Consumer behaviour in the UK is shifting rapidly, and logistics companies must work hard to keep up
Logistics companies are making the transition to an entirely new business ecosystem. E-commerce, omni-channel marketing, steadily rising fuel and transport prices and a sharp rise in returned orders have combined to reshape the entire sector. Below, we will look at some of the challenges and opportunities logistics companies face, and how they are rising to meet them.
The e-commerce boom
The e-commerce boom in the UK has changed the face of logistics utterly. Once upon a time a consumer order placed by catalogue or telephone was a rare thing. Consumers could even be expected to make sure someone was home to sign for the package or
make other arrangements in favour of the deliveryman.
Now, nearly anything and everything is available online, and such orders are more than commonplace. Experts predict that fully 25% of non-food purchases in the UK will be made online. Purchases made via smartphone (m-commerce) are on the rise as well, and consumers demand ease of use, convenience and delivery on their terms.
The shift in customer expectations has resulted in the most substantial changes logistics companies have had to make, though the mechanisms for doing so are now well in place for the vast majority of market participants. Consumers demand options. They may want their order delivered to their work, to their home (and at specific times – no more waiting for the deliveryman), or to any of the various lockers or click-and-collect operations that are now becoming common. Those logistics companies that do B2C deliveries have either adapted to the demands of consumers or have fallen by the wayside.
The changeover to online shopping has affected B2B logistics companies as well. Many now find themselves doing B2C work by default, delivering directly to consumers in individual units rather than to a shop or store-owned warehouse in 100 or 1000 unit lots. This shift has increased costs dramatically for the logistics companies, in terms of fuel, number of fleet vehicles supported, and number of employees. Some have noted that the amount they are paid for the deliveries has not risen apace, shrinking margins for almost every company.
Returned orders are becoming more common as well. Returns are increasing at 10% per year now, noticeable faster than outbound orders are. Some 80 million returned online deliveries are expected this year, and each represents added cost to a logistics company.
Increased returns are more expensive than many people realise, though. As both orders and returns increase, the number of delivery vans on the UK’s streets has risen by nearly 1/3 over the last ten years. Let’s face it, England’s streets were crowded before. These numbers will keep rising, and we don’t really have the infrastructure to support them. Logistics companies are already running against transportation limits, and it will only get worse.
For example, where do you park all the vans?
Most deliveries are in densely populated areas, and that is where parking space, especially for something the size of a modern delivery van, is already at a high premium. Parking tickets for delivery vehicles are beginning to spike alarmingly in London and other densely populated markets. So much so that many logistics companies now have to budget for them specifically. While the FTC is lobbying parliament heavily to ease many restrictions on the delivery industry, it is not clear how much good this will really do.
Multi-channel sales
Multi-channel marketing (now more commonly called omni-channel, though that still seems a bit grandiose) has put added pressure on logistics companies across the UK. Mobile shoppers are even more demanding in terms of convenience, increasing those crucial last mile costs again. They are also buying noticeably more. Partially as a result of the new purchasing channels available, the actual ecommerce spend in the UK last year was 15% higher than the year before, averaging more than £630 million each week.
Some of the biggest names in logistics are making some of the most dramatic changes to keep up with the multi-channel revolution, something smaller companies should keep an eye on, whether to emulate or contrast themselves to, depending on their strategy. Deutsche Post DHL Group, arguably the largest logistics company in the UK, is reorienting itself entirely to e-commerce. This will have serious ramifications on the market.
Most of the changes in the market represent reengineering entire supply chains to serve individual customers, rather than brick and mortar stores. The consumer is now the focus of the entire apparatus, which makes a lot of people nervous. Consumers have always been flighty, but digital consumers are butterflies of the worst sort, at least from the point of view of logistics managers.
A Vulnerable Market for Logistics Companies
These kind of shifts in the market have lowered margins noticeably across the industry. The profit margins of logistics companies operating in the UK amount to 5% of the gross domestic product at around £55 billion per year. Large losses here stand to shake the, perhaps, already wobbly economy.
To keep these supply chains agile, much of the pressure – and risk – is being placed on midsized logistics companies. They have a lot of ‘men on the ground’, large fleets of delivery vans, but cannot generally afford the wide transport networks, warehouse space or IT investment they would need to grow quickly. As such, they are vulnerable, especially as their margins shrink.
Another vulnerable set of companies are those that have overinvested in their infrastructure, but are struggling, again because of lowered margins, to make the added bulk profitable. The larger players, of course, can absorb short term losses in favour of playing the long game. Again, DHL is a good example. They have invested heavily in IT and warehousing recently. They have deliberately set out to be an ‘early adopter’ of newer solutions and strategy, expecting a drop in short term profitability but expecting to gain in expertise, market share, and reputation more than enough to make up for it.