The deal: Winning hand is a pair in e-commerce logistics

When it comes to providing a platform for smaller merchants to sell their goods online, e-commerce giants like Amazon and Alibaba aren’t exactly new to the game. Amazon has enabled small and mid-sized enterprises (SMEs) to sell to its customers for more than 20 years and has gradually built up its toolbox to make the platform more appealing for SMEs, providing sellers with data analytics and its Fulfillment by Amazon (FBA) service, which provides access to its logistics network. Building out its own capabilities has also required Amazon to act as a high roller in the space. Logistics costs have soared alongside the increasing transportation difficulties since 2020, rising to $76.7 billion for shipping and another $75.1 billion for fulfillment in 2021. In terms of its small business services, Amazon says it has invested more than $30 billion between 2019 and 2020 in its logistics, tools, services and programs. Such expenditures are high risks that may come with high rewards — or may not. For example, the previously launched Amazon Shipping trial for third-party deliveries was paused in June 2020 following a beta trial in a few major metro areas in 2018. While Amazon seems to be undertaking some third-party deliveries, those appear to remain limited compared with the e-tailer’s larger logistics network. Increasingly, even large providers are opting to seek out partners to grow their reach in the realm of e-commerce services and fulfillment. Many such businesses, including leaders in global e-commerce logistics like Amazon transportation provider UPS and Chinese e-commerce giant Alibaba, have made big bets on organic and acquisition growth in previous years. However, in the higher-stakes market of the 2020s, these giants are pursuing a new strategy, built around forming a winning pair to grow their reach. Betting big on small and mid-sized enterprises E-commerce’s meteoric rise due to the pandemic is by now well-established, and long-time players like Alibaba and Amazon have been in the high-stakes game for years, helping the U.S. and China to dominate the global e-commerce market and lead the world in e-commerce market penetration, at 19% in the U.S. and 18% in China overall. According to Cargo Facts Consulting (CFC), Air Cargo World -publisher Royal Media’s aviation consulting branch, e-commerce sales in the U.S. rose by 21% in 2020, and then another 16% year over year during the first eight months of 2021. China, meanwhile, is the world’s largest e-commerce market and is expected by CFC to remain at the top for “the foreseeable future.” Many other markets also are now relatively well-developed. Europe, for example, has 16% e-commerce market penetration, according to CFC’s most recent E-commerce Logistics Outlook . However, as in other markets, growth in overall online sales in 2020 was a staggering 25%, a trend that continued into 2021. While growth is expected to moderate during 2022 and beyond, SMEs present a golden opportunity for those companies targeting e-commerce fulfillment and services. Capturing that SME growth is often easier said than done. E-commerce penetration for SMEs is still relatively low; according to a 2020 European Commission report on SMEs, only 17% have successfully integrated digital technologies into their business, compared with 54% of large companies. Finding the right combination of services to offer could help onboard more of these SMEs, which are facing the same uptick in fulfillment costs as Amazon, but without the logistics budget to meet them. SMEs can find themselves at a disadvantage compared to the larger businesses as well, since volume rules typically favor larger businesses . However, transportation and logistics providers are increasingly targeting these SME volumes as a way to add to their own networks. Rather than making costly investments over years, though, they may only need to find the right partner. Searching for a winning pair For logistics providers, offering pathways for SMEs to get into global markets via e-commerce offerings and delivery fulfillment can be a gamble in itself. Overplay a hand by underestimating costs or facing a stronger player, and the smartest choice left might be to fold — that is, withdraw from a particular market, as with Amazon’s unsuccessful foray into China that ended with the 2019 closure of its domestic marketplace in the country. On the other hand, a provider that strikes the right combination of offerings at the right price for the right market could lead to a jackpot along the lines of Amazon’s successful own-controlled Europe network. Lining up a strong fulfillment network may not be enough, though. Increasingly, companies in e-commerce logistics are searching for a winning pair, in terms of a strong partner in the market. Two such pairs turned up just this month, as UPS and Alibaba’s Cainiao Network announced partnerships targeting SME e-commerce. UPS had already linked up with a new direct-to-consumer (DTC) e-commerce company, ESW, during the first quarter of 2022. ESW is a subsidiary of the joint venture Asendia, a cross-border solution from France’s La Poste and Switzerland’s Swiss Post, and specializes in services around returns management, duty and tax solutions, localized pricing and similar offerings for DTC brands. The agreement brings ESW into UPS’ Digital Access Program of alliances and partnerships to improve operational synergies between UPS services, e-commerce platforms and retailers. For its part, UPS brings its strong international shipping network to the table. Contrasted with 2014’s UPS acquisition of tracking solution provider i-parcel, “The partnership approach may offer UPS more positive long-term results compared with its former acquisition strategy,” said Cathy Morrow Roberson, founder and head analyst for Logistics Trends & Insights, said in a recent column for Air Cargo World . Now, UPS is looking to further strengthen its hand with the addition of a new partnership with pan-African e-commerce platform Jumia, announced April 4. UPS has been operating in Africa since 1989, and rather than attempting to build out its own last-mile delivery capabilities in Africa to support growing e-commerce, the partnership gives UPS access to Jumia’s network of pick-up and drop-off stations. UPS’ cooperation with Jumia will begin in Kenya, Morocco and Nigeria, with plans for expansion to Ghana and Ivory Coast before eventually growing to the rest of Jumia’s African network. African merchants — primarily SMEs — on Jumia’s platform gain international shipping capabilities through UPS. “This partnership will help small and medium-sized businesses in Africa that make up 90% of all businesses on the continent and are the backbone of the economy,” said Gregory Goba Ble, UPS’ vice president of engineering and operations for the Indian subcontinent, Middle East and Africa in the announcement on the new partnership. UPS has touted its “better, not bigger” strategy around the company’s growth under CEO Carol Tome, which helps explain the partnership approach to growth in the African market and in SME solutions. “UPS’s asset-light approach offers a pathway for businesses to quickly connect to new customers around the world through our global network, accelerating their revenue growth, and will especially help small and medium-sized businesses in Africa and grow their e-commerce footprint,” a UPS spokesperson told Air Cargo World of the deal. The partnership also aligns with UPS’ strategy to offer its customers “flexible solutions and greater access to new markets,” according to the spokesperson. An ace up Alibaba’s sleeve Alongside e-tailers JD.com and newer arrival Pinduoduo, Alibaba Group dominates in the Asia-Pacific market. While Alibaba previously had been the market leader, recent pressure from the Chinese government has helped its competitors thrive, with JD’s revenue growth drawing nearer to Alibaba’s during 2021, and Pinduoduo’s user base outgrowing Alibaba’s, according to CFC’s e-commerce report. The most recent quarterly reports from both JD.com and Alibaba were more strained, with JD reporting a loss for Q4 2021 and Alibaba reporting its slowest revenue growth for Q4 since 2014, as operational costs rose and e-commerce competition in the region heats up. Alibaba still has an ace or two up its sleeve, however. Early in April, Alibaba’s logistics arm Cainiao Network announced the launch of a digital e-commerce logistics solution and partnership with Canadian-headquartered Shoplazza. The e-commerce solution is designed to offer end-to-end logistics services for SMEs, with services ranging from pickup and last-mile logistics, warehousing, supply chain services and customs clearance across Cainiao’s logistics network. For its part, Shoplazza is a software-as-a-service (SaaS) platform specializing in several areas of DTC e-commerce. Shoplazza includes SME-specific features to support order and consumer loyalty management, operational data analysis reports and similar merchant-focused services. With the Cainiao e-commerce logistics solution launch in partnership with Shoplazza’s functionalities, SME merchants on Shoplazza also gain access to Cainiao’s end-to-end logistics services. “This partnership and integration allows SME merchants on Shoplazza to tap [into] our logistics network that reaches 120 countries via sea or air freight,” a Cainiao spokesperson told Air Cargo World . “This works in a similar fashion to how merchants are able to leverage Shoplazza’s other integrated partners for business support, particularly in the areas of customer relationship management (CRM) and digital payments.” Going all in One drawback to pursuing partnerships with local vendors to grow cross-border e-commerce capabilities is the reduced control of the brand experience and operating costs, compared with more traditional paths of organic expansion or direct acquisition of the service provider, according to CFC. With the deals announced this month from UPS and Cainiao, the players will initiate the partnership with pilot phases that allow them to ease into the local game and develop a winning strategy. “This pilot is catered for merchants on Shoplazza, and we have plans to work with other e-commerce platforms to extend this solution more broadly in the near term,” Cainiao told Air Cargo World . Still, there is room at the table for players other than the high rollers, as other recent partnerships in e-commerce fulfillment have made clear. One such player is Air Canada Cargo , which in 2021 rolled out its Rivo platform, the shipper-facing site for its new e-commerce delivery service. While not a partnership on the scale of UPS’ deal with Jumia or Cainiao’s Shoplazza deal, Air Canada Cargo partnered with technology provider SmartKargo for its Rivo launch, due to the data capabilities needed to make the launch a success. “The biggest challenge outside of staffing and things like that, which is a real issue for the industry, has been ... we do not have enough rich data in the air cargo side of things,” said Jason Berry, vice president of cargo for Air Canada, during a panel discussion on e-commerce earlier this year. “There’s only a few metrics that we actually record and track,” Berry said. “When you start going out to retailers and you’re a conventional airline like [Air Canada], you’re not prepared to run the data that supply chain or logistics firm want to give you and to make this successfully go from the first mile to the last mile. So we did engage with a partner, SmartKargo, to run our e-commerce platform.” Before long, the industry may see more logistics providers going “all in” on pairings in order to grow their access to e-commerce markets.

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