E-COMMERCE LOGISTICS

E-COMMERCE LOGISTICS – A NEW SET OF CHALLENGES FOR URBAN AREAS

Practically everything that the urban consumer needs can be ordered online today. While this may save time and cost for consumers, it also poses new challenges to existing supply chains. The ongoing change in shopping habits also has, or should have, consequences for urban planning in terms of warehouse location, delivery hubs and depots.

This article is a brief summary of findings from the Sweco Urban Insights report “Signed, Sealed, Delivered – Analysing the Impact of E-commerce on Urban Areas”. The report studies European e-commerce developments, from both from a logistics standpoint and a citizen perspective.

 

BACKGROUND: E-COMMERCE MATURITY, HABITS AND PREFERENCES VARY ACROSS EUROPE

There is no question that e-commerce is growing and maturing at a quick pace. However, there are large differences between European countries. And not only does technical maturity and service availability vary – factors such as culture and place of residence affect customer behaviour and delivery expectations.

  • Rapid but not uniform growth: The e-commerce turnover growth rate has been in the double digits (typically 10–15 per cent per year) for several years and it is expected to continue growing. However, growth is unevenly spread in Europe, with northern and western Europeans being more accustomed to online shopping than their southern and eastern counterparts. People also tend to spend more money on e-commerce in more mature markets and vice versa.
  • Slightly larger growth in urban areas: Eurostat statistics indicate that a larger share of individuals uses e-commerce in more densely populated areas than in less densely populated areas. This difference is not very pronounced, however, which shows that e-commerce affects both urban and rural areas.
  • Clothing and shoes most often returned: E-commerce returns are common but vary widely between product categories. Clothing and shoes are returned most often, with 30–50 per cent of online shoppers having returned these items. Home electronics and home furnishings are also commonly returned but to a lesser extent.
  • Delivery preferences based on national circumstances: Collection points are commonly requested in the Nordic countries and France, whereas home deliveries dominate in most other countries.
  • Low demand for extra fast deliveries: Most consumers accepts a delivery time of 3–5 days. In the Netherlands there is a preference for faster deliveries while longer delivery times are accepted in the Nordic countries. In the UK, Poland and Italy, around one-third of e-commerce consumers are willing to pay extra for fast delivery.

Although e-commerce utilisation, delivery preferences and logistics preconditions differ between European countries, growth is strong throughout Europe. This growth is expected to continue for years to come.

Due to all of these behaviours related to and motivating e-commerce utilisation, retail logistics and distribution solutions are experiencing a dramatic shift in required performance – and therefore also in optimal design – as compared to supplying conventional stores.

The convenience aspect is expected to place even greater demands on delivery time and convenient options such as home delivery. And the growth of e-commerce will further reveal and accentuate the demand for sustainability of applied solutions.

 

E-COMMERCE LOGISTICS: UNDERSTANDING THE SUPPLY CHAIN CHANGES

The e-commerce supply chain can be a crucial factor in city planning and urban life. Understanding it helps us understand how urban life and city planning may be affected by e-commerce.

Traditional supply chains are typically developed for business-to-business delivery (B2B) and generally concern store restocking. This places a clear boundary on how far the business-controlled service is taken in the supply chain.

Conversely, e-commerce logistics for Business to Consumer (B2C) delivery introduces needs to manage order fulfilment on an item level as well as last mile transportation, otherwise overseen by the consumers themselves.

One result of this is that consolidated transports from centralised warehouses to stores have been replaced by parcel deliveries directly to consumers from e retailers’ centres via parcel hubs. Consumer returns are an added e-commerce flow and must be transported back to warehouses and processed.

E-commerce logistics creates a need for redesigned or new logistics functions that are well integrated in the urban space. Warehousing, logistics networks and transports are affected and become less efficient as handling increases and transport fill rates drop.

 

E-COMMERCE DISTRIBUTION: LAST MILE SOLUTIONS FOR DELIVERY

The market is undergoing dramatic change – and consumers across Europe have varying expectations, preferences and, not least, levels of knowledge. Also, national or local conditions – whether financial, demographic, product-related, technological, societal or legal – will determine which solutions are applied.

This diversity is mirrored in the vast array of “last mile” solutions that are currently offered or being developed in European countries. The Urban Insight report presents and describes some of these solutions, such as:

  • Home delivery: Home delivery is the preferred delivery mode in many countries. It’s convenient for the consumer but has some negative aspects that can make this type of delivery costly. These include low transport inefficiency, high levels of van traffic and failed deliveries that add to handling time, cost and traffic.
  • Smart locks for in-car or in-home delivery: Solutions for delivering products purchased online directly to the recipient’s home or car are already on the market. Existing examples include Volvo’s In-car Delivery, groceries placed directly in the fridge, or deliveries placed inside the recipient’s front door using a smart lock.
  • Delivery Passes: Membership schemes that offer members “free” home deliveries have become increasingly common in the UK. Customers often pay a monthly or annual fee, and prices may vary for peak and off-peak deliveries. One of the best-known examples is Amazon Prime.
  • Click and collect in stores: Click and Collect refers to when the customer orders online and opts to pick up their purchase at a physical shop. One benefit with this solution is that online orders can piggyback on the logistics solution used by the store for other delivered items, making the solution cost effective. However, there are clear inefficiencies if Click and Collect logistics is separated from the normal store supply chain.
  • Click-and-drive for grocery: France has one of the world’s leading online grocery markets. Some retailers introduced drive-through collection services as early as 2004 – a model that then expanded rapidly. This kind of shopping behaviour is reliant on the car and involves the same trip as going into the store for shopping.
  • Parcel pick-up at collection points: Large forwarding companies and couriers have built up a network of collection points for parcels. They are often integrated into service shops with long opening hours, such as petrol stations and grocery stores. This solution can accommodate increased e-commerce volumes, either by adding collection points or by developing existing and new ones for larger volumes and efficient handling.
  • Parcel lockers: This solution is quite cost effective, as it is fully automated and does not need to be staffed. The lockers can be situated either indoors or outdoors and are often located where there is a lot of pedestrian traffic. However, the capacity and agility limitations of these types of solutions become apparent as volumes increase and a broader range of product categories is being purchased online (e.g. bicycles and furniture).

 

URBAN AREA EFFECTS: CHALLENGES AND SOLUTIONS

Recent research findings imply that an increase in e-commerce will result in both positive and negative effects on urban areas. The effects are complex and thus far quite difficult to measure.

For consumers, the effects may be a more efficient shopping experience with less travel time, but also an increase in packaging waste. From a logistics perspective, however, the new purchasing behaviour is sometimes far from beneficial and do not always promote a sustainable society.

The growth of e-commerce risks increasing traffic load from distribution vehicles and regional road transports. For parcel deliveries, time is the constraint on achievable fill rates. Increased demand for short delivery times makes it even more difficult to achieve a high fill rate, as logistics companies cannot consolidate as efficiently.

In meeting the new demands, the retail supply chain is facing a potential paradigm shift.

 

DIFFERENT AREAS – DIFFERENT EFFECTS

Effects of e-commerce are expected to be different for different areas. For example, increased home delivery frequency will lead to an increase in freight traffic in residential areas – and as deliveries increase, there will be greater demand for parking spaces for delivery trucks.

Also, an increase in e-commerce should intuitively lead to a decrease in brick-and-mortar

shopping and, likewise, in personal travel. The impact will become more and more apparent as volumes continue to increase. Incorporating new trends and needs into urban planning and design will benefit citizens as well as e-commerce businesses.

The key challenges for urban areas are the resources required, environmental and cost efficiency of last mile transport, as well as the location and function of facilities (hubs, depots, collection points or homes). These challenges resonate throughout the supply chain and in urban planning.

Read full report: SIGNED, SEALED, DELIVERED – ANALYSING THE IMPACT OF E- COMMERCE ON URBAN AREAS

This Urban Insight report argues that e-commerce is more than a logistics issue – it also affects city planning and properties. This report focuses on business-to-consumer (B2C) online sales of physical products. It starts by describing the consumer perspective, followed by an introduction to the logistics of e-commerce and some applied solutions for delivery. A summary of studied and anticipated effects of e-commerce is provided, followed by concluding remarks.