The Logistics Matters podcast: Amazon's new strategy; a move away from big parcel carriers; attracting new logistics workers | Season 1 Episode 20

Why is Amazon moving into malls? Shippers are diverting some of their packages away from major parcel carriers. And new training initiatives prepare the next generation of logistics workers.

Pull up a chair and join us as the editors of DC Velocity discuss these stories, as well as news and supply chain trends, on this week's Logistics Matters podcast. Hi, I'm Dave Maloney. I'm the editorial director at DC Velocity. Welcome.

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As usual, our DC Velocity senior editors Ben Ames and Victoria Kickham will be along to provide their insight into the top stories of this week. But to begin: What is Amazon doing moving into available mall space? To answer that question, here's Victoria and today's guest.

Thanks, Dave. Yes, our guest today is Patrick Penfield. Patrick is a professor of supply chain management practice and director of executive education at the Whitman School of Management at Syracuse University. Patrick's here to discuss, as you say, the idea of converting mall space into fulfillment centers, and recent reports that Amazon intends to do this.

Welcome, Patrick.

Thanks, Victoria. Thanks for having me on

Yes, our pleasure. So I just wanted to start off by saying, you know, the idea of converting mall space into sort of mini-fulfillment centers has been floating around the logistics industry for a while now. But it looks like Amazon may be ready to start doing it. Why might the timing be right, and what's your general take on this?

Great question, Victoria. So the the impetus behind Amazon's moving to mini-fulfillment centers is really because of retail bankruptcies. So, there's a lot of vacant space right now in malls. And so for a lot of these mall owners, you know, they're looking for opportunities to be able to rent space. And so for Amazon, it's about capturing more sales. So this is absolutely a great time for Amazon to actually move into this area.

And the big reason also is that malls are really in prime locations, you know. There's a lot of population that is serviced by these malls. so if Amazon can have a fulfillment center right there, then they're going to be able to offer, you know, same-day service, even a couple hours of, you know, being able to service a customer from an order standpoint. So this is a huge opportunity for Amazon.

So, but as we say, it's just been sort of reported and that it's just sort of in the initial stages right now. Do you think the trend will gain traction. You've said kind of what's in it for both parties, but what else might be a good reason to be looking into this?

You know, I absolutely think that this trend will gain traction, and the reason being is because of these retail bankruptcies. We have not seen the magnitude of retail companies going out of business, of this size, since the last recession. So I think, for Amazon, this is a great way, again, to be able to service more people.

And so you know, this is kind of their dilemma, right?, is you've got online sales. A lot of sales are still fulfilled through brick and mortar. So if Amazon can kind of move into that realm, be able to service customers faster, then hopefully, they'll be able to see more sales.

For the mall owners, it's about being able to rent space. And so a lot of these malls are in really bad shape from a financial standpoint. And that's just because of Covid and all the Covid situations that have been going on. So because these malls have been closed in a lot of states, you know, they're really struggling to survive. And so for a mall owner who just lost a tenant, this is a great way to be able to repopulate that space. And so if they can do that, that is again going to allow them, hopefully, to be able to have cash flow, and then be able to survive. And so that's kind of what we're seeing. We're seeing the transformation of malls.

And so, to answer your question, absolutely, this is going to happen more and more. So you're going to see malls be used for different types of things in the near-term future, and that's just because, again, the retailers are, some of them are going away.

Right, thank you.

So you mentioned sort of the importance of sort of having a brick-and-mortar presence, and, you know, Amazon doesn't have that. How does this help with last-mile delivery goals? You mentioned a little bit about that. But we talk a lot about, you know, companies sort of trying to perfect or improve the last mile as it is. How did how does this help?

Yeah, this is, again, a great opportunity for Amazon. So this is the last mile, right? That's the problem everybody's trying to solve. So for Amazon, it's, again, being closer to the customer. And so, if you can be closer to the customer, then It's easy to be able to deliver faster, right? And so that's really kind of the goal, same-day service.

So Amazon wants to be just like a store. So you place an order, they want to get in your hands—within an hour, ideally—that product. And so, this is one way that you're able to do that, again, because a lot of these malls are built in certain population areas, and so they're able to service customers fast. And so, if you have a mini-distribution center there, and then you have a truck, you know, simple delivery truck, you can do that quite quickly.

Or even drone technology, right? So, this might be an opportunity to be able to use drone technology in this particular situation. Again, the malls are centrally located, close to neighborhoods, so they're able to, again, get that. And hopefully, that solves that problem with the last-mile delivery.

What would this trend mean, do you think, for the broader marketplace? Specifically, I think about competitors such as, you know, Walmart.com, and also the smaller retailers that already have kind of an omnichannel fulfillment structure in place. Do you think this will affect, sort of, the the broader marketplace, as I said?

Oh, it's going to put pressure on Amazon's competitors without a doubt. So this is kind of their worst nightmare, is to have to deal with Amazon from a brick-and-mortar standpoint. So, I think this has really kind of changed things. So Amazon is going to push these other retailers in these omnichannel structures even more. And so we're going to see more changes.

So, they're going to have to do something different in order to compete with Amazon. So, they're either going to have to do the same thing, or they're going to have to add some other thing that people desire and want. So this, for them, is really something that they have to think about and figure out: How are we going to combat Amazon in this particular situation? What can they do differently? So again, I think this is good for consumers, because it's going to put a lot of pressure on these different retailers to perform better and to perform, you know, that same-day service that everybody wants.

Amazon continues to drive change. You mentioned technology a second ago—drones and things like that. Amazon's known for its heavy investment in technology to power its fulfillment operations. Do you expect the mall spaces will include high-tech automation, or do you think they'll be used differently in some way? What's your feeling about all that?

Yeah, I absolutely think that Amazon has to be using some type of technology in those mini-distribution centers. They absolutely have to, and the reason being is, again, you know, they offer a wide variety of products, margins are low. So what you have to be able to do is be as cost-efficient as possible. So they're going to kind of drive out as much cost as they can within their their mini-distribution centers. And a lot of that is going to be driven through technology.

So, I would assume you're probably see some Kiva robots, drone technology. I think you'll see a lot, again, to make it as efficient as possible in order to compete and and to keep prices low. So if they don't do that, I think [it] would be very difficult for them to operate in that type of environment. And, you know, that's kind of Amazon's M.O. also, right, is "Hey, how do we install more and more technology within our distribution centers that drive costs down further?" and then be able to, again, sell at a lower price than their competitors. So I would assume you're probably gonna see more of that in the near future.

Great. I just wanted to end by asking you anything else about this trend from broader perspective, or from Amazon's perspective that you think is important to mention, or our listeners should pay attention to?

Yeah, I think it's fascinating, right? So, I like the fact that Amazon is always looking to try something different, something new. And so what's neat about that, it creates pressure—creates pressure with the competitors, and then it makes the supply chain even more efficient, which is kind of great to see. So I think a lot of these things that they do, you know, may not pay off right at first, but I think through learning and knowledge, they're able to take these things and kind of be able to spread it throughout their distribution chain. So, you know, for Amazon I think this is a great way, again, to grow their business, test new technology, test new processes, and be able to really kind of push the envelope.

And so that's what I like about what Amazon does from a supply chain standpoint is, again, they're always trying different things. And again, it just, it helps with innovation. And so when you have these types of companies within the within the world, the business world, again, it's just a great way to hopefully be able to see the change that we need in order to, again, be able to survive and innovate.

Great. Well, Patrick, thank you so much for joining us today to talk about this trend. It'll be interesting to see where it goes. So thanks again.

I really thank you so much, and folks, have a great one, and hopefully we'll talk to you soon.

Great. Thank you.

Take care.

Thank you, Patrick, and Victoria.

Now, let's turn to some other supply chain news from the week. Ben, you reported this week that some shippers are moving away from the major parcel carriers and looking towards smaller regional carriers? Is this a growing trend?

Ben Ames, Senior News Editor, DC Velocity :  10:04

It seems to be Dave. It's still in the early days here, but it really comes down to what Professor Penfield was talking about, about the primary importance of same-day service and last-mile delivery.

We covered the story this week looking at some parcels statistics in that area from a logistics technology firm called Convey. They make software for managing last-mile delivery. And during the pandemic, Convey has been releasing monthly statistics. It's a performance index, talking about how Covid-19 is impacting the retail sector. And in their latest report, they showed that some retailers are migrating away from the major carriers like UPS and FedEx and the postal service, and they're looking at alternative providers like DHL, or regional carriers like LaserShip and OnTrac, and in Canada, Canada Post and Purolator.

So the numbers are fairly modest so far. The major carriers still carry a definite majority—more than three quarters of the packages. But it's been consistent, and it's been growing month by month, according to Convey's numbers. Looking at January and February, the percentage of parcels that were carried by regional carriers was in the low single digits, about 4%. That rose in March and April into the mid-teens, and May—19, 15, 18%. And then in June and July, which are the most recent numbers, it was in the low 20th percent, So 21, 24%. So, that's expected to accelerate even more as retailers start planning for the big winter peak holiday shopping season, which is coming up before we know it.

David Maloney, Editorial Director, DC Velocity :  11:36

Did the report give any reason why shippers are choosing different kinds of carriers?

Ben Ames, Senior News Editor, DC Velocity : 11:41

Yes. It all comes down to cost, primarily. Both UPS and FedEx have recently announced that they'll raise their costs and limit capacity in terms of the number of packages they'll accept from some of the largest retailers. And that could also be true at the postal service, where there look to be some major changes in the wind.

Coming in the recent headlines, there are some cost-cutting measures that are being applied by the new postmaster general, who's a logistics executive named Louis DeJoy. The postal service has been losing money for years, and DeJoy says he wants to fix that, in part by raising prices on parcels that USPS delivers for Amazon.com.

All these things are more important than ever for American citizens, since so many people are working from home now and shopping online instead of commuting to offices, instead of heading out and shopping in retail stores. So, in fact, one of those smaller carriers, which was a Texas-based startup, called Fetch Package Inc., said that the volume of packages that they deliver to apartment buildings has increased by 59% since the start of the pandemic, almost 60%.

And, by the way, Fetch Package raised $18 million this week in venture capital for its network. So investors obviously agree that these regional and smaller package delivery companies could be in for some fast growth in coming months.

David Maloney, Editorial Director, DC Velocity :  13:01

Well, we'll continue to track that for sure in future months. Thank you, Ben.

And Victoria, you reported on some major training initiatives that were announced to prepare for the next generation of logistics workers. Can you tell us more?

Sure, Dave. Yep. So, it was interesting: Logistics real estate firm Prologis said this week it'll train 25,000 people for in-demand logistics jobs by 2025. This is part of its Community Workforce Initiative. As you and our listeners know, Prologis leases warehouse and DC space around the world. So this is really aimed at developing what they call a "talent pipeline" for the industry, and more specifically for its customers in the U.S. The story is interesting because it really addresses a need we've been covering for some time, which is growing demand for labor across the industry—in warehouses, DCs, at transportation companies, and at all levels.

So, just a couple of details about the initiative: The effort combines online training programs with funding for local organizations that will prepare workers for jobs, as I said, in transportation, distribution, and logistics. The effort really, it expands the Community Workforce Initiative, which was launched in 2018. So it's really just an effort to kind of expand and really address the increasing need the industry's seeing for talent,

Right. And while the unemployment level is high in many other industries, of course in our space, because they're essential industries—transportation, distribution—unemployment continues to be low in those areas, and it's still hard to find workers. So what specific skills does this training address?

Well, as I said, there's two parts to it. And so, first, they have an online training and logistics curriculum portion and that addresses basic workforce skills, lean principles, and logistics-specific training in areas like workplace safety and forklift operation. The other part of the program is a partnership with educational organizations, and specifically community colleges, to help identify [and] engage potential employees, provide career guidance, coaching, and that kind of thing. So it's really a dual effort.

And as we mentioned, it is hard to find good skilled workers for a lot of these kinds of jobs. So what else is being done by others to prepare tomorrow's supply chain workers?

Well, as I said, it's evidence of, sort of, the industry's continued efforts to focus on training—as you say, Dave, the next generation of logistics workers.

We've seen large companies like Amazon, as we've mentioned earlier, focus on training and education over the last few years.

And more recently, DCV reported on the acquisition of the Warehousing Education and Research Council, WERC, by MHI. And that deal also has a strong training component to it. Leaders there say that combining their resources and their reach in the industry can really help address workforce training shortages. So those are just a couple of examples of the growing importance the industry is placing on, really focused on training and education.

Thank you, Victoria. Hopefully those initiatives will assure that the industry has the labor needed for the future. We encourage listeners to go to DCVelocity.com for more on these and other supply chain stories. Go there to check it all out. Thank you, Ben and Victoria, for sharing highlights of the news this week.

Thank you, Dave.

Yeah, my pleasure.

And again, our thanks to Patrick Penfield of Syracuse University for being with us today. We encourage your feedback on this topic and our other stories. You can email us at podcast@dcvelocity.com.

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We'll be back again next week with another edition of Logistics Matters, when we'll take a look at the U.S. Postal Service and its future. Be sure to join us. Until then, please stay safe and have a great week.