Last week, Amazon announced a call for entrepreneurs to start delivery businesses--Amazon's latest attempt at mastering last-mile delivery. It's become a desolate battlefield, due to the hefty expense of bringing packages to people's doorsteps.
Mail carriers struggle to gain access to apartment complexes. They travel narrow roads to reach remote addresses. It takes major scale and infrastructure to be profitable. The USPS is the one entity required to visit every U.S. residence daily, a core competency they've developed over hundreds of years.
At the same time, e-commerce growth shows no sign of slowing. In 2016, online sales of physical goods amounted to $360.3 billion and are projected to surpass $603.4 billion in 2021. Last year, Amazon was responsible for roughly 44 percent of all U.S. e-commerce sales, according to One Click Retail.
Despite this growth, the USPS is still well-positioned. It's the reigning champion--even FedEx and UPS often use the USPS for residential delivery.
That's because Amazon has yet to take over its final logistical challenge. Yes, Amazon has optimized other aspects of its logistics, like moving its warehouse locations closer to city centers. Piper Jaffray analyst Gene Munster estimates that Amazon's fulfillment center penetration has grown from reaching about seven percent of the U.S. population in 2012 to 44 percent in 2016. However, Amazon still regularly inserts its packages into the USPS mail stream for final delivery.
It's not alone. UberRUSH, unable to surmount the same hurdle, closed its operations this past Saturday. Before that, Sidecar tried and failed to succeed as a ride-sharing and delivery service, as well.
Here's why it's so difficult--and why you should care as an entrepreneur.
The cast of characters in the race to win last-mile
Shipping providers don't have enough capacity to support Amazon. Ever since the UPS struggled to keep up with delivery demand during the 2013 holidays, Amazon has been laser-focused on establishing its own network. And, as Amazon's volume grows, further straining delivery networks, shipping becomes more expensive, which works against Amazon's free shipping offering.
Given the massive growth predicted in e-commerce shipping, there's certainly capacity for more regional delivery players, like Lugg, Roadie, and Doorman, and opportunities for employment in the industry. That's great news for small businesses everywhere. Amazon's package volume is certainly helping those regional carriers grow, something they referenced heavily in their promotional materials for this new offering.
Here's my question: If local and regional networks are guaranteed to succeed, why isn't Amazon creating an infrastructure it can own from start to finish?
It's incredibly hard to eke out a last-mile profit. Amazon certainly has arguably the largest package volume of any single company, which should make it easier to reach profitability in certain areas--but it is not guaranteed, nor easy.
Will new Amazon-branded delivery startups be the next flop?
We know this because Amazon's recent attempts have left much to be desired. For instance, Amazon still supports Amazon Flex, which allows "gig workers" to deliver parcels from their own vehicles for $18 to $25 an hour. The problem: There's a lack of control and logistical know-how to operate in a way that customers expect while keeping costs affordable.
Amazon also announced its foray into drone delivery a while back and ran into some major roadblocks here in the U.S. The FAA's "Small UAS Rule" doesn't allow drones to be flown beyond the visual line of sight of the pilot.
So, it's still the most affordable to tap the network of the USPS. Amazon is padding its odds, introducing more infrastructure to support its growing delivery demands without taking on nearly as much of last-mile's typical risk.
Some of Amazon's delivery startups may see success, but these new companies are not poised to shake up the shipping industry now. They won't alleviate the problem of expensive residential delivery completely. Instead, we'll continue to see the USPS lead last-mile delivery and wait for the day that Amazon's delivery domination dreams come true.
Amazon is one of the few companies in the e-commerce space with the luxury of being able to experiment at such a large scale, losing money in order to figure out how to expand its delivery network in a way that's profitable for the tech giant. It can invest in many types of programs without flinching as it learns from its failures and continues to iterate.
In the long term, with a fearless, experimental and winner-take-all approach, it's still capable of winning the last-mile delivery race. Just not today.
Today, we still rely heavily on easy access to reliable e-commerce infrastructure that frees us to focus on strong brand identities and selling carefully curated products. When it comes to last mile delivery, USPS has the most extensive network and experience. New technology is also providing an unprecedented level of agility so businesses of all sizes can meet growing consumers demands. Fragmentation across the entire supply chain is giving us the opportunity to optimize across a wide array of niche needs. This strategy is going to yield better results than waiting for a winner-takes-all solution -- which won't easily materialize.