Operations
25 May 2022
US parcel volume reached a record high of 21.5 billion 2021
This week's Data File packages the findings of Pitney Bowes' Parcel Shipping Index.
This week's Data File packages the findings of Pitney Bowes' Parcel Shipping Index.
Welcome to Data File. In this weekly feature, The Current shares key findings shaping the ecommerce landscape. At The Current, we comb industry, analyst and economic sources for the data that matters to ecommerce professionals, and include it throughout our work. This feature is one of the ways we’re sharing what we find.
As ecommerce expands, the number of packages being shipped keeps growing.
US parcel volume grew 6% in 2021, according to data released this week from the Pitney Bowes Parcel Shipping Index.
The 21.5 billion packages shipped was a new record, up from 20.3 billion in 2020, according to the data. To put it in perspective, that means 59 million parcels were generated each day, and 683 parcels were generated each second. And it means 166 parcels shipped per US household during the year, according to Pitney Bowes.
Pitney Bowes said online shopping was driving the uptick in parcels. At the same time, the new record came in a year of supply chain challenges, demand fluctuations driven by spending on goods and the beginnings of inflation.
“Last year saw the industry rocked by outside influences as carriers continued to manage the impact of the pandemic,” said Jason Dies, EVP and president of Sending Technology Solutions at Pitney Bowes. “Despite these challenges, carrier revenues and parcel volumes reached a record high, showcasing the resiliency of the US consumer and the industry’s ability to absorb their growing appetite for internet retail.”
Looking ahead, Pitney Bowes forecasts US parcel volume to reach 25-40 billion by 2027, with a 5%-10% CAGR each year from 2022-2027.
Collectively, the carrier firms that deliver packages collected $188 billion in parcel revenue in 2021, a 16% increase year-over-year from $163 billion, according to Pitney Bowes. UPS generated $70 billion in revenue, while FedEx earned $62 billion, the US Postal Service recorded $31.5 billion.
In a year when it built out significant new capacity, Amazon Logistics grew revenue to $22 billion, a 19% year-over-year increase. However, growth of parcel volume slowed to 13%, down from 112% in 2020.
This underscores Amazon’s unique role as both a marketplace for sellers and a logistics provider. The company’s delivery network continues to include a mix of its own delivery services and outside carriers. Pitney Bowes offered a breakdown of volume in each. In all, Amazon generated 8.4 billion parcels in 2021. Of those, 57% or 4.8 billion parcels were delivered by Amazon Logistics, while 43%, or 3.6 billion parcels, were passed to carriers for last mile delivery. This was up from 2020, when Amazon passed 2.8 billion parcels to carriers for last mile delivery.
There are signs of a shift within Amazon's logistics network so far this year. In its first quarter earnings call, the company reported excess capacity in its logistics network after a buildout to coincide with the uptick in demand during the pandemic.
"During the pandemic, we were facing not only unprecedented demand but also extended lead times on new capacity. And we built toward the high end of a very volatile demand outlook," CFO Brain Olsavsky told analysts on the company's earnings call. "Now that demand patterns have stabilized, we see an opportunity to better match our capacity to demand."
Within the Fulfilled by Amazon program, which stores and ships packages for third-party sellers, the company made changes to sizing regulations, and added a fuel surcharge at a time of 40-year-high inflation. At the same time, the company is looking to continue building. It created a venture fund to invest $1 billion in logistics. But the biggest potential for growth this year could come as a result of Buy With Prime. The new Amazon service will embed Prime's two-day delivery and checkout capabilities on websites beyond Amazon, opening up its fulfillment and delivery services to a large new market.
The Parcel Shipping Index also showed notable growth for smaller carriers. The combined parcel volume of carriers outside the top four grew by 94%, the data showed.
When it comes to market share for the carriers, here’s the breakdown:
(Infographic by Pitney Bowes Parcel Shipping Index)
Sortation centers are helping the retailer build on its stores-as-hubs strategy.
Like many retailers, Target undertook a massive digital buildout during the pandemic as ecommerce demand spiked.
The new capabilities proved to be the launchpad for impressive growth. In 2020, store pickup grew 600%. Same-day fulfillment grew 400% from 2019 to 2021. By 2022, the company was ready to double down on digital. It announced plans to invest up to $5 billion to scale operations, with store-based fulfillment capabilities among the big areas that would receive a boost.
It was an example of how the pandemic’s digital shift left a lasting imprint that would change a retailer’s footprint well into the future. But it’s worth remembering that Target already had the strategy that shaped this operational transformation in place well before COVID-19 arrived.
In the mid-2010s, Target adopted a stores-as-hubs strategy that put brick-and-mortar at the center of all operations, including digital. This meant that ecommerce orders would run through the store, just like in-person shopping. This has remained in place, and only grown. In the first quarter of 2023, more than 97% of sales were fulfilled by stores.
Stores-as-hubs was a radical approach at the time it was introduced. CEO Brian Cornell faced criticism that the two channels would cannibalize each other, and was out-of-step with the massive warehouse-based fulfillment network that Amazon was building. But in the end, Cornell was vindicated. The strategy put Target not only in position to capitalize on the pandemic’s digital shift, but to continue to see its stores be a destination when consumers returned to in-person shopping when restrictions were lifted.
At this point, Target’s nearly 2,000 stores are cemented as the center of ecommerce operations. But as it seeks to gain efficiency and speed in delivery, the retailer is bringing additional facilities into the network.
Now, Target sees opportunity to build ecommerce from the inside out.
This year, evidence is emerging in the form of Target’s sortation centers. Positioned downstream of stores, these facilities combine technology and process logic to triage packages for last-mile delivery by the Target-owned service Shipt. Orders are still picked and packed at the store, but the sortation centers serve as the staging grounds that get packages out the door for delivery.
On the company’s first-quarter earnings call with investors, Target COO John Mulligan stressed that these centers are not highly automated.
“In fact, it's because of the relative simplicity in the design of these buildings and the efforts of an incredibly innovative and energetic team that we've been able to scale the number of these buildings so quickly,” Mulligan said.
Target is placing a big bet on these facilities. In February, it announced plans for a further investment in the supply chain of $100 million, focused on the sortation centers. It is enabling rapid growth. In 2022, the company had three centers, and now has nine. By 2026, it expects to have 15 centers in place.
These facilities are also serving as testing grounds as Target seeks to scale the delivery network.
A new facility in the Atlanta area is serving as an extension of the sortation center that has enabled Target to reach 3 million customers with next-day delivery.
“With this new facility, online orders that have been packed by Atlanta area stores continue to flow to the sortation center, where they're sorted and delivered via our national carrier partners or a ship driver,” Mulligan said. “However, a portion of local orders falling outside the sortation center's last-mile delivery area can now be transferred to the Smyrna extension, where Shipt drivers can pick them up and serve additional neighborhoods.”
Target and Shipt are also refining the path that packages take to reach customers. Shipt vehicles are being shifted to high-capacity models such as SUVs and minivans. These were used in 65% of last-mile deliveries in the first quarter, compared with zero a year ago. The vans service nearly five times as many packages, and enable route optimization that increases the number of packages delivered per hour.
It all adds up to reduced service costs for Target, and the company is continuing to build and refine processes at the sortation centers.
“Based on the success of these efforts, we're developing plans to begin testing high capacity vans at a larger scale,” Mulligan said. “In addition, we're developing a standardized faster way to load those vans, enabling package containerization and easy identification of the correct packages at delivery. In addition to simplifying the load process for the drivers, this new process will enable us to safely move a larger number of Shipt drivers in and out of our sort centers in a given amount of time, expanding our last-mile delivery capacity in these markets.”
To expand this last-mile capability, Target won’t be building massive fulfillment centers like Amazon. It already has large stores that offer proximity to large swaths of the population. Those can be outfitted to serve the same functions as large warehouses, and sortation centers help to expand them. Add in a delivery network via Shipt, and the pieces are in place to continue expanding and optimizing capabilities.
A scaled logistics network on the backend could also improve Target’s ecommerce experience on the frontend. For instance, increasing fast delivery could also open up more opportunities to deliver items with a shorter shelf life such as groceries, which is an area where Target is looking to expand. As Amazon has shown, consumers are also more likely to buy if they receive items in a convenient manner. Target’s stores have long benefitted from customers associating the shopping experience with their affinity for a retailer, just as much as they do the products they buy. Through fulfillment and delivery, it can extend the Tarjay cachet online, as well.
Ecommerce has always held the promise of being able to bring the store home. Target’s logistics strategy is putting that idea into action in a very literal way.