Impact of Growing eCommerce Businesses on the Logistics Sector
With each passing year, eCommerce business transactions are touching new heights of success. A significant factor that is significantly impacting this success of online retailers is logistics service providers. With major eCommerce marketplace players entering the logistics industry, this supply chain management business has become more competitive than ever for the traditional logistics service providers.
How Amazon is Making its Way into the Logistics Sector
Since the year 2012, Amazon has been trying to aggressively expand its shipping and logistics infrastructure all over the world. This has disrupted the conventional supply chain operations and the concept of direct competition in the eCommerce business. On the other hand, Alibaba, the Chinese retail premier, has come up with technology that uses the 3PL principles to handle export issues. All these processes make international selling a good option for small and medium retailers who want to expand their business beyond borders.
It has also been seen that the saturation on the container shipping industry and extensive dependency on technology-backed infrastructure are contributing factors to the hindrance in the logistics sector. According to a survey conducted by PwC, 59 percent of U.S. manufacturers nowadays use robots for different logistics operations. All these changes are impacting the logistics sector.
Bruno Berretta, the associate director of Colliers International, says that Amazon Prime has paved its way into the logistics market to take control of the supply chain processes. It will soon compete with conventional 3PL services. Moreover, Amazon is trying to reduce shipping costs, which do not have much impact on its profits. According to the report published Amazon annual shipping costs showed a steady increase from 2011 to 2021. In the most recently reported fiscal year, Amazon’s shipping costs amounted to 76.7 billion U.S. dollars, up from 61.1 billion U.S. dollars in the previous year.. This was equal to approximately 10 percent of its global sales. If it delivers the goods by its own logistics network, it will save around $3 per package. This saving will eventually amount to approximately $1.1 billion annually.
Amazon has leased 40 cargo planes to cater to its Prime Air service. Also, it has secured a license of a wholesaler for ocean container shipping between the U.S., Europe, and China. It now buys space on container ships and charges them wholesale prices rather than retail prices. As Amazon enters the 3PL market, significant operators like UPS and DHL will also be impacted. This is because 5 percent and 4 percent of their business are dependent on the Amazon merchandise.
Customer Demand and its Impact on Logistics
To cater to this competitive environment, FedEx launched its FedEx Fulfillment service in February 2017. This is a one of a kind eCommerce solution for small and medium-sized enterprises (SMEs) and makes use of the global transportation network. This enables SMEs to cater to orders through a range of integrated selling channels. The FedEx Fulfillment service intends SMEs to accomplish accessible growth through a combination of logistic support in the form of warehousing, fulfillment, packaging, transportation, and reverse logistics.
Expectations from customers have also led to an increase in competition among eCommerce retailers and distributors. To cater to the growing demand, they are coming up with innovative strategies. These strategies involve delivering durable & perishable products to urban consumers, within two hours.
Inferences from the CBRE Report
Last-mile delivery has already become a challenging yet essential component of the supply chain. It requires distribution facilities to cater to fast shipment. According to the Last Mile/City Logistics report by CBRE, distributors have transformed their supply chains. They have enhanced the performance of the traditional logistics platforms that are dependent on regional distribution.
According to research conducted by CBRE, some innovative eCommerce logistics strategies can be implemented to cater to last-mile challenges:
- European nations may come up with regulations on the logistics sector. These will help reduce traffic congestion that is caused by parcel deliveries. This will pave the path for the establishment of consolidation centers in the urban area.
- Retail and other forms of property will also go through ‘re-logistification,’ which will effectively combine retail and logistics.
- As more inventories are integrated into urban retail shops, they are used as small warehouse facilities to cater to eCommerce operations.
- Use of mobile warehouses that are parked at strategic locations in cities for better and flexible distribution.
Some other factors that may affect the global logistics performance
With the increase in wage percentage in China, manufacturers in both the U.S. and Europe are now diverting their investments to lower-wage countries, such as Hungary, Poland, Czechoslovakia, Morocco, Turkey, India and so on. This is opening up a new logistics sector in those nations and is creating challenges for transoceanic shipping companies to come up with new approaches to add to their profits. Maersk has made a recent announcement to diversify container shipping to inland logistics and transportation.
The entry of eCommerce giants into the logistics sector and the 3PL market may hit the profits of existing operators. These companies need to face competition by building comprehensive services and facilities for better services. Mergers and acquisitions can be useful in this aspect.
By generating demand for both logistics and warehouse capacity through cross-border eCommerce transactions, Alibaba and Amazon are already creating global sales/distribution channels for SMEs. With the increase in cross-border eCommerce, shoppers also have started buying products on external sites. It is estimated that by 2030, India is likely to have 500 million shoppers.
Nevertheless, technology may affect the logistics and warehousing sector adversely through the process of improved inventory flow. For example, the patent for 3D printing delivery trucks that Amazon will introduce may hinder the growth and operations of other digital platforms.