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While drone delivery development is speeding up this year, it’s clear that vehicles on the ground will still play a role in the logistics process that brings a package from a fulfillment center to a customer’s door in the coming years.
At the same time, there’s still plenty of room for innovation in that process. That includes the vehicles moving packages. Changes that are coming to the automotive landscape writ large will impact ecommerce delivery, too.
One of the key areas where a groundswell of change is emerging is the introduction of electric vehicles. With the growth of Tesla and adoption by the big car companies, electric cars doubled consumer market share to 5.6% over the last year, according to Cox Automotive. The arrival of a mass switch to battery-powered cars is moving to a question of supply, rather than demand.
Delivery and ecommerce firms are taking note. As they set ambitious climate goals, they're making moves to electrify the fleet of vehicles that brings packages to doorsteps. After all, switching to electric has a series of cascading benefits for ecommerce companies:
- Environment: Delivering individual packages to shoppers in a vehicle with a combustion engine creates carbon emissions. Optimizing routes has helped to provide reductions in this energy use. But going electric removes the emissions altogether. It’s one contribution an ecommerce company can make at scale to combat the impacts of climate change.
- Leadership: By setting up infrastructure and investing in new technologies, these companies are not just making an impact inside their businesses. They’re also showing others that it can be done, and offering examples of how to do it. Taking things a step further, the potential for shared infrastructure, especially charging capabilities, is easy to picture. After all, it wouldn’t be the first time Amazon created a new business unit out of operational innovation.
- Consumers: Everything comes back to what shoppers want. Recently released survey results show they want companies to do more on sustainability and that retailers are positioned to lead this charge given their direct relationships with consumers. In this sense, ecommerce and delivery companies are responding to consumer demands that concerns the way their companies are run.
- Costs: As shown by rising gas prices, the cost of fuel is volatile. Electric vehicles have the potential to keep this line item more stable.
So what will this electrification of ecommerce look like? In recent weeks, a series of announcements offered a look at the vehicles that are being tested, and how plans are accelerating.
Here’s a look at the latest updates:
Amazon + Rivian
Amazon's Rivian vans. (Courtesy photo)
In 2019, Amazon took an immediate step towards the net-zero goals it set out with the launch of The Climate Pledge as the ecommerce giant signed a partnership with electric automaker Rivian. In the coming weeks, some of the first vehicles to emerge from the collaboration are set to start hitting the road and making deliveries.
On July 21, Amazon said the custom delivery vehicles from Rivian began ferrying packages in Baltimore, Chicago, Dallas, Kansas City, Nashville, Phoenix, San Diego, Seattle and St. Louis. The companies are aiming to have the vehicles in 100 cities by the end of 2022.
Along with running on battery power, Rivian's vehicles are built with safety features such as sensor detection and automatic emergency braking. The vans also have a built-in connection to delivery workflow systems that provides access to routing, navigation and driver support.
An Amazon ebike in London. (Courtesy photo)
Amazon wants to reach net-zero emissions by 2040, and more vans aren’t the only part of the strategy. In July, The Guardian reported that Amazon is testing delivery bicycles in London and is planning to build micromobility hubs around the UK. This will reduce van trips, indicating the company isn't planning a full one-to-one replacement of its current fleet. Operated by companies independent of Amazon, this could be the start of the next generation of Amazon’s delivery partner program.
Walmart + Canoo
A Walmart delivery van. (Courtesy photo)
As Walmart makes moves to grow its fulfillment network with stores and new centers, the retailer is also planning to introduce electric vehicles to its delivery fleet to cover the last mile.
Walmart in July announced an agreement with fellow Bentonville, Arkansas-headquartered company Canoo to purchase 4,500 electric vehicles, with an option to increase the order to 10,000. Vehicles are expected to start to appear on the roads in 2023, and configurations are being finalized in the Dallas area in the coming weeks.
Canoo’s model is called the Lifestyle Delivery Vehicle, and the company said it’s designed specifically for quick dropoffs and small packages.
“Our LDV has the turning radius of a small passenger vehicle on a parking friendly, compact footprint, yet the payload and cargo space of a commercial delivery vehicle. This is the winning algorithm to seriously compete in the last mile delivery race, globally,” said Canoo CEO Tony Aquila, in a statement.
In a twist that shows there’s still competition in the business of creating a better environment for all, Amazon’s deal with Canoo blocks Amazon from buying vehicles from the company, according to Bloomberg.
US Postal Service doubles down
The USPS' next-gen delivery vehicle.
The US Postal Service is undergoing a modernization process that in part came about due to the growth of ecommerce. As it progresses, electric vehicles are becoming a bigger part of that future plan.
Last week, the USPS announced a revision to a contract that means a much bigger proportion of its new mail truck fleet will be electric than originally announced. Up to 40% of the new vehicles the postal service expects to purchase over the next two years will be electric, a news release states. That’s up markedly from the 10% that USPS initially detailed in plans released in February that faced criticism from inside the Biden administration.
The new order states that up to half of the vehicles that USPS plans to purchase from Oshkosh Defense will be electric. And the postal service isn't just changing the engine. The new model is a serious upgrade from the recognizable mail trucks that currently traverse streets. Known as Grumman LLVs, the previous trucks were built between 1987 and 1994. They also lack air conditioning and airbags, which the new models will add, Car and Driver reports. The trucks will also include a 360-degree camera and automated emergency braking.
FedEx + BrightDrop
FedEx's Zevo 600s. (Courtesy photo)
The big names in transportation have a role in electrification, too. That’s on view as FedEx’s electric delivery trucks start to hit the road.
The logistics company partnered with BrightDrop, a startup backed by storied car company General Motors. In June, the first order of 150 electric vehicles were delivered to a FedEx Express location in Southern California. In all, the companies plan to introduce 2,500 vehicles across FedEx operations over the next three years.
Powered by GM’s Ultium platform for electric vehicles, FedEx said the Zevo 600s have a range of up to 250 miles on a single charge.
UPS is giving electric assist to ebikes. (Courtesy photo)
In New York, UPS has a test underway that is designed to explore not only electrification of its vehicles, but also reducing their size.
The company’s eQuads are pedal-powered, with an electric-assist feature. Designed to get between buildings and navigate skinny streets, they would add to a fleet that already includes 1,000 electric vehicles.
While New Yorkers interviewed by the AP for a recent article mused at the design, we’ll take the opportunity to offer a reminder: The car probably looked funny to people at first, too.
Trending in Operations
The company is pulling back after breakneck pandemic expansion. Will it sacrifice the shopping experience along the way?
Amazon is in a period of rebalancing.
The company has long scaled at a relentless pace as it sought to not only provide a marketplace for commerce, but the infrastructure that enabled it, as well. Amazon found another level of overdrive over the last two years, as demand spiked to unseen heights during the pandemic and the company tried to build to keep up.
This wasn’t necessarily a period that saw the kind of invention that Jeff Bezos made an existential tenet of the company, but it nonetheless seems to be shaking out as a cycle that included risk and fallout.
In this case, the risk was not a new device like a smartphone or a move to bend the future to Amazon's will like drone delivery. Rather, it was an expansion that took its already-vast operations to new heights.
Nowhere was this more evident than the company’s logistics network. As CEO Andy Jassy described it to analysts Thursday on an earnings call, the company doubled the size of a fulfillment network it took a quarter-century to build in two years. It also built out a last-mile delivery network that was the size of UPS, which is one of the top two carriers in the U.S.
In 2022, all of that expansion ran into 40-year-high inflation, war in Ukraine and a pullback in demand for goods amid reopening. The company first admitted the problem: It had overbuilt.
But the solution is not to tear down. It had to keep expanding as only Amazon does, while still cutting back in a period of “belt-tightening,” as executives have put it.
That’s evident in watching developments out of the logistics network alone. Amazon pulled out of some areas, and canceled plans to expand into some new warehouses. Yet, as Business Insider reported, it still added 79 million square feet – a footprint that is equal to half of next-closest competitor Walmart’s entire distribution network. It is also expanding Buy with Prime, a new program that will allow direct-to-consumer brands to offer Prime benefits, and, by extension, access to Amazon’s logistics network. Another service, called Amazon Warehousing and Delivery, is designed for upstream storage, necessitating more space to be made available in the network.
At the same time, it will seek to keep doing more for consumers.
Jassy indicated as much when he was prompted to outline his priority areas. Beyond cost-cutting, he said speed is the second highest priority for Amazon. As if to conform this, he said later in the call that one-day shipping is getting off the ground in North America.
Selection is another priority area. At Amazon, that phrase translates to a few things, but top of mind is “expanding the third-party seller marketplace.” Third-party sellers accounted for 59% of sales in Q4. Beyond sales, Amazon’s work with the sellers who post their products on the marketplace is also lucrative for the company. Amazon allows these sellers to tap its logistics network to offer Prime through the Fulfillment by Amazon program. Its business segment called third-party seller services grew 20% year-over-year in the fourth quarter, right in line with the massively profitable cloud computing division Amazon Web Services.
Price, Jassy said, is another area of importance, especially with the consumer pullback on discretionary purchases being observed amid inflation.
“I think pricing being sharp is always important,” Jassy said. “But particularly in this type of uncertain economy, where customers are very conscious about how much they're spending, having the millions of deals that we put together with our selling partners in the fourth quarter was an important part of the demand that you saw.”
Finally, Jassy cited a priority of improving the customer experience. He said Buy with Prime would give subscribers the ability to use their benefits across the web, and noted that virtual try-on for shoes brings change to the shopping experience.
But it’s in this area that the tradeoffs that may be happening under the surface may rear their head again. GlobalData Managing Director Neil Saunders noted that online shopping generally is becoming “more difficult" on Amazon.
“While the Amazon marketplace is far from a terrible place to shop, it has become more complex and cluttered with a multitude of products, delivery options, and prices levels for shoppers to sift through,” Saunders wrote in note released at the time of the earnings call. “The result is that impulse buying has dropped and that more people are migrating away to other retailers. This is not yet a serious problem as erosion has only happened at the margins, but it is something Amazon will need to address and arrest to prevent further decline.”
Taking a rhetorical step further, the journalist John Hermann wrote this week that a “junkification” of Amazon is taking place, while arguing that “everything is going according to plan" for the company.
He placed the growth of the third-party seller marketplace at the center of this trend. But it also comes as Amazon grows its advertising business, with many taking note of a growing number of ads on the platform. The company also wants to keep growing Prime, and is now using content such as Lord of the Rings and NFL’s Thursday Night Football as key acquisition channels. Both had “record” signups of new Prime members, CFO Brian Olsavsky said.
“We see a direct link between that type of engagement and higher purchases of everyday products on our Amazon website,” he said.
It will have to do each of these things at once, while entering a period that will require it to be “more targeted with its growth ambitions,” as Saunders put it.
"Since its inception, Amazon has had a culture of throwing dollars at many different things to see where they led and what they could learn," Saunders said. "That approach worked well for a younger, fast-growth business. It works far less successfully for a more mature entity. In our view, management deserves credit for recognizing this and quickly responding. However, the shift requires a lot of care because Amazon needs to find a new balance between being ambitious and innovative and being more frugal with its spending – which will be very challenging."
Jassy said the changes of the pandemic made its logistics a "different network." That may be true of the whole company. Rather than an isolated cycle of overbuilding and pulling back, this may prove to be a period that changes Amazon altogether. The bets will still be there, but the risk will be magnified with fewer dollars that don't pay off to go around. As hinted by the logistics buildout of the pandemic and even Buy with Prime, they also may look more operational.
Less delivery robot, more delivery optimization.
As Jassy put it: “We're going to be very thoughtful about how we streamline our costs, and I think you see a lot of that, but we're also going to continue to invest for the long term.”
The recipients of those investments will say a lot about where it wants to head in this next year.