How Growing Consumer Demand is Reshaping Logistics

As more people turn to the Internet to purchase products, industries are feeling the pressure to improve efficiency while ensuring customer satisfaction.

In a recent investment research report, analysts noted that e-commerce sales will climb to over US $1 trillion by 2020 if the overall retail sector experiences even modest growth. Another eMarketer report forecasts that annual U.S. e-commerce sales will grow from $349 billion in 2015 to US $548 billion by 2019. With increasing customer demand, e-commerce companies and related industries are bracing to further level up their services in order to keep up with the trend. The e-commerce logistics market is under particular pressure as consumers are demanding not only quality products, but fast and reliable delivery services as well.

Challenges for the e-commerce logistics market

Analysts at a leading market research company noted that the e-commerce logistics market is expected to grow at 9.69% through 2020. Researchers added that cross-border online shopping is particularly strong in emerging markets, with China emerging as the largest market for online shopping. India and Southeast Asia are also poised to become two of the biggest e-commerce markets in the world.

Despite these positive forecasts, risks and complexities have emerged for logistics companies as they try to balance service and cost. One of the main challenges is warehouse space. A study from a property consultancy company revealed that the demand for industrial space in the U.K. will exceed supply by 25m sq. ft. by 2020. The growing demand from customers is pushing greater demand for distribution centers close to densely-populated areas. 

The challenge of finding warehouse space is also loosely related to another hurdle in the e-commerce logistics market: rising minimum wages across the U.S. An increase of $1 in average hourly wages could add over $1 million in annual costs to a warehouse operation with 500 employees. The impact could be greater for e-commerce facilities connected to densely-populated areas, especially during busy holiday shopping seasons.

Meanwhile, competition has also pressured companies to improve their delivery systems not only for customers but also to reduce their losses and cut costs. By redesigning supply chains, companies could prevent mismatches between inventory and demand as well as accurately monitor the movement of goods.

Where will logistics companies go from here?

While there is much to improve for logistics companies given the current challenges, certain opportunities have emerged for the e-commerce logistics market.

Investments in the market have been increasing among big retailers as well as a variety of startups. While Amazon’s 2016 purchase of a 10% stake in aircraft leasing company Air Transport Services Group shocked many, the move showed how Amazon is scaling back its dependence on traditional shippers as it steps up its shipping services. The e-commerce boom is also propelling supply chain technology consolidation, like the acquisition of Terra Technology by software provider E2open.

Meanwhile, in 2016 as part of its "Make in India" initiative, the Indian government approved 100% foreign investment in marketplace e-commerce companies. This includes warehousing, inventory and payments processing to merchants. Funding into regional logistics in Southeast Asia has also hit record high with total investments amounting to $28.16 million in 2015, up 110% from 2014. In addition, China remains competitive as its e-commerce business revenue, which accounts for 12% of its total revenue, could surge to up to 20% by 2019. Companies like FedEx are expanding their global e-commerce businesses in an effort to keep up with the increasing number of packages shipped to consumers in China and Japan.

Logistics companies could look into technology-based supply chain including data analytics as well as software technologies. Data analytics could help to forecast and react to customer demands, while software technologies such as warehouse management software, automated material handling equipment and warehouse control software could improve product tracking. Other evolving technologies like mobile technology, global positioning systems, and biometrics would allow for easier inventory management and monitoring.

While some companies are reshaping their logistics framework to suit the growing demand in the e-commerce market, others will, sooner or later, have to cater to the needs of their customers as well. If this trend continues, it could pave the way for the evolution of logistics and supply chain to the e-commerce model. This transition could, in turn, create opportunities for various industries, particularly those connected to automation, software development, smart technologies and the like.