Truckers are paying for our ‘free’ two-day shipping
February 12, 2019
Like millions of other people, I pay the ultralow price of just over $100 a year to get virtually anything shipped to my house in two days. It’s a steal. Unfortunately, the theft is coming from the wallets of the trucking industry.
A common phrase in the logistics industry is “consumer demand.” Usually, this refers to how much consumers are willing to spend. In the 21st century, it has taken on a whole new meaning: The incredible demands consumers are forcing on retailers.
Of course, I’m talking about consumers demanding they receive their goods at their home within two days at no additional costs. A decade or so ago, that was crazy talk. However, new research by the American Transportation Research Institute highlights that sobering reality.
ATRI’s e-commerce research
Recently, ATRI published a report titled “E-Commerce Impacts on the Trucking Industry.” Inside the report is a lot of talk about decentralized distribution, omnichannel retailing trends and other industry jargon. Behind the curtain of jargon lies a major problem for the trucking industry: Consumers want a lot, and they want it for free.
According to the research, e-commerce is picking up rapidly. This trend is costing jobs. ATRI points out that employment at department stores has fallen by more than 385,000 jobs since 2011. But what about trucking jobs?
Logically, increased demand for quicker shipping at not-brick-and-mortar retailers would lead to more trucks on the road. After all, someone has to get the products from point A to point B. This is good news, unless your niche is exclusively long haul.
ATRI highlighted two key findings. First, “last mile” routes are shrinking in distance. Average “last mile” of order fulfillment is between 6 and 9 miles and expected to shrink. Second, and related to shrinking last miles, vacancy rates for warehouses and distribution centers hit an all-time low in 2017. For truckers, this means shorter distances between warehouses and final destinations.
Before the “Amazon effect” took over e-commerce, the cost of two-day shipping rarely justified the quick delivery unless it was imperative you received that item within two days. Today, consumers will throw a temper tantrum if their free two-day shipping order of a hair brush is a day late. According to ATRI, “64 percent of consumers would not pay extra for two-day shipping options, while roughly one-third of respondents would not pay extra for same-day shipping.”
If consumers are not paying for two-day shipping, who is? Truckers.
The real cost of free two-day shipping
“Consolidation” is a scary term for small business owners, but that’s exactly what is happening in the logistics industry. Retailers such as Amazon are starting to create their own megafleets instead of outsourcing to owner-operators.
Consolidation is even occurring with retailers that outsource their logistics plan. As noted by ATRI, the third-party logistics industry underwent a period of major consolidation in 2014 and 2015.
As an example of consolidation, ATRI pointed to XPO Logistics. Some might suggest XPO is a bad example, considering the black marks it has received lately. I argue that is exactly why they are a great example of the impact from e-commerce.
XPO is the poster child for huge, corporate megafleets: poor working conditions and poor wages. If XPO wants to satisfy consumers who are unwilling to pay for much of anything when it comes to shipping, how is the company to turn a profit? Undercut the workers.
According to ATRI, XPO Logistics grew from a nonasset truck brokerage company grossing $175 million in revenues into the largest logistics provider in North America with annual revenues exceeding $15 billion in just five years. How did they do it?
Changing trucking landscape
E-commerce has changed the way fleets operate. Check out this list from ATRI’s research:
- Walmart raised the minimum threshold of on-time deliveries imposed on its suppliers, and will fine suppliers who fail to consistently deliver orders within a specified one- or two-day window.
- Motor carriers must now operate with faster turnaround times and contend with a variety of external factors that work against them. The most frequently cited reasons for missing a delivery window were inclement weather, traffic congestion, and warehouse delays.
- Registrations for single-unit trucks, a proxy for straight trucks used for local deliveries, are growing at a faster rate than registrations of more traditional combination trucks.
- A number of large motor carriers, such as Schneider National and J.B. Hunt, as well as third-party logistics providers like XPO Logistics, are engaging with retailers to not only deliver these items to residences but to also provide value-added services like installation, product assembly, and repairs. These services require greater training of drivers, who must navigate large trucks through residential neighborhoods and provide high-quality service as they interface directly with customers.
In other words, truckers have to do more in less time for about the same pay. By the way, that pay is an average of $42,480 a year, according to the Bureau of Labor Statistics. And that pay is earned by spending most of the time away from home.
That’s the real impact of e-commerce.