Consultant Insight: SMB growth outlook

Small businesses create almost two-thirds of new jobs in the workforce and account for 44% of U.S. economic activity. In 2020, the number of new business applications jumped 24% year over year and then another 23% YoY in 2021. So far in 2022, filings remain above pre-pandemic levels. The U.S. Small Business Administration defines a small business by firm revenue, ranging from $1 million to more than $40 million — and by employment, from 100 to over 1,500 employees. [caption id="attachment_76185" align="alignright" width="298"] Cathy Roberson, Cargo Facts Consulting senior consultant and Air Cargo World columnist[/caption] As the U.S. emerges from the pandemic, continued small business growth remains a big question. Inflation and the threat of recession could slow the growth of small businesses which, in turn, could negatively impact FedEx and UPS. Small businesses have been a focus for FedEx and UPS as e-commerce grew before and during the pandemic. Rate discounts are often offered to businesses that sell goods on such platforms as Big Commerce, eBay and Shopify. Many small businesses utilized the U.S. Postal Service (USPS) because of its lower rates. However, as USPS carries out its Delivering for America strategy and raises rates, small businesses are turning to FedEx and UPS. “We grew SMB [small- to medium-sized businesses] average daily volume including platforms by 3.3%, which was faster than the market,” UPS Chief Executive Carol Tome told analysts during the company’s Q2 earnings call. “SMBs made up 29.2% of our total U.S. volume in the quarter, an increase of 200 basis points from 1 year ago.” Targeting SMBs UPS is offering services specifically targeted to SMBs. “We are continuing to win with SMBs by making it easier for them to ship with us,” Tome said. “Our new digital pricing platform called Deal Manager … simplifies and accelerates the pricing process for larger SMB customers and is performing better than we expected . Additionally, DAP, our digital access program, is continuing to grow in the U.S. and internationally.” UPS’ DAP generated more than $1 billion in revenue in H1 2022, on its way to achieving UPS’ $2 billion revenue target in 2022, Tome said. Other than rates, FedEx has been slower than UPS to offer specialized services for SMBs. Instead, FedEx has been more internally focused on taking corrective measures to improve its profitability and cost structure. Earlier this year, FedEx announced that its FedEx Ship Manager, an online shipping application for SMBs, had been implemented in 153 countries thus far and introduced it into the U.S. and Canadian markets in January. “From a small business perspective, historically, we've taken share this year. I've seen small business grow faster than large,” Brie Carere, executive vice president and chief customer officer for FedEx, told analysts in February. “And I'm talking predominantly here in the United States, although I will tell you that both Europe and EMEA are rolling out a very similar playbook,” Carere added. “We're very optimistic about our share opportunity there as well.” USPS has stepped up to the competition by offering its own specialized services for SMBs including flat rate shipping, scheduling pickups and USPS Connect Local, which offers same- and next-day delivery options. The outlook According to a June survey by financial firm Goldman Sachs, 89% of small business owners say broader economic trends, such as inflation, supply chain issues and workforce challenges are having a negative impact on their business. Almost 40% of small business owners have seen a decline in customer demand because of inflationary price increases. On the flip side, a recent Bank of America survey seems more positive, noting that 66% of small business owners expect revenue increases in 2023, and 52% plan to expand their businesses. Uncertainty persists in small businesses and perhaps the rest of the business world. However, FedEx, UPS, USPS, and other carriers and providers will need to differentiate and more meaningfully market their capabilities in order to attract businesses in this segment.

Consultant Insight: SMB growth outlook

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