e-Commerce Logistics

The New Wave of E-Commerce and New Logistics Trends (2)

This two-part series of white papers explore the current and future trends in e-Commerce logistics as it’s emerged as the key success factor in e-Commerce business.

In the first part (2018 i4L White Paper No.28) of the series, we looked into how e-Commerce affected logistics networks and warehousing.
In order to handle increasing shipment volumes, e-Commerce retailers and/or 3PLs/express couriers are expanding their logistics networks. They are building fulfillment centers near consumers, specifically designed to process e-Commerce orders. In addition, e-Commerce warehouses are getting bigger as shipment volumes increase and workers need spaces to create parcels as ordered, prepare for shipping, and process returns, special packaging/storage, and repairs. They’re also adopting advanced technologies for greater productivity.
This section will take a closer look at LMD and cross-border e-Commerce logistics. In recent years, logistics providers have been competing to provide distinguished services in these two areas.

Growth of e-Commerce and Trends in LMD

Escalating Competition for Faster Shipping

One of the drawbacks of e-Commerce is the gap between the time of purchase and the time of actual delivery. This issue created consumers’ needs for faster shipping, which e-Commerce companies or logistics providers have tried to satisfy by reducing delivery lead time.
The full-on competition for faster shipping was instigated by the success of Amazon’s unconventional Prime service and its massive investments in infrastructure. According to a report from Consumer Intelligence Research Partners cited by Business Insider, the number of Amazon Prime members increased from 41 million in March 2015 to 90 million in September 2017. Amazon Prime members have access to the company’s premium shipping services that include overnight and same-day shipping. For the last two years, Amazon reduced its average lead time by 1.5 days. The reduced lead time is two days shorter than the average of its competitors.
As noted above, express shipping has become an indispensable element in the e-Commerce market. Now 80% of consumers want same-day shipping and, according to the U.K. research firm Research and Markets, the U.S. same-day shipping market is expected to grow at an average annual rate of 23% between 2018 and 2022. Just like two-day shipping originated from the U.S. and spread across the world, same-day shipping can be expected to follow the same pattern of global dissemination.

Diversification of Shipped Products

As e-Commerce grows, companies are diversifying their offerings while an increasing number of manufacturers are starting their own e-Commerce businesses. As a result, we are witnessing a rapid diversification of products offered on online marketplaces.
IKEA, a global furniture manufacturer, is expanding its e-Commerce wing with an aim to sell 90% of its offline products online. As of now, the company’s U.S. website sells more than 9,000 products online, from artificial potted plant worth $2 to a sofa for five costing $2,400. IKEA had planned to expand its presence in the U.S., but in June it cancelled the construction of three offline locations, opting instead to divert the money to the expansion of its online businesses.
Grocery and fresh foods constitute one of the least selling product groups online, as they are easily perishable and consumers usually purchase them when they need them. At present, only 2.9% of the total sales of food products come from online sales. However, having a projected annual average growth rate of 17% between 2017 and 2022, the online sales of food products is expected to increase at a fast pace. This growth will be spurred in part by same day shipping services, with some companies even offering two-hour shipping. At Hema Xiansheng (盒马鲜生), the online-to-offline supermarket chain owned by Chinese e-Commerce firm Alibaba, customers can browse king crabs at offline locations, purchase them on mobile, and have them delivered home in less than 30 minutes.
Even cars are sold online. Although purchasing auto parts or used cars online is quite common these days, buying new cars online is not a widely observed purchasing behavior. However, online car sales are likely to increase thanks to their low prices. On November 11, 2017, Alibaba held a massive discount event called the Single’s Day Global Shopping Festival (光棍節). During the festival, which lasted only for one day, the e-Commerce company sold around 150,000 new cars online.

Beyond Fast Shipping: Next-Generation Logistics Services

After fast-shipping service, other diverse and distinguished services have emerged as a new source of competitiveness. These services include, other than the shipping/assembly/installation/pickup service for home appliances and furniture mentioned above, subscription, easy returns, and designated delivery time services.
Subscription services allow customers to combine the products they want into kits, and have the kits delivered at certain intervals. The most common example is a meal kit, in which trimmed or cooked/half-cooked foods are delivered in small portions each morning. Various other products are shipped using subscription services as well, such as fashion/beauty products and flowers. The biggest challenge that subscription services pose for LMD is that, unlike other e-Commerce deliveries, delivery kits containing similar products need to be delivered at the same or a similar time. It also requires more varied value-added services (VAS) as well as special storing and packaging. For this reason, companies providing subscription services need to identify and closely work with appropriate logistics partners.

Share of Delivery Costs, by Part of Journey

Shopping without Borders: Cross-Border E-Commerce

As of 2017, the cross-border e-Commerce market is worth around $530 billion. The figure is expected to grow by 27% each year, reaching $990 billion in 2020. According to an Accenture report cited by UPS, by 2020 as many as 943 million consumers are expected to make cross-border purchases online. As cross-border e-Commerce grows, the trends mentioned earlier are unfolding in this sector as well.
As delivery lead time is one of the main reasons why consumers are less inclined to shop cross-border, the competition for faster delivery is expected to continue in the sector. Cainiao, an Alibaba-owned logistics subsidiary, is working towards building capabilities to provide 72-hour shipping to any location in the world within five years.
Products sold through cross-border e-Commerce are becoming more diverse as well. In the early days, online cross-border purchases were mostly apparel, accessories, or cosmetic products that were smaller, lighter, and easier to transport. However, consumers today purchase even large home appliances and furniture directly from overseas online stores.
Complex return procedures are another reason that makes cross-border shopping less appealing to consumers. Logistics companies are working to address this issue by creating a platform that enables e-Commerce shippers to offer quick and easy returns. These platforms allow shippers to attract customers and reduce logistics costs while increasing cargo volumes for logistics companies. More and more e-Commerce companies provide free shipping/return for cross-border purchases that satisfy certain conditions. However, as cross-border shipping and return cost even more than standard courier services, reverse logistics costs pose a serious concern for e-Commerce firms.
Cross-border e-Commerce is also an area where shippers can benefit the most from the know-how of logistics companies. Given the nature of cross-border trading, the complexity of its logistics process is compounded by the need for international transportation, customs clearance, and local transportation. And logistics companies are capable of resolving these issues. DHL projects that cross-border sales will expand the sales of e-Commerce firms by between 10% and 15%, which means shippers are likely to find new engines for growth by working with logistics companies.
Lastly, many cross-border e-Commerce shoppers want visibility over all steps in the logistics process. After arriving in the shopper’s country, cross-border items are delivered in the same way as domestic parcels, and most companies operate systems well-equipped to track items in this part of the delivery process. However, for many logistics companies, providing visibility across the overall process including international transportation is a goal yet to be achieved.


According to an eMarketer report cited by CNBC, Amazon’s e-Commerce sales in the U.S. are expected to reach $258.2 billion in 2018, up nearly 30% from a year ago. Its market share is expected to stand at 49%, which makes eBay a distant second at 6.6%. The success stems from Amazon’s loyal customer base and brand power, which the e-Commerce giant boosted with its unprecedented two-day shipping service.
The logistics market is growing in response to the increased logistics needs from the growing e-Commerce market, which continues to record a two-digit growth rate year after year. The growth of the e-Commerce market affects the entire logistics process, from logistics networks to warehousing, transportation, LMD, and reverse logistics. As exemplified by XPO Logistics, logistics companies need to build the capabilities to adapt to the trends and support e-Commerce firms.
While the rapidly expanding market presents new growth opportunities for e-Commerce firms and logistics companies, it also poses challenges such as high LMD costs and reverse logistics costs. In coming years, players in the e-Commerce logistics market would have to enhance their productivity by leveraging information technologies. If e-Commerce firms and logistics companies work together to overcome these challenges, they will be able to lead the new wave in the e-Commerce market.


To find out more about e-Commerce of Samsung SDS, visit Cellologistics.com and download the white paper.


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