US Delivery System (5): Amazon As Delivery Behemoth

Amazon as a delivery behemoth

50% of Amazon’s US packages

Amazon has been steadily growing its logistics operation over the last decade, and it now delivers more than half of all Amazon packages in the US.  “Our AlphaWise analysis shows that Amazon Logistics already delivers ~50% of Amazon US volumes, focused on urban areas,” Morgan Stanley said.

Share of Amazon Packages | Source: WSJ

Amazon needs to deliver about 5 billion packages per year. Amazon Logistics delivers about 20% of its U.S. package volumes from a year ago and is now shipping at a rate of 2.5 billion per year.

MS estimates UPS and FedEx have U.S. shipping volumes of 4.7 billion and 3 billion packages per year, respectively.

By 2022, Amazon Logistics will reach a volume of 6.5 billion packages per year , far exceeding its estimate for UPS at 5 billion packages per year and FedEx at 3.4 billion packages per year.

FedEx and UPS

In its 2018 annual report, published in Feb 2019, Amazon counted companies in “transportation and logistics services” among its rivals. “They had never done that before that day,” Mr. Smith (Founder, Chairman & CEO of FedEx) said. “So we took it seriously.”

In August 2019, FexEx said it decided not to renew the contract when it expires at the end of August, not delivering Amazon packages through its ground network. In June, FedEx said it was ending its air-shipping contract with Amazon in the U.S.

While FedEx is walking away from the largest e-commerce player in the U.S., FedEx is positioning itself as a go-to carrier for Target Corp., Walmart Inc. and the world of retailers that aim to compete with Amazon. [WSJ]

Meanwhile, UPS has been investing heavily to expand its capacity to handle more packages for Amazon and other shippers. UPS reported a surge in the volume of packages going through its air network in the June quarter. [WSJ]

Further, in the 2019 holiday season, Amazon blocked its third-party sellers from using FedEx’s ground delivery network for Prime shipments, citing a decline in performance heading into the final stretch of the holiday shopping season.

Shipping with Amazon

What is more concerning for other shipping & logistics companies is the new “Shipping with Amazon” program, reported by WSJ in Feb 2018.

Amazon expects to roll out the delivery service in Los Angeles in coming weeks with third-party merchants that sell goods via its website.

While the program is being piloted with the company’s third-party sellers, it is envisioned as eventually accommodating other businesses as well.

US Delivery System (3): Automobile & UPS

Industrialization: Automobile

While railway and steamship are useful in long distance delivery, short distance and city delivery system was still relying on manpower and horsepower. Things started to change in the 20th century.

In December 1899, an automobile mail wagon was tested in the US for the first time. Officials cheered the dramatic increase in collection speed and soon postmasters across the country were testing motorized vehicles. Collection times were cut at least in half in most trials. [PostalMuseum]

Driving was not an everyday skill in the early 20th century, so the Post Office asked manufacturers and suppliers to provide drivers along with the vehicles.

United Parcel Service (UPS)

In 1907, the predecessor of United Parcel Service (UPS), American Messenger Company, was founded. The company initially focused on merchant / retail businesses and then pivoted to “common carrier service” in 1922 with acquisition.

UPS bought its first car, a 1913 Model T Ford, and attached a truck bed to its back. By 1915, it was using four autos and five motorcycles, and employing 20 foot messengers.

Ford Model T UPS delivery vehicle in 1921 | Source: Wikipedia

In 1919, it started to use the current name UPS.

After WWII

During the Great Depression of the 1930s and America’s involvement in World War II from 1941–1945, new truck purchases were a low priority at the Post Office Department. As a result, trucks bought in the 1920s and early 1930s were kept on the road longer than expected.  [PostalMuseum]

Fueled by the boom of the auto industry, industrialization again revolutionized the delivery system and further expanded the ability of settlement in less connected lands across the US.

Post war, the family car played a central role in suburban life; the number of cars on the road increased from 25.8 million in 1945 to 61.7 million by 1960. America’s growing dependence on automobiles and the growth of the suburbs pushed the Post Office Department to change how it transported and delivered mail. Passenger trains — which had transported most mail since the 19th century — declined, as more and more people chose the open road over the railroad. [USPS]

The first Highway Post Office bus was inaugurated on February 10, 1941. A second route was not established until 1946 due to the outbreak of World War II.

Highway Post Office Bus | Source: postalmuseum

Highway Post Office routes were organized on round trips which averaged about 150 miles each way. There was a very good reason for this, as the bus generally could only hold enough gas for about one 150 mile trip, and fuel stops meant losing valuable time.

Three-wheeled vehicles like Mailster were tested in half a dozen cities beginning in June 1950. By the end of the decade, more than 5,700 Mailsters were in service; the number peaked in 1966, at about 17,700 nationwide.

Mailster, 1964 | Source: USPS

US Delivery System (2): Railway & Steamship

Industrialization: Railway & Steamship

Postal system has its political importance, which is why it’s included in the constitution. As the US expanded, how information / news / mails were transmitted were directly influencing the limit of a united society.

The Railway mail service began as early as November 1832. In 1835, railroads accounted for only one percent of mail transportation and connected only two major cities – Washington and Baltimore.

On July 7, 1838, Congress declared all railroads to be post roads and enabled the railways to make contracts as long as sending mail by rail cost no more than 25 percent above transporting it by stagecoach.

But it’s the industrialization that enabled the US to include / connect California and other lands that are far away from the initial states.

In 1848, US acquired California at the end of the Mexican War. Under the  Treaty of Guadalupe Hidalgo, Mexico also recognized the U.S. annexation of Texas, and agreed to sell California and the rest of its territory north of the Rio Grande for $15 million plus the assumption of certain damages claims.

In November 1848, Postmaster General Cave Johnson dispatched a special agent to California to establish Post Offices. By Christmas, steamships were carrying mail from New York to California via the Isthmus of Panama. This was before the construction of the canal. When the ships reached Panama, the mail was taken off and transported in canoes or on pack animals – and later by railroad – about 50 miles to the Pacific coast. Another steamship collected the mail on the Pacific side and headed north.

Map showing mail routes that steamships traveled along the Atlantic Coast, from New York south to Charleston, Savannah, Havana, New Orleans, and on to Panama. On the Pacific side, the mail route followed the coast from Panama north to Oregon, with stops in Mexico and California.
The first U.S. Mail traveled to California by steamship, via the Isthmus of Panama, in 1848 | Source: USPS

Congress authorized funding for the overland routes not because they brought any financial profit to the Post Office Department or the federal government, but because they helped build and bind together a nation.

Also briefly mentioned in 一朝风雨一代王:Sears, Walmart, Amazon, the expansion of the US rail transportation contributed to the growth of USPS (Post Office Department at the time).

Map railroads 1870
Source: gorhistory.com
Map railroads 1890
Source: gorhistory.com 

In 1862, mail was sorted en route, as a train moved between two points, using converted baggage cars.

On August 28, 1864, the first U.S. Railway Post Office (RPO) route was established officially.

By the early 1900s, railroads were critical to postal operations. Like Union Station in Washington, D.C., located adjacent to the City Post Office Building, the Post Office Department ordered that all new main post offices in large cities be built as near as possible to the principal railroad station.

Delivery System (1): Manpower, Horsepower & USPS

When the current coronavirus (COVID-19) hit the world and people prepare to stay at home for weeks, some of the social infrastructures are receiving increased attention.

The delivery system is a very good one to start. As uber not only provides uberEATS but also grocery delivery, Walmart / Target / CVS increasingly focus on delivery, etc., I will try to review the development of US delivery system recently and what is implied for the future.


Pre-industrialization: The Origin And Natural Power

The origin of United States Postal Service (USPS) can be dated back to 1775 when Benjamin Franklin was promoted as the first postmaster general.

In 1778, the US Constitution, Article I, Section Eight, known as the Postal Clause, says “The Congress shall have Power to establish Post Offices and post Roads”. This explains the importance of the postal system and its position as a government branch nowadays.

In 1792, the Postal Service Act was signed into law, which established the United States Post Office Department, the predecessor of the USPS.

In the early days, mails were mainly carried by manpower and horsepower. In 1785, the Continental Congress authorized the Postmaster General to award mail transportation contracts to stagecoach operators, in effect subsidizing public travel and commerce with postal funds. Despite their higher costs and sometimes lower efficiency, stagecoach proposals were preferred over horseback.

The Philadelphia Stage Coach (about 1800) | Source: https://peterpappas.com

 

to be continued…

Jumia And Africa E-commerce (3): JumiaPay

JumiaPay is a very natural business choice as we see the success of Alipay, spun out of Alibaba.

This is also the reason MasterCard expanded collaboration and invested €50 million last year.

In Jumia’s 19Q2 press release:

… expanded the scope of JumiaPay beyond our physical goods marketplace. As of December 31, 2018, JumiaPay was only available within our physical goods marketplace. It is now also available within our on-demand services, Jumia Food, and hotel booking portals, Jumia Travel, in selected countries.

…we continued to expand the range of financial and digital services available from third parties, powered by JumiaPay, offering our consumers an increasing range of relevant every day services.

In Nigeria for instance, consumers can now access micro-loans offered
by a local fintech startup, alongside event tickets offered by a local event ticketing provider.

In Egypt, in the second quarter of 2019, we started distributing services from a local deals provider allowing consumers to purchase their vouchers on the Jumia platform, using JumiaPay.

Not surprisingly, 2019 has been a good year for JumiaPay, with quarterly TPV ( Total Payment Volume) growing constantly and annual TPV of ~€124 million.

TPV as a percentage of Jumia’s GMV,  grew from 8.6% in 19Q1 to 15.1% in 19Q4. (update: GMV before adjustment)

Meanwhile, the value per transaction on JumiaPay is lower than its value per order on Jumia, which makes sense as JumiaPay is more user in every day purchases.

In 19Q4, €19 per transaction is roughly half of the Jumia order value (€36).

JumiaPay provides a hyper-growth opportunity.

In the Q4 press release, it says “the ramp-up of JumiaPay on-platform is attributable to our continuous education efforts of consumers, the expanding range of digital services offered as part of our JumiaPay app as well as a number of newly introduced marketing initiatives. These include Mastercard Tuesdays discounts, cash-backs funded by card issuing banks or the possibility to pay for purchases in 12-month installments at no interest, offered by partner banks. “

Jumia And Africa E-commerce (2): GMV And Consumers’ Online Spending

Below is the chart for Jumia’s performance in terms of GMV.

    • A spike in 2018Q4 just before IPO is controversial..
    • Although with the “artificial” growth in 18Q4, the trend looks good
    • The more worrying part is the slowdown in GMV growth – especially when Jumia is still has a long way to go

Jumia’s full year 2019 GMV is €1.1 billion, up 33% compared to 2018.

Comparatively, Pinduoduo’s GMV in the twelve-month period ended December 31, 2018 was RMB471.6 billion (US$268.6 billion), an increase of 234% from RMB141.2 billion in the twelve-month period ended December 31, 2017.


Combined with Jumia’s annual active customer base, we can see the GMV per AAC declining over time.

In its Q4 press release, Jumia says “we have reduced promotional intensity and consumer incentives on lower consumer lifetime value business. While most product categories experienced GMV growth in the 20 to 50% range, phones and consumer electronics contracted by approximately 20% on a year-over-year basis. This aspect of the business mix rebalancing will likely continue to negatively impact GMV development over the next two quarters.”

Source: Jumia 2019Q4 Presentation

“…we have increased our focus on everyday product categories such as Fast Moving Consumer Goods (“FMCG”), fashion, beauty and personal care as well as digital services which provide affordable entry points into the Jumia ecosystem…”


We could also see that Pinduoduo’s GMV per active buyer is a little bit insane..

approx. annual GMV per active buyer = $268.6 billion /  418.5 million = $641.8

Jumia is at ~€180 in 2019, using annual GMV divided by ending AAC.


To compare it with consumers’ e-commerce purchase across the globe..

    • World avg. $499
    • US $1,389
    • China $1,021
    • South Africa $109
    • Egypt $96
    • Ghana $59
    • Nigeria $44
    • Kenya $42
    • Morocco $41

Jumia And Africa E-commerce (1)

Pan-African e-commerce company Jumia listed on the New York Stock Exchange on April 2019, becoming the first startup from Africa to list on a major global exchange.

Jumia was offering 13,500,000 ADR shares with an IPO range of $13 to $16 per share and priced at $14.5 per share.

Mastercard Europe SA has agreed to purchase €50.0 million of shares in a concurrent private placement at the same price.

As of December 31, 2018, Mobile Telephone Networks Holdings (Pty) Ltd (“MTN”), Rocket Internet SE (“Rocket”) and Millicom International Cellular SA (“Millicom”) own respectively 31.28%, 21.74% and 10.15% of the Company.

Other shareholders are AEH New Africa eCommerce I GmbH (8.86%), AXA Africa Holding SAS (6.06%), Atlas Countries Support S.A. (6.06%), Chelsea Wharf Holdings S.à r.l. (5.51%), CDC Group (4.04%), Rocket Investment Funds (3.48%) and Goldman Sachs (2.83%).


Africa has one of the most digitally connected populations on the planet, with 400 million internet users.

Jumia said it has 4.0 million and 6.1 million annual active customers at the end of 2018 & 2019.

Comparatively, say China has three times the number of internet users (1.2bn), Jumia would have 12 million or 18.3 million respectively.

Pinduoduo, a relatively new e-commerce platform in China, said its Active buyers in the twelve-month period ended December 31, 2018 were 418.5 million, an increase of 71% from 244.8 million in the twelve-month period ended December 31, 2017.

We are talking about totally different stages of e-commerce. Low penetration means more education and infrastructure are needed while potential upside is large.

Prepare For A Future Where FinTech Firms Dominate: Buy & Be FinTech

In the future where Fintech firms dominate, established companies are reacting with three main strategies:

  1. Cut costs for legacy business lines – like what we said in a previous post Banking Headcount Cut
  2. Consolidate with other legacy companies to gain more market share and thus more say/power, further cutting expenses and trying to get more economy of scale – like what we said in the last post From TD Ameritrade To E-Trade: A Wave Of Consolidation
  3. Acquire Fintech startups or replicate what they are doing – like the title of this post Buy & Be FinTech

Visa x Plaid

In Jan 2020, Visa said it will acquire Plaid $5.3 billion. The deal includes a $4.9B cash consideration and $400M of Visa stock as retention equity and deferred equity consideration.

Plaid is a Fintech firm that enables a lot of other Fintech apps & digital transaction based businesses, providing underlying APIs. It counts Venmo, Robinhood, Coinbase, Acorns, etc. as customers.

Source: Visa Presentation

Previously in Dec 2018, Plaid raised $250 million Series C at a valuation of $2.65 billion, led by Mary Meeker with capital from Kleiner Perkins’ growth fund. The growth.

In its mid-2016 financing tho, Plaid was only valued at $200 million.

The growth of valuation is supported by the growing business, the network effect and the sticky/recurring nature.

Through the Plaid acquisition, Visa secured a very strong spot in the future of Fintech and can expand/build upon the Plaid’s platform.

In Visa’s presentation, there is a list of Fintechs with rapidly growing users, on the top of which is Credit Karma with 100 million users.

Intuit x Credit Karma

On Feb 24, Intuit (Nasdaq: INTU) announced that it has agreed to acquire Credit Karma for $7.1 billion in cash and stock. (50/50).

Credit Karma lets people check their credit scores, shop for credit cards and loans, file taxes and more. It had close to nearly $1 billion revenue in 2019, growing at 20%.

In 2018, Credit Karma was valued at $4 billion when Silver Lake purchase $500 million in the secondary market.

The company started out originally in 2007 providing free credit scores, later extending that to full credit reports. Credit Karma’s launch of a financial planning tool in 2013 drew a direct comparison to Intuit’s Mint. And since then, Credit Karma has launched other products that directly rival Intuit, for example a free tool to help people file their taxes. These not only represented direct competition, but a disruptive threat, since Credit Karma’s products skewed younger and were built on a “free” premise (offering the products at no charge and instead making money off showing users and selling relevant, related products). The fact that Credit Karma partners with so many other financial services providers also means it’s sitting on a huge data trove that it leverages to build and personalize products, representing a data science angle for Intuit here, too. [TechCrunch]


Meanwhile, besides the notable acquisitions of Fintechs, companies are building similar services by themselves.

In Jan 2020, Goldman Sachs launched a long-awaited app of its online bank Marcus for customers . The bank launched Marcus in 2016.

And BofA’s AI-powered assistant Erica has pulled in more than 10 million users. Zelle peer-to-peer (P2P) payments increased 76 percent year-over-year in the fourth quarter of 2019.

While JP Morgan has closed its experimental mobile banking app Finn last year, its own branded mobile app is ranked one of the best. The idea was for Finn to reach locations—St. Louis among them—where it didn’t have branches.

By mimicking the experiences/apps offered by startups, established players are essentially becoming Fintechs themselves, thus evolving internally and embracing the future more positively.

Banking Headcount Cut

HSBC recently surprised the outsiders with a 35,000 job cut plan in three years.

The largest bank by asset in Europe, London-based HSBC does most of its business in Asia.

Financial Times reported last year in October that HSBC has embarked on a cost-cutting drive that threatens up to 10,000 jobs, as its new interim chief executive Noel Quinn seeks to make his mark on the bank.

It will now cut the headcount from 235,000 to about 200,000 in 2022.


It is also not a surprise as fintech companies are becoming more compelling and providing more superior services efficiently.

The long-term trend is inevitable. For example, in retail banking, every major bank is shutting down branches. The previous “comparative advantage” of having more footprint in the last century has become a liability. The bigger they were, the more pain they were feeling.

In a Jan 2017 report, The Guardian said HSBC “will be left with 625 branches by the end of the year [2017], which means it will have more than halved its high street presence since June 2011 when it had 1,301 branches.”

And in today’s report, HSBC US said the bank will close about 80 branches this year in the U.S. alone, a reduction of about 30%.

Other retail banking services such as trading and wealth management are also shifting online + automation. Younger generations just don’t need much face-to-face financial services and digital infrastructure has become more potent than ever. The industry’s reduction in cost structure leads to lowering fees and squeezes every player who couldn’t adapt (fast).

Many Institution services are also digitalized/automated.

Not surprisingly, many parts of the investment banking world such as trading are cutting headcount as well.

Last August, Financial Times reported that

Almost 30,000 lay-offs have been announced since April at banks including HSBC, Barclays, Société Générale, Citigroup and Deutsche Bank. Most of the cuts have come in Europe, with Deutsche accounting for more than half the total, while trading desks have been hit hardest.

A graphic with no description
Source: FT

Industries For Reducing Greenhouse Gas

Greenhouse gases trap heat and make the planet warmer.

Several of the major greenhouse gases occur naturally but increases in their atmospheric concentrations over the last 250 years are due largely to human activities. Other greenhouse gases are entirely the result of human activities. [IPCC’s Fourth Assessment Report]

Carbon dioxide (CO2) is the primary greenhouse gas emitted through human activities.

Global GHG emissions by gas: 65% is from carbon dioxide fossil fuel use and industrial processes. 11% is from carbon dioxide deforestation, decay of biomass, etc. 16% is from methane. 6% is from nitrous oxide and 2% is from fluorinated gases.
Based on global emissions from 2010 | Source: IPCC, EPA

In 2017, CO2 accounted for about 81.6 percent of all U.S. greenhouse gas emissions from human activities.

Emissions of CO2 from fossil fuel use and from the effects of land use change on plant and soil carbon are the primary sources of increased atmospheric CO2.

For total U.S. CO2 emissions, which mainly come from the combustion of fossil fuels (coal, natural gas, and oil), by economic activity types, transportation accounts for about 34.2 percent, electricity accounts for about 32.9 percent, industrial processes accounted for about 15.4 percent.

Pie chart of U.S. carbon dioxide emissions by source. 33% is from electricity, 34% is from transportation, 15% is from industry, 10% is from residential and commercial, and 7% is from other sources (non-fossil fuel combustion).
Source: EPA

1. Passenger Vehicles Going Electric

An analysis by the International Council for Clean Transportation (ICCT), shows an estimate of lifecycle emissions for a typical European conventional (internal combustion engine) car, the hybrid conventional car with the best available fuel economy (a 2019 Toyota Prius Eco), and a Nissan Leaf electric vehicle (best-selling EV overall in Europe for 2018) for various countries, as well as the EU average.

An electric car using average European electricity is almost 30% cleaner over its life cycle compared to even the most efficient internal combustion engine vehicle on the market today

Source: ICCT

In most countries, the majority of emissions over the lifetime of both electric and conventional vehicles come from vehicle operation – tailpipe and fuel cycle – rather than vehicle manufacture. The exception is in countries – Norway or France, for example – where nearly all electricity comes from near-zero carbon sources, such as hydroelectric or nuclear power. Lifecycle emissions for electric vehicles are much smaller in countries such as France (which gets most of its electricity from nuclear) or Norway (from renewables). [carbonbrief]

There is an important variable here – how the batteries of EVs are produced, as the largest part of the emissions, around 50%, is currently from battery (including cell) manufacturing.

Producing batteries in a plant powered by renewable energy – as will be the case for the Tesla factory – substantially reduces lifetime emissions. The IVL researchers estimate that battery manufacturing emissions are between 61 and 106 kg CO2-equivalent per kWh.

With the technology advancements and cleaner energy sources for plants, the marginal and average cost of producing batteries will continue to go down.