once Chief Supply Chain Officer at American Eagle. Quiet Platforms Chief Operating Officer also left the company in March. They are reducing the size of the Quiet workforce to be more in line with the current business trend.

2. Shopify. Shopify’s earnings are at the beginning of May. I suspect there will be material announcements around the future of Shopify Logistics. Though I’ve been saying this and have been wrong for several quarters. ​​

Commentary suggests continued refinement of the SFN/Deliverr strategy with the high likelihood of reduced CapEx relative to prior expectations though management failed to quantify new CapEx targets. Only a small percentage of Shopify merchants are currently using the Deliverr fulfillment services, but Shopify expects that to change once it completes the integration. Seems like they need to divest this business unit, or hire an operator to lead the business.

3. USPS. Come July no longer will you be able to ship a parcel First Class Package. Welcome Ground Advantage (link)! I wrote about this news back in February when the announcement was first made.This change is geared towards shippers who don’t need the 2-3 day service of First Class. This change is integral for brands, shippers, 3PLs, and consumers to be aware. Unlike First Class Package Service, which is limited to shipments less than 1 lbs, this new budget-friendly service will be able to ship packages up to 70 lbs. However, this service is targeting transit times between 3-5 days, a far cry from the 2-3 days we are used to experiencing.

I’ve been a proponent of First Class Mail/Package as one of the greatest values - often I ship a parcel on a Friday and it arrives at the other side of the country on Monday – for $4. With FedEx or UPS this same shipment would cost $30+. However, Priority Mail is sticking around providing a network to achieve faster transit times (1-3 days) at competitive cost.

As the largest handler of eCommerce parcels, what the Postal Service does is emblematic of, and signals themes of the broader industry. As brands talk about cost cutting, and consumers opt for cost savings over speed, developing a more economical network might very well be a sign that the Postal Service is ahead of the times.

4. FedEx. This is a fascinating story (link) of FedEx planning to consolidate or merge its Ground network with Express. FedEx plans to combine nearly all of its ground, air and other operations by June 2024 as part of a $4 billion cost cutting initiative. This is a bold and massive change for a 50+ year old business that only recently parted ways with its longtime Founder and CEO, Fred Smith. Raj Subramaniam, FedEx’s CEO, suggested that the new unified organization would bring distinct focus on the air network and international volume, and a more holistic approach to operations on the ground utilizing both FedEx employees and contracted service providers. Currently Ground is all contracted to small businesses.

TBD on how this will impact current Contractors. Truth is, the organizational structure will look very similar to UPS once they are complete (barring Teamsters - though I suspect that “threat” would arise in the future) Side note: there is much to keep an eye on in the small parcel market – not just what I wrote about the USPS, and this story, but also that UPS just last week started labor contract talks with the Teamsters, the union that covers roughly 340,000 U.S. drivers, package handlers and loaders (link). The current contract expires July 31.

5. Amazon. Here’s an interesting story on Amazon’s returns policy. I’ve noticed that Amazon has begun charging fees for dropping returns off at UPS Stores. Previously this was no cost - only dropping at drop-boxes, or requesting a UPS driver pick up would carry a cost (and only if return was for convenience - i.e. “no longer wanted”). Here’s a screenshot from a return last week:

Interesting that Whole Foods is still free, under all circumstances, I believe. Makes sense - drives traffic to stores where many are likely making a purchase.

Separately, I remain interested in Amazon’s continued investment in speed through investments in the latest concept of SubSameDay fulfillment centers. There are currently 46 such centers operating in the US and 6 are under construction. These facilities sell the top 100,000 highest velocity SKUs, providing free sub-5 hour delivery on orders >$35. Amazon is expected to roll out this concept in the coming years to at least 150 buildings across the top 50 markets. With typical Capex for these facilities running at $30-50 Million, even 100 incremental SubSameDay Fulfillment centers would amount to $5 Billion of incremental Capex over multiple years - a small investment relative to its CapEx base of $60 Billion.

I promise I’ll write more frequently. I’m also exploring the pros/cons of a Podcast - please share any thoughts! Also, I’ll be in Denver this week - if any of y’all are there, please let me know!

Cheers,

- Matt

You can always hit reply with any feedback, or email at [email protected] and follow me on Twitter.

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