“Mail your packages early so the post office can lose them in time for Christmas.” -Johnny Carson
When I was a kid, many people tuned in to watch Johnny Carson on The Tonight Show. Part of that was because they genuinely enjoyed the show, but I have to imagine that’s also because there were limited options. As I got well into my teens, the late-night options evolved into Leno, Letterman, and Conan, and they were all great. But would my high school girlfriend and I have made such a point of trying to watch Conan (with commercials!) at night if we could have just recorded all the episodes on DVR? And what if we had (literally) a thousand other options to watch across streaming services like Netflix, Apple TV, Hulu, Amazon Prime (not to mention “doomscrolling” on YouTube or our phones)?
It was clearly a different era, and – loosely related to Mr. Carson’s quote – it was far more exciting when a package was delivered to our house back then, for two main reasons: First, because it was a rare occurrence, as it was maybe every few weeks or even once a month that a package would arrive; and second, it was usually something you had been waiting days, weeks, or even months for!
What really stands out in my mind is the process of ordering skateboards. A new complete skateboard cost $100 in 1992, so that meant months of saving junior-high-level income and then asking your parents to mail a check and order form – only to then wait at least a couple more weeks for that package to arrive. The moment when the UPS driver stopped at your house was nothing short of magical, even if that feeling quickly dissipated almost immediately after you got on that new board and realized you still sucked at skating.
That all stands in stark contrast to packages today, which seem to arrive daily by the handful, all made possible by swiping our fingers on a smartphone only a day or two prior. I’m not saying I never get excited about certain things showing up on the doorstep, but I assure you it doesn’t “hit the same.” But how do those items get to us so quickly these days? Faster communication, better logistics, and improved pieces of the supply chain (that conveniently fall into the world of Alts) are all part of the equation; that is what we’ll get into today. Here we go!
Centering on fulfilling distribution
If you’re among the minority who have never placed an Amazon order, you’re probably either my dad – using only a flip phone and largely avoiding modern technology – or a child who is too young to do so. Still, for those who have placed thousands of online orders (this is the part where I refrain from naming specific family members for the sake of staying married and such), I’m sure most haven’t taken the time to contemplate the impressive phone-to-doorstep process of modern logistics.
Using Amazon as the industry standard, the company has a network of distribution centers and fulfillment centers. Perhaps the nomenclature isn’t the most intuitive, but (based on this article) first they distribute, and then they fulfill. The distribution centers coordinate incoming bulk shipments from suppliers, so those goods can be organized and used to replenish retailers or fulfillment centers. For us end-customers, our orders are ultimately fulfilled via – you guessed it – fulfillment centers.
The fulfillment center selected for your order depends on both where the item is in stock and where it is being delivered. And the distance involved can vary significantly (several miles to thousands of miles), requiring a battery of planes, trains, and automobiles (or at least trucks and vans) en route to your home.
If you can’t beat ‘em, join ‘em
Online sales and package delivery is clearly a good business if done right, but I’d sum up the task of attempting to create the next Amazon as “difficult at best” (to put it mildly). However, we can participate in this theme via investment, and there are multiple ways to approach it. The easiest way is to buy publicly traded stock of related companies, but what fun would that be when we have a world of Alts to consider?
While some large enterprises, like the aforementioned ‘90s-garage-bookstore-turned-global-behemoth, could buy almost anything they want, you may be surprised to learn that quite a bit of critical delivery infrastructure is owned by others, which creates investment opportunities. Of course, fund managers have caught onto all of this, so investors (and advisors) can add these exposures in much smaller, appropriate, and palatable sizes, along with the added benefits of professional management, domain expertise, and diversification.
At lease you get to use it, even if you don’t own it
As with the enduring questions of renting vs. owning a home or leasing vs. buying a car, it may make better financial sense for global logistics companies to lease or rent the transportation and warehousing solutions they require. Further, in cases where ownership is more desirable, financing is likely preferable to a lump-sum cash purchase.
Leases come in two flavors: finance leases or operating leases. For finance leases, think of buying a car (using a car loan), where payments are structured so that the lessee owns the car at the end of the lease and is responsible for all maintenance along the way. Operating leases, on the other hand, are more like what we think of as leasing a car: the lessee drives the car around (and puts gas in it), but doesn’t really have to worry about maintenance and simply returns the car at the end of the lease term.
Delayed delivery
Now, with the foundation of home-delivery evolution and basic financing laid, next time we will dive right into examples of how supply-chain components are packaged for investors and the companies that need them. It’s simply too lengthy to add to this current edition, and I apologize for the delay, but hopefully it will be worth the wait.
Until next time, this is the end of alt.Blend.
Thanks for reading,
Steve
