The purpose of this research is to understand the impacts of eCommerce on the third-party logistics (3PL) industry. Discussion begins with the changing shipping requirements caused by online retail and how fourth-party logistics (4PL) solutions have emerged to remedy increased supply chain demands. Exemplifying 4PL, the rise of Amazon originally relied heavily on existing 3PL companies for package delivery. However, creation of numerous fulfillment centers presented an opportunity to consolidate the process, which was concerning for other market participants. With this in mind, FedEx elected to discontinue all transportation services for Amazon, signaling the beginning of a more competitive environment. Rather than fuel a rival company, FedEx seeks to create an alternative supply chain for eCommerce products, and has expanded ground infrastructure both domestically and internationally. When identifying additional success factors for market dominance, last mile delivery emerges as a critical topic. More than 50 percent of parcel shipping expenses are attributed to the last mile. With the potential for cost reduction, both FedEx and Amazon are researching more efficient methods, based on Industry 4.0 technologies. The ideal solution will provide a dominate position for eCommerce logistics and could help define the shape of a transforming 3PL industry.

1. ECOMMERCE AND THE 3PL SECTOR 1
eCommerce and the Third-Party Logistics Sector
Andrew Wilhelm
Engineering Management, Vanderbilt University

2. ECOMMERCE AND THE 3PL SECTOR 2
Table of Contents
eCommerce and the Third-Party Logistics Sector.......................................................................... 4
Supply Chain Logistics Breakdown............................................................................................ 4
The Emergence of Amazon......................................................................................................... 6
Fulfillment Centers and Encroachment into 3PL .................................................................... 7
Retaining UPS as a Domestic Courier..................................................................................... 8
FedEx’s Position in a Changing Market ..................................................................................... 8
Expanding FedEx Ground ..................................................................................................... 10
TNT Express Buyout............................................................................................................. 10
Industry 4.0 and the Future of eCommerce Logistics ............................................................... 11
Last Mile and Rural Delivery ................................................................................................ 12
Conclusion................................................................................................................................. 13
References..................................................................................................................................... 14
Appendix 1 – List of Figures ........................................................................................................ 16
Appendix 2 – List of Tables.......................................................................................................... 18

3. ECOMMERCE AND THE 3PL SECTOR 3
Abstract
The purpose of this research is to understand the impacts of eCommerce on the third-
party logistics (3PL) industry. Discussion begins with the changing shipping requirements
caused by online retail and how fourth-party logistics (4PL) solutions have emerged to remedy
increased supply chain demands. Exemplifying 4PL, the rise of Amazon originally relied heavily
on existing 3PL companies for package delivery. However, creation of numerous fulfillment
centers presented an opportunity to consolidate the process, which was concerning for other
market participants. With this in mind, FedEx elected to discontinue all transportation services
for Amazon, signaling the beginning of a more competitive environment. Rather than fuel a rival
company, FedEx seeks to create an alternative supply chain for eCommerce products, and has
expanded ground infrastructure both domestically and internationally. When identifying
additional success factors for market dominance, last mile delivery emerges as a critical topic.
More than 50 percent of parcel shipping expenses are attributed to the last mile. With the
potential for cost reduction, both FedEx and Amazon are researching more efficient methods,
based on Industry 4.0 technologies. The ideal solution will provide a dominate position for
eCommerce logistics and could help define the shape of a transforming 3PL industry.

4. ECOMMERCE AND THE 3PL SECTOR 4
eCommerce and the Third-Party Logistics Sector
The rise of eCommerce has been a disruptive force to a number of different market
segments. From small local businesses to large multinational organizations, the ability to sell
products on the internet has placed pressure on brick-and-mortar facilities. Looking at the retail
market specifically, United States eCommerce sales represent nearly ten percent of total sales in
2018 (Bhardwaj, 2018). This is up from about five percent a decade prior. While these seem like
small portions of total retail sales, it has had consequences on supporting industries. One of the
more noticeable impacts is seen in how goods are transported and delivered. Traditionally, goods
are shipped from manufacturers to distribution centers then to retail stores (Michigan State
University, 2019). The customers must travel to shop locations to purchase the product,
eliminating the need for any last mile delivery. However, this is no longer true given the
introduction of eCommerce. With individual households becoming the last stop in the supply
chain, logistics behind this chain have increased in complexity. Long time industry participants
such as FedEx, UPS and DHL have been left struggling to account for these changing conditions.
To lessen the financial impacts of this shift, FedEx sought to team up with Amazon, the largest
online marketplace (Black, 2019). This was mutually beneficial for some time before the deal
was ended in 2019. Amazon’s expansion into the supply chain logistics sector proved too
threatening for FedEx, who elected to no longer support potential competition. This move sets
the stage for a shipping rivalry fighting for share of the growing eCommerce market.
Supply Chain Logistics Breakdown
Provided the eCommerce overview, a breakdown of different supply chain logistics is
needed. Prior to 1980, these logistics were handled by either manufacturers or purchasers of
manufactured products. This is known as first- or second-party logistics, respectively. Due to an

5. ECOMMERCE AND THE 3PL SECTOR 5
increased demand for advanced logistics services, the 3PL industry emerged and revolved
around lead-time reductions, globalization and outsourcing of the supply chain (Farahani et al.,
2011). To facilitate these requirements, relevant companies provide the transportation,
warehouse, and distribution networks required to move products. Rather than vertically integrate
all these components into one organization, it was found to be far more efficient when
outsourced. Economies of scale play a large role in this value, as aggregating variable demand
for several companies causes more consistent logistics requirements over a period of time
(Farahani et al., 2011). This has been the cornerstone of the 3PL sector and has driven the rise of
an industry worth between eight and nine percent of the United States gross domestic profit
(Jacobs & Chase, 2018).
Expanding upon 3PL services, 4PL have been introduced and are viewed as new progress
in the industry. Evolving around web-based applications, 4PL solutions aim to serve as a middle
ground between customers and their respective 3PL providers (Farahani et al., 2011). Supply
chain complexity, caused primarily by eCommerce, requires more dedicated oversight to
maintain a successful operation. The technological aspect of online retail is a strength of 4PL,
which extends beyond the scope of traditional 3PL organizations. To better understand the 4PL
market segment, a survey was conducted asking respondent about their logistics needs. This
incorporates the existing level of service provided, and the expected future developments (Czaja
et al., 2019). Considering the prior, current 4PL products are dominated by 3PL management,
logistics planning, and end-to-end integration. With the highest amounts of respondents
indicating the need for these services, it is apparent supply chains have extended beyond the
reach of current 3PL companies. The 4PL solution presents comprehensive supply chain
management, ideally spanning end-to-end (Czaja et al., 2019; Farahani et al., 2011). This end-to-

6. ECOMMERCE AND THE 3PL SECTOR 6
end serves as a topic of extensive research, mostly in the form of last mile delivery. With this
break in the supply line still evident in certain locations, it is a future requirement for improving
4PL. Along with this, new development also focuses on information technology (IT) and
analytics. The desire for more data sharing between companies is essential for increasing
operational efficiency.
The Emergence of Amazon
Founded in 1994 as an online bookstore, Amazon has since expanded into one of the
largest and most influential companies in the world. It has established the online marketplace for
consumer goods, which has become a major disruption to traditional face-to-face businesses. To
enable operations, Amazon is divided into three main sections consisting of North America,
International, and Amazon Web Services (AWS) (Amazon.com, 2019). The North America and
International divisions are the retail marketplaces for the respective areas. Supporting this
complex eCommerce system is a sophisticated cloud computing platform known as AWS. By far
the most profitable segment of Amazon, AWS provides the IT infrastructure necessary to
leverage the momentous retail partitions. Given this success, Amazon has been able to make
AWS available to the public, allowing for use in a number of cloud computing applications.
Although the combination of AWS and the online marketplace allowed for the growth of
a retail giant, it had secondary effects. It is arguable that Amazon is the architype of the 4PL
industry (Lieb & Lieb, 2014). Up until recently, Amazon relied on an array of 3PL companies to
transport the goods purchased on their virtual retail space. The marketplace offered a means to
connect customer and product, but never handled products themselves. These attributes match
those of 4PL specifications. This is further verified by the previous lack of assets in the 3PL
sector (Farahani et al., 2011). However, the strength of AWS highlighted potential for a more

7. ECOMMERCE AND THE 3PL SECTOR 7
internal logistics system. With a strong IT scheme backing up the entire process, an opportunity
to enter the 3PL space became more apparent. Doing so would cut the outsourcing cost and
create a new distribution network.
Fulfillment Centers and Encroachment into 3PL
The first sign of Amazon’s potential entry into the logistics segment was the creation of
what has become known as fulfillment centers. To sell a product on the Amazon marketplace a
vendor must ship products to these fulfillment centers. Once an order is received for that product,
it is shipped from Amazon to the customer rather than directly from the vendor. This allows
items from several vendors to be transported in a single load, reducing costs. While it was not
originally designed as a logistics service, Amazon became aware that online purchase costs could
be significantly reduced with the proper infrastructure network. When shipping goods valued at
30 dollars, savings is approximated between 17 and 47 cents per every 100-mile reduction in
transportation distance (Rodrigue, 2020). Given the high volume of packages delivered, this
provided a cause for expanding the number of fulfillment centers between 2006 and 2018. Table
1 describes the growth during this time period. It highlights how Amazon initially tried to make
existing fulfillment centers larger first, but eventually realized it was better to expand total the
network count. This has facilitated a decrease in shipping cost by 50 percent and an increase in
gross profit margin by five to 14 percent (Rodrigue, 2020). Furthermore, the average prices on
Amazon have fallen by 40 percent in the same time span, indicating that this savings has been
passed on to the consumer.
Progress allowed by the fulfillment center concept has made Amazon a disruptive force
in the 3PL sector. Combining products from multiple vendors into one shipment has significantly
cut transportation costs and required lead time. While still dependent on other 3PL organizations,

8. ECOMMERCE AND THE 3PL SECTOR 8
such as FedEx, UPS, and DHL, the growing warehouse network is concerning. Should Amazon
grow an air and ground transportation system to compliment these fulfillment centers, it could
vertically integrate the eCommerce shipping process. In a rapidly expanding industry, Amazon
has put itself in a dominate position to dictate shipping terms.
Retaining UPS as a Domestic Courier
Amazon is capable of delivering approximately 45 percent of products ordered on their
marketplace (Black, 2019). The United States Postal Service (USPS) accounts for around 33
percent, with the outstanding portion split between 3PL companies. Due to FedEx discontinuing
both air and ground transportation contracts with Amazon, UPS is expected to inherit most of
this business. Although this is beneficial in the short term, it could subtract from company
outlook. In 2020, Amazon accounted for approximately 15 percent of UPS total sales (Black,
2020). The profit margin on these sales was less than five percent, or more than half of the total
operating profit margin. These results are not indicative of a growing venture, but of a more
competitive environment. UPS could elect to go the route of FedEx should shipping rate
negotiations further reduce gross profit.
FedEx’s Position in a Changing Market
Considering Amazon’s pressure to cut transportation costs, discussion transitions to
FedEx. As previously stated, this business has recently elected to discontinue all logistics
services for the eCommerce giant. Viewing their distribution network as undervalued in the
contract terms, FedEx backed out of the deal. This seems like the wrong decision to make with
the largest player in online retails, but is put into context when looking at some numbers. As
shown by Table 2, FedEx shipped 17.5 billion tonne-kilometers of air cargo in 2019, making it
the largest cargo operator by payload (IATA, 2019). While Amazon is a large, growing

9. ECOMMERCE AND THE 3PL SECTOR 9
customer, the business only made-up 1.3 percent of sales in the same year (Black, 2019). The
strong market position makes FedEx less willing to participate in aggressive rate discounts. To
better understand how this organization achieved the position, business strategies behind the
logistic network are described.
Attaining and maintaining the top spot in global cargo transportation requires a detailed
infrastructure to support the operations. The configuration is a traditional hub-and-spoke system,
with several key cities serving as central hubs (Bowen, 2012). Domestic hubs include Memphis,
Indianapolis, and Newark which are cross-docking facilities that break down large shipments and
distribute them to smaller spokes. The network has become so detailed that customers can locate
their package at any point and receive an approximate delivery time (Jacobs & Chase, 2018).
Dominance in this area is attributed to four main factors defining hub positions within the
logistics system (Bowen, 2012). First of which is uneven liberalization of the airline industry.
This relates to regulations limiting airline operations such as noise, runway characteristics, and
other airport constraints. Selecting hubs with the least legal restrictions is one of the most critical
aspects of system design. Along with this, market centrality and intermediacy play a large role.
Hubs are typically in established cities with developed traffic infrastructure, ideally with multiple
routes linking major markets. Similarly, the quality of local ground transportation and
accessibility are essential in sustaining next-day shipping timelines. Finally, aircraft
characteristics including range and fuel burn profiles affect the network structure and the length
between each hub. Combining these points has created the domestic FedEx air route map shown
by Figure 3 (Bowen, 2012). Although the FedEx distribution system has many pieces working
together efficiently to ensure ideal operations, optimal hub placement is the core. It sets the
baseline for smaller cross-docking locations further down the supply chain.

10. ECOMMERCE AND THE 3PL SECTOR 10
Expanding FedEx Ground
To enable distribution beyond airport hub locations, a sophisticated ground transportation
system is necessary. Of the four business segments that make up FedEx, FedEx Ground is the
most profitable with a 12.9 percent operating profit margin in 2019 (FedEx Corporation, 2019).
Although it commands the top position for air freight delivery, by a large margin, demand for
this service has been mostly constant for several years (IATA, 2019). Even considering the
business attributed to Amazon packages, the yearly air freight totals have remained unchanged.
This points to a large dependency on ground-based transportation systems to distribute
eCommerce goods, which is verified by investment decisions made by Amazon. The
introduction of fulfillment centers has been most threatening to this segment as they overlap with
cross-docking facilities maintained by FedEx Ground. Given the impact of this service on the
financial wellness of FedEx, ensuring sustainability in the eCommerce market is a key topic for
future growth. As previously described, delivery to individual households has necessitated an
expanded distribution network, with points located in more cities. As Amazon has continued to
add fulfillment centers, FedEx has made an effort to match growth (Black, 2019). A series of
ground infrastructure improvements, including two new hubs in Pennsylvania and Connecticut,
has increased the total hub count to 39 hubs and 619 facilities (FedEx Corporation, 2019). Along
with this, delivery operation hours have been expanded to seven days a week, 365 days a year. In
total, FedEx home delivery services can be rendered to 100 percent of United States residences.
TNT Express Buyout
Transitioning out of the domestic arena, conversation moves to international markets. In
2016 FedEx acquired TNT Express, a European package courier (FedEx Corporation, 2019). The
idea was to establish more of an international presence as eCommerce increased. However, this

11. ECOMMERCE AND THE 3PL SECTOR 11
buyout has been a major setback for FedEx due to difficulties integrating the two systems. Since
2016, more than 1.3 billion dollars in additional capital has been needed to successfully complete
the merge, which may not be finished until 2022 (Trefis Team, 2020). Integrating and
restructuring both corporate entities, integrating IT infrastructure, and unifying the offerings of
both FedEx and TNT Express have become major risk factors, diluting earnings per share
(FedEx Corporation, 2019). In combination with the threat of competition from Amazon, any
downturn caused by this purchase carries a large consequence. The deal was underscored by the
low-cost road network controlled by TNT and effort must be placed in getting this asset running
at a high efficiency. Once this is complete, FedEx will be able to cheaply inject shipments into
the European road network, which will lead to higher valuations.
Industry 4.0 and the Future of eCommerce Logistics
Given the current position of relevant parties to eCommerce logistics, the future
trajectory of the market is evaluated. The operations and supply chain industry as a whole is in
the mist of a radical transformation becoming known as the fourth industrial revolution, or
Industry 4.0. The premise for this revolution is based on Internet of Things technologies that
leverage connectivity and communication between an array of networked devices (Tang &
Veelenturf, 2019). Applications include additive manufacturing, advanced robotics, drones,
blockchain, and artificial intelligence, which all have been implemented at some level.
Considering supply chain, smart warehouses and inventory managements systems are highly
desirable. This is exemplified by robotic storage and retrieval systems, which are already widely
utilized in modern storage facilities. On the manufacturing side, autonomous techniques, whether
traditional or additive, is a driver of innovation adoption and is regarded as intelligent
manufacturing (Davim et al., 2019). Enabled by artificial intelligence, machines are able to

12. ECOMMERCE AND THE 3PL SECTOR 12
schedule and conduct jobs more efficiently than human operators. These effects compound as
data from each piece of manufacturing equipment is integrated into a combined stream for the
entire product assembly. It also streamlines the human-machine interface, making more
information available to managerial personnel. By the year 2025, it is estimated that applications
of Industry 4.0 technology will be worth 3.7 trillion dollars (Tang & Veelenturf, 2019). This
advancement does involve some risk, mostly in the form of network security. In the previously
described acquisition of TNT Express by FedEx, a large contributor to project cost overruns was
an IT system hack that crippled the combination process (FedEx Corporation, 2019). While the
malware culprit was detected and eliminated, the damage caused emphasized needs for secure
software solutions.
Last Mile and Rural Delivery
An aspect of Industry 4.0 highly relevant to eCommerce, in regards to logistics, is last
mile delivery. This is the distance from the last distribution center to the purchaser’s residence.
Typically, the most expensive and time-consuming process in package transportation is the last
mile. Figure 4 shows the cost breakdown for different phases of parcel delivery, with last mile
making up 53 percent of all costs (Equity Multiple, 2020). This is particularly true for shipment
to sparsely populated regions. Although FedEx and Amazon boast networks capable of service to
nearly 100 percent of United States households, the supply chain is heavily dependent on the
USPS in rural areas. Creating new last mile systems will reduce this dependency, reduce
associated costs, and reduce service time. Identifying these benefits, 3PL companies have
invested large amounts of capital to discover new solutions. A solution proposed is the use of
unmanned drones for small packages (Tang & Veelenturf, 2019). Significantly reducing the
labor cost of hand delivery, artificial intelligence could eliminate the requirement and improve

13. ECOMMERCE AND THE 3PL SECTOR 13
efficiency of the supply chain. FedEx has announced the SameDay Bot, which is an autonomous
land vehicle purposed with last mile delivery (FedEx Corporation, 2019). Similarly, Amazon has
pushed advancement of ariel drones for intercity package shipments. With a number of different
innovations, revolving around Industry 4.0 technologies, last mile delivery is a key topic when
discussing the logistics sector. The organization that develops the best solution will have a
competitive advantage in the market.
Conclusion
In conclusion, expansion of the eCommerce sector has had ramifications on numerous
industries, primarily transportation and logistics. Since the 1980’s package delivery has been
conducted largely by 3PL companies such as UPS, FedEx and DHL. The rise of Amazon
disrupted this process and brought about increased competition for share of booming eCommerce
demands. A consequence of success, Amazon has positioned itself to begin 3PL services in an
attempt to vertically integrate online retail with logistics. Long time market participants have
been faced with difficult business decisions on how to handle the situation, with FedEx electing
to discontinue all services for Amazon. Rather than enable cheap shipping for a potential rival,
FedEx has decided to further buildup an alternative ground transportation infrastructure, to
match the growth of Amazon fulfillment centers. This move exemplifies changing dynamics in
the 3PL segment. As eCommerce places higher demands on last mile delivery, the increase of
package distribution centers in more cities has been a consistent theme. With last mile making up
more than half of parcel delivery costs, new solutions could be a deciding factor in the
competitive environment. Both FedEx and Amazon have made significant financial investments
in this area, implementing an array of Industry 4.0 technologies. Whichever design yields the
most cost saving could allot the top spot in eCommerce logistics.

14. ECOMMERCE AND THE 3PL SECTOR 14
References
Amazon.com, Inc. (2019). 2019 Amazon annual report.
Bhardwaj, P. (2018, May 29). Online sales still account for less than 10% of all retail sales.
Business Insider. https://www.businessinsider.com/ecommerce-percent-retail-sales-charts-
2018-5
Black, T. (2019, August 8). Amazon-FedEx split sets battle lines in e-commerce delivery feud.
FleetOwner Magazine.
Black, T. (2020, June 1). UPS’s new CEO walks into an Amazon squeeze magnified by
pandemic. Bloomberg. https://www.bloomberg.com/news/articles/2020-06-01/ups-s-new-
ceo-walks-into-an-amazon-squeeze-magnified-by-pandemic
Bowen, J. (2012). A spatial analysis of FedEx and UPS: hubs, spokes, and network structure.
Journal of Transport Geography, 24, 419–431.
Czaja, C., Dittrich, M., Mentschel, M., & Schramm, H. (2019). Current advancements of and
future developments for fourth party logistics in a digital future. Logistics, 3(1), 7–7.
Davim, J., Kumar, K., & Zindani, D. (2019). Intelligent manufacturing. In Industry 4.0 (pp. 1–
17). Springer.
Equity Multiple. (2020, May 29). Last-mile industrial real estate.
https://www.equitymultiple.com/blog/real-estate-crowdfunding/last-mile-industrial-real-
estate
Farahani, R., Kardar, L., & Rezapour, S. (2011). Logistics parties. In Logistics operations and
management. Elsevier.
FedEx Corporation. (2019). FedEx 2019 annual report.
IATA. (2019). World air transport statistics 2019.
Jacobs, F., & Chase, R. (2018). Operations and Supply Chain Management (16th ed.). McGraw-
Hill Education.
Lieb, K., & Lieb, R. (2014, October 27). Is Amazon a 3PL. Supply Chain Quarterly.
https://www.supplychainquarterly.com/articles/898-is-amazon-a-3pl
Michigan State University. (2019, July 15). E-commerce spurring changes for logistics
managers. https://www.michiganstateuniversityonline.com/resources/supply-chain/e-
commerce-spurring-changes-for-logistics-managers/

15. ECOMMERCE AND THE 3PL SECTOR 15
Rodrigue, J. (2020). The distribution network of Amazon and the footprint of freight
digitalization. Journal of Transport Geography, 88.
Tang, C., & Veelenturf, L. (2019). The strategic role of logistics in the industry 4.0 era.
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Trefis Team. (2020, May 20). Looking back: Why is FedEx down 50%? Forbes.
https://www.forbes.com/sites/greatspeculations/2020/05/22/looking-back-why-is-fedex-
down-50/?sh=790334165bcf

16. ECOMMERCE AND THE 3PL SECTOR 16
Appendix 1 – List of Figures
Figure 1: Logistics Market Evolution (Farahani et al., 2011)
Figure 2: 4PL Industry Requirements Survey Results (Czaja et al., 2019)
0 2 4 6 8 10 12
IT platform
Analytics
Managed services (consultancy)
Other up/downstream activities
End-to-end integration
Monitoring and reporting
Logistics planning and control
3PL management
Number of Respondents
Existing Future

17. ECOMMERCE AND THE 3PL SECTOR 17
Figure 3: FedEx Network in the United States (Bowen, 2012)
Figure 4: Package Delivery Costs (Equity Multiple, 2020)
53%
37%
6%
4%
Last mile (53%)
Line haul (37%)
Sorting (6%)
Collection (4%)

18. ECOMMERCE AND THE 3PL SECTOR 18
Appendix 2 – List of Tables
Table 1: Growth of Amazon's Fulfillment Center Network (Rodrigue, 2020)
Year
Count of
FCs
States with
FC
Avg Ship
Distance (m)
Avg FC Size
(sqft)
Avg FC
Employees
2006 8 6 297 544 504
2007 9 7 292 522 484
2008 12 10 236 487 452
2009 17 10 227 570 529
2010 17 10 243 570 529
2011 24 10 236 657 610
2012 32 12 223 718 666
2013 41 14 207 765 709
2014 48 14 175 707 656
2015 54 16 152 665 616
2016 90 27 123 562 521
2017 101 28 116 552 511
2018 104 28 116 558 517
Table 2: Top Ten Cargo Carriers in 2019 (IATA, 2019)
Rank Airline Tonne-Kilometer (millions)
1 Federal Express 17,503 17,499
2 Qatar Airways 13,024 12,695
3 United Parcel Service 12,842 12,459
4 Emirates 12,052 12,713
5 Cathay Pacific Airways 10,930 11,284
6 Korean Air 7,412 7,839
7 Lufthansa 7,226 7,394
8 Cargolux 7,180 7,322
9 Turkish Airlines 7,029 5,890
10 China Southern Airlines 6,825 6,597