Commentary: FedEx and UPS need to move up the e-commerce food chain

By Satish Jindel The Big Three legacy parcel carriers — FedEx, UPS and the U. S. Postal Service — are under pressure like never before as their largest retail customers build out residential delivery networks of their own in response to the massive shift in shopping from stores to digital channels.

FedEx and UPS will be left behind unless they transform their core competency from being parcel carriers to e-commerce enablers. The parcel shipping industry has dramatically changed since 1985, when 90% of parcel shipments were between businesses. Today, B2C shipments account for 70% of the parcel market.

FedEx (NYSE: FDX) and UPS (NYSE: UPS) are profitable, so why change the business model? Positioning themselves as parcel delivery companies in this new era of e-commerce is leading them to invest in options aimed at lowering the cost of last-mile delivery. That results in them operating at the bottom of the food chain. window. googletag = window.

googletag || {cmd: []}; googletag. cmd. push(function() {googletag. defineSlot('/21776187881/FW-Responsive-Main_Content-Slot1', [[300, 100], [320, 50], [728, 90], [468, 60]], 'div-gpt-ad-1709668545404-0'). defineSizeMapping(gptSizeMaps. banner1). addService(googletag. pubads()); googletag. pubads(). enableSingleRequest(); googletag. pubads().

collapseEmptyDivs(); googletag. enableServices(); }); googletag. cmd. push(function() {googletag.

display('div-gpt-ad-1709668545404-0'); }); To be sure, the two integrators have made shipment quality a priority, rejecting light, low-priced last-mile delivery business from Chinese e-commerce sellers and Amazon (NASDAQ: AMZN) in favor of multizone, heavyweight and high-value packages that can support higher rates.

To achieve lower cost of last mile delivery, UPS acquired same-day delivery platform Roadie for $586 million in 2021. And last February, FedEx announced it is investing $3. 4 billion in InPost, a European courier with a large parcel locker network in Europe.

Instead, FedEx and UPS should invest in e-commerce platforms like Etsy (NYSE: ETSY) and others, where they would sit at the top of the food chain and be able to influence all aspects of fulfillment and delivery for online orders while helping millions of e-tailers better compete with sellers using Amazon’s marketplace.

An optimized shipping experience will create a virtuous flywheel that will generate additional orders from satisfied consumers, driving more parcel business with higher delivery density to FedEx and UPS. Amazon has long taken a broad view of its core competency.

First, it invested in Fulfillment by Amazon to help e-tailers on its online platform with fulfillment and delivery. FBA has generated great returns as about 60% of Amazon online sales and parcel deliveries come from merchants supported by FBA, enabling Amazon to build its own delivery network.

It extended that thinking even to its suppliers when it contracted with Air Transport Services Group in 2016 to operate Boeing 767 freighter aircraft for its logistics network. It secured warrants to purchase a minority stake in ATSG, which generated a great return when ATSG was acquired last year for $3. 1 billion by private equity fund Stonepeak.

If FedEx had such a broad view before, and had invested just $1 billion in Shopify a decade ago, instead of $4. 8 billion in Europe’s TNT Express, that investment would be worth $50 billion today. Besides the great return on investment, FedEx would have become the primary delivery partner, instead of the U. S.

Postal Service, for millions of small e-tailers selling products using Shopify. window. googletag = window. googletag || {cmd: []}; googletag. cmd. push(function() {googletag. defineSlot('/21776187881/fw-responsive-main_content-slot3', [[728, 90], [468, 60], [320, 50], [300, 100]], 'div-gpt-ad-1665767553440-0'). defineSizeMapping(gptSizeMaps. banner1).

addService(googletag. pubads()); googletag. pubads(). enableSingleRequest(); googletag. pubads(). collapseEmptyDivs(); googletag. enableServices(); }); googletag. cmd. push(function() {googletag.

display('div-gpt-ad-1665767553440-0'); }); While too late to invest in Shopify (NASDAQ: SHOP) given its market cap is about two times its own, it is not too late for FedEx or UPS to make a friendly investment in Etsy, or another e-commerce marketplace, or engage one of them in a strategic partnership.

FedEx, for example, could leverage its Dataworks capabilities to help millions of small merchants manage fulfillment and delivery.

Instead of someone receiving five packages on five different days, only to accumulate on the porch and be susceptible to rain and thieves, FedEx could offer affiliated merchants a better value proposition than available for those on Amazon’s marketplace.

An e-commerce partnership would also reduce diversion of more parcels to Amazon Logistics, which last year delivered more parcels than any of the Big Three carriers. And it would help FedEx and UPS attract small-and-medium shippers faster than with their current approach. Fed