3.3 – City Logistics and E-commerce

Authors: Dr. Laetitia Dablanc and Dr. Jean-Paul Rodrigue

a. E-commerce and Urban Freight Flows

The retail sector has been substantially impacted by e-commerce. Since e-commerce is commonly a substitution for standard retail trips, it has been observed that retail trips are on the decline. A core factor is related to the lower cost structure of e-commerce is in relation to standard retail. Further, the large diffusion of personal computing devices such as smartphones allows for a greater share of the population to perform e-commerce orders. While in 2010, about 20% of American adults had a smartphone, this share increased to 70% in 2017. Concomitantly, shopping trips used to account for about 15% of all urban trips. This share is now less than 10% in many large metropolitan areas, which is associated with the rise of home parcel deliveries. The number of items ordered, or even delivered, is not necessarily similar to the number of deliveries and pick-ups operations. A parcel can be returned (adding a pick-up operation) and can be delivered in conjunction with another parcel (reducing delivery operations).

The rise of e-commerce purchases and the growing reliance on related supply chains has incited the offering of timely deliveries. Urban consumption is increasingly multi-channel, with households shopping in conventional stores and ordering online, and receiving deliveries in an increasingly diversified way, at home, at a pickup point, or the workplace. The online food market developed later, mainly because it could not offer more attractive prices than grocery stores. Such deliveries required the command of cold chain logistics. There are now numerous options for food deliveries.

The emergence of click-and-collect services involves that customers drive to collect their online grocery orders, which is particularly popular in suburban areas. It represents a cost-efficient solution to cope with a growing number of mobile and active shoppers that negatively perceive the time spent shopping for groceries. This enables grocers to compensate for the stagnation of store visits by adding pickup services to existing stores and allocating parking areas for shoppers to rapidly pick up their orders.

b. Challenges to E-commerce Urban Deliveries

The last mile is the final leg in a business-to-consumer delivery where a consignment is delivered either at the consignee’s home or at an alternative location. It is often the most expensive and complex segment of urban logistics. The growth of home deliveries has placed additional pressures to provide effective last-mile services but is facing several challenges that are complex to mitigate:

  • Failed deliveries. If there is no one available to receive the parcel delivery, an alternative arrangement must be made, which either involves another attempt or delivery to another location.
  • Residential and office attended deliveries. Apartment buildings with a concierge or offices are convenient delivery points because of the high probability of an individual available to receive the parcel. However, this is placing an undue workload on the concierge or the receptionist/mail office. Many offices are now banning using the workplace as a personal delivery location for online purchases. Large residential facilities such as apartment buildings are also implementing parcel management systems to handle the increasing volume of deliveries.
  • Returns. The growth of e-commerce has also been associated with a growth in the number of returns, which tend to be higher than standard retail purchases since the consumer sees the product only through a visual intermediary. Returns create a form of reverse logistics requiring labor and facilities.
  • Economies of scale. For parcel deliveries to be cost-effective, a certain density level of the demand is required since it enables better delivery routes.
  • Environmental issues. Parcel deliveries have a higher level of emissions than comparable B2B deliveries. Delivery vehicles also generate noise, which can be a nuisance.

Postal and express parcel operators provide the bulk of e-commerce deliveries. It represents an opportunity, but also a cost, which pushes towards more innovative ways to deliver products ordered online. In an increasingly competitive market, specialized operators have appeared, often to offer niche services such as grocery home deliveries or collection point networks. This can take the form of automated lockers set at accessible public spaces and high traffic retail stores.

c. Emerging Distribution Channels

Distribution channels for e-commerce deliveries are getting increasingly flexible. The retail sector has experienced an evolution of its sourcing, which became global. E-commerce expanded the supply chain downstream. Standard brick-and-mortar stores are moving towards an ‘Online-to-Offline’ (O2O) strategy, where online channels are used to attract customers to physical stores. Retailers use online virtual store windows as well as physical stores to maximize their exposure to consumers. The physical facility is not just a store to sell products but an omnichannel facility, including a showroom where customers can experience or pick up products seen online and a warehouse holding inventory for local markets. Large retailers such as Walmart are transforming physical stores to omni facilities, including a showroom, a mini-fulfillment center, and a pick-up point. In the UK, many major store-based online retailers offer click-and-collect services in which customers pick up their orders from the store of their choice or at a stand-alone collection facility rather than opting for home delivery.

In the e-commerce logistics service market, the distinction between supply chain actors becomes increasingly blurred as new business models challenge existing practices. Some online retailers are becoming logistics operators and are developing extensive delivery capabilities. Logistics service providers are increasingly in competition with e-retailers or start-ups that provide innovative solutions to satisfy the time requirements of urban consumers. Amazon has entered the parcel carrier market with, in some locations, its own logistics and delivery capabilities. It delivers as many parcels in the UK as some of the largest carriers operating in the country. A similar trend applies in the United States, where Amazon has made significant inroads with a share of home deliveries, which is on par in some markets to UPS or FedEx.

However, smaller stores are negatively impacted by competition from online and large-scale retailers. In 2018, the giant toy retailer Toys-R-us completed its bankruptcy initiated in 2017 by closing all its stores. Other large retailers have faced the closing of several store locations due to declining sales. A mitigating strategy has been creating last-mile delivery brokers within a variety of urban areas, allowing people to buy items from local stores or restaurants and have them delivered by local drivers to the home or office locations. Google launched Google Shopping Express (now Google Express) in San Francisco and the Silicon Valley in 2013, which by 2017 covered all US states. It allows consumers to order goods from a range of brands available locally (e.g. Target, Walgreens, Staples) online or through a mobile application (Google Express). A Google truck will pick up all the parcels to its sortation center, and a small vehicle will redistribute the goods to their destinations according to each order. Therefore, even if e-commerce appears highly beneficial to large service providers, there are also niche services being offered that benefit small retailers.

An emerging trend involves a shorter cycle time for deliveries, with online retailers able to guarantee deliveries within 48 hours for a range of items. This is made possible by a higher command of logistics, particularly by anticipating demand and pre-positioning products accordingly in fast delivery hubs. Further, a shorter delivery time has the advantage of enabling the impulse buying behavior prevalent within the retail sector as well as offering a delivery window fast enough to lower the ‘buyer’s remorse’ effect since a customer has less time available to cancel an order before it is shipped. Online retailing is trying to replicate the impulse buying behavior common in the standard retail sector that has positioned goods on store shelves and in-store displays to incite consumers. Such behavior is difficult to replicate online as online retailers offer an interactive display of their products with substantial details. Still, shortening the delivery window allows online retailers to replicate this behavior.


Bibliography

  • Boysen, N., R, de Koster and F. Weidinger (2019) “Warehousing in the e-commerce era: A survey”, European Journal of Operational Research, Vol. 277 (2), pp. 396-411.
  • Dablanc, L. (2019) “E-commerce trends and implications for urban logistics”, in Browne, M., S. Behrens, J. Woxenius, G. Giuliano and J. Holguin-Veras (eds) Urban Logistics: Management, Policy and Innovation in a Rapidly Changing Environment. London: Kogan-Page. pp. 167-195.
  • Dablanc, L. (2020) Instant delivery in Paris: results of the 2020 survey on delivery workers. ttps://www.lvmt.fr/wp-content/uploads/2020/06/Rapport-enque%CC%82te-2020.pdf