New OnTrac Automated Hub Shows There Is Life After Amazon

An OnTrac automated sorting hub that opened in Reno, Nevada, last week grew out of a now-diminished relationship between the parcel carrier and Amazon.com, Inc. (NASDAQ:AMZN), but the facility will help the regional service compete with national delivery firms as the online shopping boom continues unabated.

"We're a first class e-commerce solution for the Western U.S.," said Mark Magill, vice president of business development for OnTrac. "Who's in that space? UPS Inc (NYSE:UPS) and FedEx Corporation (NYSE:FDX).  So do we have to adapt to technology? Absolutely."

Founded in 1991, OnTrac is the largest regional parcel carrier in the United States. The shipping company's service area includes California and the major metropolitan areas of Arizona, Nevada, Oregon, Washington, Utah, Colorado and Idaho — an area that is home to over 65 million consumers.

The  new 33-acre, 183,000-square-foot facility is the company's first automated hub and the  fifth expansion of its Reno operation since OnTrac added Nevada to its service area in 1996. 

In a fast shipping marketplace, the company's value proposition hinges on rapid residential delivery for the price of ground shipping. From Reno, OnTrac can deliver next day from the Canadian border to the Mexican border, at heavily discounted ground rates, Magill said. "It's  860 miles in each direction. Nobody else has that."

Today the company claims the nation's top online retailers as customers, he said.

OnTrac's fortunes grew in tandem with its relationship with Amazon, registering double digit annual growth rates as the e-giant flooded the carrier with hundreds of thousands of packages.

But that high-growth period slowed in 2018 after Amazon decided to bring more of its deliveries in house, cutting ties with many regional parcel carriers. Still, OnTrac was "one of the rare ones able to pivot and still make hay of the e-commerce boom, just without Amazon," said Rob Martinez, founder and co-CEO of Shipware Consulting, a firm that helps shippers negotiate parcel contracts.

"A low-margin business that floods your system is not attractive freight," Martinez added. "It cripples an organization." He attributed OnTrac's success to the shedding most of its Amazon business in favor of higher-margin business. (The carrier continues to partner with Amazon on a few services, such as ferrying its packages to the U.S. Postal Service.)

Its automated sorting facility is another step in the right direction. Even though the center is a "direct result" of OnTrac's former relationship with Amazon, and as a result is a "significantly larger facility than they need today," it will help the carrier "keep up with the Joneses with FedEx and UPS," Martinez said.

OnTrac's new system will help speed delivery without any additional costs, the company said, enabling delivery of three times more packages than it could before.

"For efficiency's sake, we're looking to do more automated solutions," Magill said. But the company also has its eye on bigger fish, including electric and driverless vehicles. Last year, the company partnered with delivery firm BoxBot to test a self-driving, electric-powered vehicle in northern California.

FedEx and UPS have much deeper pockets and significantly greater brand awareness and profit margins, Martinez said. Also, the two logistics giants have long invested in automation, and their annual R&D budget "dwarfs anything" OnTrac or all of the regional carriers together could do.

"But OnTrac is forward thinking," he added, "way more forward thinking than the other regional parcel carriers."

Image by icondigital from Pixabay