The Classic Demand-Supply Curve is in PlaySeptember 23, 2021
I was reading an article about the latest announcement by FedEx to raise rates in 2022. We all know e-commerce shipments are rising in volumes by the day, and the 3PLs will have trouble meeting the demand during the upcoming holidays. Most of us were hoping, with the vaccines, that the world would see a move to pre-pandemic activities, but that has not been the case. However, there are several factors driving the rise in 3PL costs, and there are corresponding opportunities for other players.
One of the key cost inputs is labor, and many industries are facing a shortage of labor. But last-mile has faced a unique issue. The availability of labor, especially drivers who can run the last mile, has dropped due to a variety of industries such as food delivery, pharma delivery, office supply delivery, wine delivery, and more trying to engage with any available delivery resource or service. This increased competition for resources is fierce in the labor market.
As a result, an opportunity exists for existing transportation suppliers like FedEx to take full advantage of the current scenario by increasing the prices of their products, as recently announced. This scenario will keep happening until either the demand for e-commerce shipping decreases (unlikely) or the supply of drivers increases, which is somewhat unlikely given the tight labor market and lucrative other options for an unorganized workforce. Companies like FedEx will take the opportunity to increase profit margins at the cost of the buyer. It’s a no-brainer.
Now, there is an opportunity for other players operating in adjacent spaces to enter the market, charge an attractive price, and offer comparable or better service levels. Airlines have been carrying commercial cargo for decades and now have an opportunity to use innovative technology solutions like SmartKargo to become a meaningful player in the express logistics industry. With SmartKargo, an airline can transform itself into an express logistics player in a matter of months. Airlines already have the capacity and have flights into many cities–again, it’s a no-brainer.
There is profit to be made in an industry always looking for extra dollars. When companies like FedEx and UPS (who also announced rate increases late last year) can raise prices and demand keeps going up—the time is right to take advantage of the opportunity and drive new revenue. We have already seen this work for Azul in Brazil and many other airlines in India, Mexico, Europe, and North America. Airlines have a great opportunity in front of them!