Logistics’ e-commerce evolution transforming transportation

Logistics’ e-commerce evolution transforming transportation

As it grows every year at rates that vastly exceed brick-and-mortar store sales, e-commerce is leaving no mode or segment of the international logistics chain unaffected. From air freight to ocean to trucking, e-commerce is exerting palpable influence on the various transport markets, affecting shippers irrespective of how deeply their businesses are tied to e-commerce revenue.

With last year’s soaring air freight market defined by e-commerce as a new and likely long-term trend, with less-than-containerload (LCL) ocean shipments propelled by growth in small package shipments, and with North American trucking also redefined by e-commerce, 2017 was arguably the year when e-commerce most greatly impacted the entire supply chain.

And with no sign whatsoever that e-commerce sales will slow, the impact promises to be even greater in years to come. E-commerce is changing the basic economics of freight markets, and the dominant e-commerce players, particularly Amazon — accounting for an estimated 44 percent of US e-commerce sales in 2016, according to One Click Retail — will redefine its supply chains in ways that impact everyone.

Although the last-mile impact of e-commerce attracts the most headlines — whether it is options to order by computer and pick up from the store, stores fulfilling e-commerce orders, or futuristic ideas such as drone delivery — the impact is being felt straight back to the origin. It is startling to learn that Target fulfilled 70 percent of its e-commerce orders from its stores, according to The Wall Street Journal, illustrating the supply chain transformation occurring at the last mile.

But further upstream, the impact is being felt as well. Take LCL shipping, a relatively small segment of ocean shipments accounting for less than 20 percent of total volumes. In recent years as full containerload rates weakened, LCL fell out of favor because it was cheaper to ship smaller volumes as the only shipment within a 40-foot container even if much of the container remained empty. With full containerload rates headed higher, albeit in fits and starts, LCL is drawing greater attention because it now makes more sense to ship smaller parcels — frequently driven by e-commerce — within a consolidated container including multiple shipments from several shippers.

After the goods arrive at ports, changes are felt as well, such as in the growing preference by shippers to take control of goods as soon after arrival as possible to speed their onward movement to distribution centers (DCs) located near major consumer markets. At Savannah, this has led to a change where more goods move through rapid-flow transload facilities, where containers are unloaded and goods are repacked into trucks, with less emphasis on so-called import DCs, which were the bread and butter of Savannah’s import volumes when it was emerging a number of years ago as a major import gateway.

This explains a significant drop in the percent of Los Angeles-Long Beach imported TEU moving inland within the marine container versus being transloaded; that declined from 44 percent in 2006 to 33 percent in 2016, according to the Alameda Corridor Transportation Authority.

In air freight, the impact has been perhaps most acutely felt, with e-commerce entering the picture in a big way in 2017 as a new and likely long-term presence, upending traditional air freight supply and demand. It means traditional users of air cargo for emergency, sometimes called “ocean gone bad” shipments, have to compete with e-commerce for limited capacity. Air cargo demand outpaced supply by more than 6 percentage points during all four quarters of 2017, attributed to a strengthening global economy, restocking, and e-commerce, with particular impact being felt by the use of air freight for consumer e-commerce fulfillment.

Simon Wong, CEO of logistics provider U-Freight Group, told JOC Europe editor Greg Knowler that the exponential growth of e-commerce was behind new trade patterns, such as the growth in direct business-to-consumer (B2C) and even consumer-to-consumer transactions.

“In our development of e-commerce logistics solutions, we are continually trying to address the key issues stemming from increasing volumes of mainly B2C e-commerce shipments and the time sensitivity thereof, which pose unique challenges to all e-commerce stakeholders under the current conditions,” he said.

The combination of more cargo needing to reach its destination quicker and limited headhaul capacity not only drives up air freight prices, but also leaves shippers, especially those in the trans-Pacific trade, with few options but to build delays into their supply chains — with all the inventory costs that come with it, Knowler reported.

E-commerce is generating more freight that moves by truck, whether drayage, truckload, less-than-truckload (LTL), or last-mile. The LTL sector, which specializes in smaller, palletized shipments, is gaining business as retail emphasis shifts from large truckloads delivered to stores to smaller, more frequent shipments sent to fulfillment and local DCs.

New distribution patterns are emerging that challenge the traditional truckload/LTL models in place since deregulation, and the smart operators are working to adapt to these models and define them.

Contact Peter Tirschwell at peter.tirschwell@ihsmarkit.com and follow him on Twitter:@petertirschwell.