E-COMMERCE LOGISTICS in the UNITED STATES Domestic and International Transportation, Warehousing and Fulfillment, Last-Mile Delivery, and Reverse Logistics
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E-COMMERCE LOGISTICS IN THE UNITED STATES Domestic and International Transportation, Warehousing and Fulfillment, Last-Mile Delivery, and Reverse Logistics April 2018 Phone: +1-800-525-3915 Website: www.3PLogistics.com Email: [email protected] ABOUT ARMSTRONG & ASSOCIATES, INC. Armstrong & Associates, Inc. (A&A) was established in 1980 to meet the needs of a newly deregulated domestic transportation market. Since then, through its leading third-party logistics (3PL) market research and history of helping companies outsource logistics functions, A&A has become an internationally recognized key information resource for 3PL market research and consulting. A&A’s mission is to have leading proprietary supply chain knowledge and market research not available anywhere else. As proof of its continued work in supporting its mission, A&A’s 3PL market estimates are the most often cited in securities filings by publicly traded 3PLs, media articles and trade publications. In addition, A&A’s email newsletter currently has over 59,000 subscribers globally. A&A’s research complements its consulting activities by providing a continually updated detailed database for analysis. Based upon its unsurpassed knowledge of the 3PL market and the operations of leading 3PLs, A&A has provided strategic planning consulting services to over 30 3PLs, supported 17 closed investment transactions, and provided advice to numerous companies looking to benchmark existing 3PL operations or outsource logistics functions. All Rights Reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form by any means, electronic, mechanical, photocopied, recorded or otherwise, without the prior permission of the publisher, Armstrong & Associates, Inc. The facts of this report are believed to be correct at the time of publication but cannot be guaranteed. Please note that the findings, conclusions and recommendations that Armstrong & Associates delivers will be based on information gathered in good faith from both primary and secondary sources, whose accuracy we are not always in a position to guarantee. As such, Armstrong & Associates can accept no liability whatsoever for actions taken based on any information that may subsequently prove to be incorrect. ©2018 Armstrong & Associates Contents Executive Summary 4 Report Scope and Definitions 13 E-Commerce Networks, Transportation Logistics, and Domestic Transportation Management 15 E-Commerce Logistics Network Shifts 15 E-Commerce’s Impact on Less-than-Truckload, Full Truckload, and Intermodal Transportation 19 Third-Party Logistics for E-Commerce Transportation 23 Focus On: Amazon Logistics 24 The Last Mile 32 Parcel 32 Same-Day Delivery 40 Focus On: Same-Day Grocery Delivery 45 Focus On: Last-Mile Delivery for Heavy Goods 46 E-Commerce Warehousing and Value-Added Services 53 Facilities, Demand, Development, and Location 53 Labor Market 56 Technology 59 E-Commerce Warehousing Value-Added Services 64 Focus On: Value-Added Services for Beauty Products and High-End Apparel 65 Focus On: Value-Added Services for Subscription Boxes and Meal Kits 67 Cross-Border E-Commerce Logistics 71 Cross-Border E-Commerce Market, Growth, and Trading Partners 72 Third-Party Logistics for Cross-Border E-Commerce 75 Third-Party Logistics Services for Cross-Border E-Commerce 76 New Value-Added ITM 3PL Services 78 Global Networks 82 Small- and Medium-Sized Retailers 84 Cross-Border E-Commerce Case Studies, Challenges, and Trends 85 Cross-Border E-Commerce Profitability and Logistics Costs 85 Focus On: Cross-Border Profitability at ASOS 88 Focus On: Shifting International Logistics Networks 91 Focus On: Fourth-Quarter Seasonality 97 Focus On: Cross-Border E-Commerce Drop Shipping 100 E-Commerce Reverse Logistics 103 E-Commerce Reverse Logistics Costs, Speed, and Facilities 103 E-Commerce Retailer Returns Strategies 106 Third-Party Reverse Logistics Services for E-Commerce Retailers 108 Focus On: Algorithms and Predictive Analytics in Reverse Logistics 110 ©2018 Armstrong & Associates Executive Summary E-Commerce Logistics sales. Likewise, the massive changes in speed, price, and assortment that have characterized the in the United States: rise of e-commerce have been achieved due to A $117.2 Billion Industry sophisticated and continuously improving logistics Within the last 20 years, e-commerce has capabilities. transformed the retail industry. By the end of 2017, e-commerce accounted for 9.1% of all retail We estimate U.S. e-commerce logistics costs sales.1 E-commerce retail sales for the year, as reached $117.2 billion in 2017. This figure accounts defined by the U.S. Department of Commerce,2 hit for the key costs associated with e-commerce $452 billion. Add to that non-retail3 business-to- logistics: inbound and outbound transportation business e-commerce sales, and the figure could (including last-mile delivery), warehousing easily double. and distribution, reverse logistics, logistics administration, and inventory carrying costs. E-commerce retail sales growth has been strong and consistent, with a 14.7% compound annual growth rate (CAGR) in the last five years. The Figure 1. U.S. E-Commerce Logistics Costs, 2017–2020E, US$ Billions industry is showing no signs of slowing, and is expected to grow at roughly the same pace through 2022, with a CAGR of 14.4%.4 We can’t overemphasize the role logistics plays in e-commerce retail. E-commerce as we know it would not be possible in the United States without $196.2 our vast, efficient logistics networks. The logistics $168.2 $141.6 infrastructure to support e-commerce has grown $117.2 alongside the e-commerce retail industry. Retailers and logistics providers engage in domestic and international transportation, warehousing and fulfillment, last-mile delivery, and reverse 2017 2018E 2019E 2020E logistics to support the growth of e-commerce 1 “Quarterly Retail E-Commerce Sales: 4th Quarter 2017,” U.S. Census Bureau, U.S. Department of Commerce, February 16, 2018, https://www.census.gov/retail/mrts/www/data/pdf/ec_current.pdf. 2 “Industries at a Glance: Retail Trade: NAICS 44–45,” Bureau of Labor Statistics, March 2018, https://www.bls.gov/iag/tgs/iag44-45.htm. 3 Non-retail as defined by the U.S. Bureau of Labor Statistics. 4 “Retail Ecommerce Sales: US,” eMarketer, February 2018. 4 EXecutive SummarY E-commerce now accounts for 6.9% of U.S. At the time, the industry did not require much logistics costs, up from 5.2% in 2016. Noting support in the way of logistics. When consumers that e-commerce now represents a significant placed an order online, it was obvious they’d be proportion of logistics costs, Armstrong & expected to pay for shipping on an order that Associates undertook an in-depth study of would likely take a week or more to arrive. The the current state of domestic and international turning point for e-commerce logistics came transportation, warehousing and fulfillment, last- several years later, when Amazon launched mile delivery, and reverse logistics supporting Amazon Prime in 2005. For an annual fee of e-commerce. This report represents the wealth of $79, Amazon promised unlimited “free” two-day data and trends we uncovered in the course of our delivery on a million items. With this launch, research. Amazon established the “new normal”: two-day delivery, free delivery, and a seemingly endless Our focus is the logistics of transportation, storage, product assortment. and fulfillment related to e-commerce, from the manufacturer to the customer. This includes a vast The novelty and luxury of two-day free shipping array of parties, many of which we have worked lasted for years. But Amazon continued to raise with firsthand. To analyze ground transportation, the bar. Gradually, two-day delivery evolved from the middle mile to the last mile, we studied into next-day, then same-day. Free shipping trucking companies, parcel carriers, gig-economy was virtually unheard of prior to the launch of delivery platforms, domestic transportation Amazon Prime; today, two out of every three management third-party logistics providers e-commerce transactions are shipped free.1 As for (3PLs), and Amazon’s 3PL services. To assess product variety, the rising popularity of groceries, e-commerce warehousing and fulfillment logistics, prescriptions, furniture, and appliances attests to we studied fulfillment centers, sortation centers, the assortment of products customers can now parcel fulfillment centers, automation systems purchase online. Today, Amazon Prime members and providers, and value-added warehousing and can place an order for free, same-day Whole Foods delivery 3PLs. From an international perspective, delivery. If consumers need a place to store all we studied international transportation those groceries, Amazon can solve that problem, management 3PLs, global omnichannel too. Thirty different full-size Kenmore refrigerator retailers, air and ocean freight carriers, and even models are available for free two-day delivery. international payment platforms. Finally, to inform our discussion of reverse logistics, we studied Keeping up with the “new normal” is the biggest retailers and 3PLs specializing in services tailored challenge facing e-commerce retailers today. to reverse logistics. Above all else, these three factors—delivery speed, delivery price, and assortment—have transformed The “New Normal”: e-commerce logistics from a niche service to a A Turning Point in $117.2 billion industry. E-Commerce Logistics The first e-commerce retailers came