Logisticians face mounting challenges
Logistics is increasingly becoming a decisive factor for the success of e-commerce companies. Leading online shops, striving to set themselves apart from the competition, are continuously optimising services and building up their fulfilment and logistics expertise. Although logistics service providers are benefiting from high growth rates, they are under increasing pressure to adapt their products.
The e-commerce business is booming. Travel, concert tickets, televisions, clothing, jewellery, books DVDs – you name it, you can order everything online, and the volume of goods thus traded is steadily rising. A study by the consultancy Oliver Wyman has concluded that e-commerce is growing by 10–15% annually in Western Europe. In 2012, Germany saw revenues from internet purchases reach nearly EUR 30 billion, almost double the figure for 2005. Today more than a third of all holiday bookings and ticket purchases in Germany are completed online. In the fashion sector the internet generates 35% of annual sales, 24% of all books are purchased on the net, and a 15% share of computers and accessories are acquired through the worldwide web.
Higher customer standards
The growing market share of online business is also affecting shipping. In 2013 the volume of packages shipped in the B2C segment in Germany will reach between 800 and 850 million parcels. Online sales are expected to significantly drive growth in the volume of B2C packages handled through to 2023. With an annual growth rate of 9%, e-commerce shipments will soar to more than 85% of the B2C parcels market. That represents more than a doubling of the German e-commerce parcels market over the next ten years, to more than 1.3 billion parcels every year. «E-commerce is increasingly setting the tone in the CEP industry,» Michael Lierow, a partner at Oliver Wyman, says. «That enables logistics providers to expand their business activities, but at the same time the requirements are increasing dramatically. Competition is becoming keener, demanding innovation and speed.»
E-commerce giants like Amazon and Asos have steadily improved their dispatch services, responding to customers’ needs, developing the market and raising the bar for the industry. More and more, customers want to decide for themselves when and where the goods they have ordered are delivered. They also want to have the flexibility to change the time and place of delivery. And ultimately, customers want merchandise returns to be handled conveniently. They not only want free return postage, but they also expect to be able to return goods in shops or even have them picked up at their homes.
This puts the ball squarely in the court of both web shops and logistics providers. After all, fast and flexible logistics are increasingly becoming a key factor in the success of e-commerce companies. Today, it is almost standard in Germany and the United Kingdom for deliveries to be shipped the day after an order is placed, but in future, customers will expect goods to be shipped on the day they are ordered without a significantly higher price. Initial solutions are already coming on stream. In the USA, Germany and the UK, service providers, such as Shutl and Tiramizoo are making it possible to bundle courier services. In Cologne, DHL is currently conducting a same-day delivery service trial, in cooperation with the online grocery Gourmondo. And now that Amazon has expanded its regional warehouse it will surely not be long before its so-called evening express service is expanded to include same-day shipping to many German cities. This increase in delivery speed is anything but a trivial undertaking. E-commerce firms are shifting from central to regional warehouse logistics and are working on the direct transfer of goods to the dispatch warehouses of logistics companies.
More flexibility and agility
The importance of the sorting steps at the initial dispatch point as well as of the main shipping routes will diminish, potentially resulting in utilisation problems in depots and networks. Multi-channel companies, some of which already have regional warehouses near their shops, are at a big advantage. Multi-channel strategies exemplify an approach that merchants and service providers are using in order to reach potential customers through a number of different communication channels. According to the study logistics service providers now require a great deal of flexibility and agility – particularly on the last mile – to give them the capability of delivering huge numbers of orders to customers on the same day the order is placed. At the same time, the document continues, logistics service providers are facing mounting pressure to reduce shipping costs. Leading online merchants now handle volumes that put them in a substantially advantageous negotiating position vis-à-vis the logistics companies. In addition, customers increasingly expect delivery costs to be priced into the products they order.
Clear strategies needed
More adversity is in the offing for logistics companies. The big e-commerce players in particular are starting to think about how to take over parts of their logistics operations themselves. In the USA and the UK, for instance, Amazon has introduced its own package lockers, where customers can pick up their orders. In future, says the Oliver Wyman analysis, even more online shops will develop their own shipping logistics ideas wherever it is worth their while – particularly in cities – and whenever such a move enables them to set themselves apart from the competition by doing so. «It is precisely this capacity for innovation which has placed e-commerce companies in their strong position in the market today,» says Lierow. «If innovative logistics concepts can sustainably differentiate a company from the others, it won’t hesitate to leap at the opportunity.» To keep pace with e-commerce firms, transport logistics companies in particular will have to develop targeted strategies, and implement them quickly. Merely offering a cheap service is not enough anymore. It is far more important to score points with innovative solutions. The pre-requisites for such an approach are flexibility and a capacity to anticipate market developments. Logistics service providers have to take full advantage of their position as the final point of contact with customers, in order to raise their stock in the eyes of online merchants.
To stand out, logistics companies can offer differentiated shipping services to meet the requirements of their customers. Package pick-up stations that are open 24 hours a day, and centrally located in inner-city areas or easily reachable by car are an example of such services. The stations can make use of existing infrastructure, such as petrol stations. Soon, two-hour delivery windows and flexible re-delivery at a customer’s location of choice will become standard services. At the same time, logistics firms will shift into high gear in the development of the ultimate prize, scalable same-day services. That will require a reorientation of product development toward innovative solutions, and increasing the flexibility of networks, with an eye towards delivery capabilities and locations.
The clock is ticking
Shopping habits are changing, and consumers’ expectations are changing with them. Both e-commerce providers and logisticians must act. In view of the dynamics of e-commerce trade and the growing B2C share of the parcels shipping business, Lierow says that innovative solutions from logistics service providers are the order of the day – and the clock is ticking. «Within the next twelve months the first e-commerce companies will develop and offer their own logistics services. Logistics firms that continue with business as usual won’t keep up. They need clear strategies that generate added value for end consumers and, by extension, for the e-commerce companies,» he concluded.