Why parcel companies are ecstatic about ecommerce

FedEx, UPS and the U.S. Post Office are ecstatic about ecommerce. Here are some of the reasons why they are so optimist.  According to eMarketer, ecommerce is scheduled to grow in the following years 2013 – $225.5 billion, 2014 -$296.7 billion, 2015 – $338.9 billion, 2016 -$384.9 billion and 2017 -$434.2 billion.  This is a compounded annual growth rate of 14%.  In a dismal economy where growth is between 2.5% to 2.8%, this a bright spot. One of the few bright spots in the economy.

 

Most company’s spend about 5% of revenue on shipping. We took the 5% figure and applied it to the revenue projections and came up with our shipping dollar projections per year: 2013- $11.275 billion, 2014 – $14.83 billion, 2015 – $16.94 billion, 2016 – $19.24 billion and 2017 – $21 billion for the amount of money spent on ecommerce shipping.  Now you can see why a tremendous opportunity exists in the shipment of goods bought on the internet. No wonder the parcel company’s are upbeat about ecommerce.

 

Another area to consider are returns, return percentages can vary as shoes and apparel traditionally have higher return rates. Let’s take a conservative approach and use 15% as a return percentage.  Based upon the 15% figure here  figures: 2013 – $33.82 billion, 2014 – $44.5 billion, 2015- $ 50.8 billion, 2016- $57.7 billion and 2017 – 65.1 billion.  If we apply the 5% factor for shipping, here is the breakdown by year: 2013 – $1.69 billion. 2014 – $2.22 billion, 2015  – $2.54 billion, 2016 – $2.88 billion and 2017 – $2.54 billion. Again, a pretty good revenue stream for the parcel carriers.

 

These numbers do not take into consideration any reverse logistics functions such as return processing: inspect and test, repackaging and warehouse services which are all additional sources of revenue. Return services such as inspection, test and repair of electronics are nice revenue streams. Inspection of garments, repackaging or placing on hangars and retagging are other examples of reverse logistics services.

 

Ecommerce sales in the 4th quarter of 2013 are expected to top $61 billion dollars. If ecommerce companies spend 5% on shipping this will equate to $3 billion dollars in the 4th quarter. No wonder everyone at the parcel companies were upbeat on the earnings calls going into the 4th quarter.   Ecommerce is carrying the day in a rather tepid market.

 

Logistics Trends will keep you updated on the trends that are occurring in this area.