E-commerce logistics spend touches $117.2 billion

The e-commerce logistics spending in the US has touched $117.2 billion in 2017, representing 6.9% of all domestic logistics costs, up from 5.2% in 2016, quoting a new report from the third-party logistics research group, Armstrong, and Associates, multichannelmerchant.com reported.According to the report, the online buying continues experiences 14% annual growth. The report also estimates that e-commerce logistics costs will touch $196.2 billion by 2020, for a compound annual growth rate (CAGR) of 18.8%. The research group’s estimates include inbound and outbound transportation, warehousing and distribution, reverse logistics, administration and inventory carrying costs, and outstrips the projected e-commerce CAGR of 14.4% in the same period.“Keeping up with the ‘new normal’ (as defined by Amazon’s Prime’s two-day delivery service level) is the biggest challenge facing e-commerce retailers today,” Armstrong & Associates was quoted as saying in its report. “Above all else, these three factors—delivery speed, delivery price, and assortment—have transformed e-commerce logistics from a niche service to a $117.2 billion industry.”Extra MileIn addition to the frequently cited “last mile” from final sortation to the customer, Armstrong & Associates has created a category called it calls the “extra mile” to describe the complicated flow pattern of online goods from seller to buyer that is driving the e-commerce logistics boom.“The well-traveled path from distribution center to store location is being replaced by a much more involved series of moves: from distribution centers to fulfillment centers to parcel hubs and sortation centers to last-mile delivery providers for residential delivery,” citing the company’s annual report states, the report pointed out.

Increase of locationsTo keep chasing Amazon, retailers that used to rely on one or two distribution centers now need at least five to enable reliable two- to three-day delivery, according to Armstrong & Associates. “The increasing frequency of next-day and same-day delivery requires an even more dramatic increase in locations,” the report states. “Next-day delivery works best with 40-50 locations and same-day requires 80-100 locations.”While retailers using stores as distribution nodes can get to this level easier than e-commerce pure plays, the inventory balancing act between physical and online channels is a complex challenge that can easily deplete store stocks and cause customer dissatisfaction, the report said.Role of 3PLsGiven the challenges of e-commerce fulfillment in a demanding atmosphere, more merchants are turning to 3PLs to handle it for them. According to Armstrong & Associates, 3PLs took in $12.8 billion in 2017 in the U.S., with a projected CAGR of 18% through 2020 to $20.9 billion, the report concurred.While much has been made of Amazon’s potential to take business away from UPS and FedEx through its various logistics endeavors – most recently FBA Onsite – Armstrong & Associates sees 3PLs as facing more of a competitive challenge. It estimates 27.5% of units sold through Amazon, both first party, and the third party is using FBA, representing 12.7% of all domestic e-commerce shipments.“Rather than being a threat to parcel carriers, FBA Onsite exerts a more significant impact to 3PLs working with third-party Amazon sellers,” the company said in its report. “(Amazon’s) recent reported efforts to enlarge its shipper base also hint at the company’s interest in expanding its role as a logistics provider.”