Industry executives weigh in on e-commerce and how it is changing logistics operations

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By Jeff Berman, Group News Editor
April 30, 2015

For anyone not sold on the ongoing impacts of e-commerce on logistics and supply chain operations, comments by some influential industry executives at the recent National Shippers Strategic Transportation Council (NASSTRAC) Conference and Transportation Expo definitely would help change that train of thought.

At a CEO panel on the conference’s opening day, the case was clearly made for the role e-commerce has had on day-to-day logistics.

“It is no surprise the biggest driver of change in our industry is e-commerce; it is bringing unparalleled and unprecedented growth and a landscape of continuing change,” said Henry Maier, President and CEO of FedEx Ground.

Maier noted that e-commerce can now be viewed as a revolutionary shift in our society, akin to how airplanes were decades ago. And he explained how in the United States alone, in 2015, e-commerce will top $300 billion in sales and is fast outpacing brick and mortar store rollouts, which, from 2012-2014, increased by more than 100 percent, whereas during that same period the number of “Web,” or e-commerce-type stores shot up by 1,354 percent.

So, what is behind that massive upswing?

Maier said that much of it is being driven by things like changes in consumer behavior and expectations, with the cost of online shipping being the number one factor in whether a shipper makes a purchase or not.

“Surprisingly, the cost of shipping outranks product reviews on those same sites, where customers shop,” he said. “Of course free shipping does not mean customers are willing to wait any longer for the product and you can ask our customers–nobody is expecting their online order to come slower nor are they expecting it to cost more. E-commerce in our industry is driven by what we call a revolutionary change, one where consignees, or receivers of goods, have more control than shipper. This is something that we have talked about at FedEx for a number of years and we are now actually seeing it happen.”

While e-commerce is making a major foothold in the supply chain and logistics sectors, Maier was clear that there is a ways to go, stating that it currently represents less than one-tenth of total U.S. retail sales.

“Nobody thinks ecommerce is a fad so the question is what does it look like?” he said. “We know free shipping is not free so how sustainable is it in its current form? Maybe a better model is needed to reflect its true costs and maybe free shipping is only an option when residential delivery is made to a commercial location like a grocery store or a FedEx office location. Regardless of how shopping, shipping, and consumer expectations change, one thing is clear in the transport industry and parcel segment in that we are going to have to address further issues going forward.”

UPS Freight President Jack Holmes said another way to view the changing role of e-commerce on logistics is to consider how things used to be on the parcel side and how things have changed from a seasonal perspective by the growing impact of e-commerce-driven reverse logistics processes.

During the holiday rush, Holmes noted that in the past UPS’s business used to run up to Christmas and then turn “soft” for the following six weeks. But, now, those six weeks are one of the most challenging periods of the year.

“The other part for us is a focus on the omnichannel side,” Holmes said. “There has just been a sea change in that you have taken these hundreds of store fronts and put them in play like they are their own DC, and it has allowed not huge virtual companies, but brick and mortar companies to be more competitive than they ever have. That story is still being written, and they are trying to figure out better ways to reduce costs by utilizing that model and they are getting a lot better at it
This last peak season was a big improvement and opened customers eyes after a year in which customers might have had a different opinion.”

Addressing how e-commerce has impacted truckload operations, Derek Leathers, president and chief operating officer of Werner Enterprises, pointed out that e-commerce has considerably shortened truckload length of hauls, as shippers build regional DC’s to be closer to customers for next-day or two-day delivery.

“Length of haul has gone down a great deal, and one of the unintended consequences of that has been miles-per-truck across the industry are down quite a bit,” he said. “From 2007 to today total trucks and capacity [for publicly traded fleets] are down between 12-15 percent and miles are down nearly 25 percent, and that is a direct effect of shorter length of haul, because you cannot deliver the same number of miles-per-day when you are stopping and starting that often.

In the past, Leathers said truckload length of haul would not be uncommon to average 700-800 miles, and now it is closer 500 or high 400s, which he explained is essentially taking capacity out which is the right thing to do as regional DCs are needed and serve as a model that gets product to people quicker. But he cautioned this does create an unintended consequence in the form of less efficiency on the assets at a time when asset values are up 40 percent in terms of cost per truck over that same period.”