In one of my previous articles, I declared the consumer to be the winner of the logistics battle. My team and I believe that the company with the greatest flexibility within the processes will be able to satisfy the consumer the most.
However, I also see some major challenges for urban logistics that haven’t been fully addressed so far. Urban logistics processes need to be fully rethought and redesigned as it is quickly reaching its limits, and logistics operators will soon lose control over their leadership.
The general problem
A couple of years ago, before e-commerce existed, consumers mainly bought in local stores, with only some, especially those in rural areas, using tele- or catalogue shopping. Only a few parcels were being shipped directly to consumers and the lead time didn’t played an important role, as the urgency of deliveries wasn’t notable.
Therefore, up until the beginning of e-commerce, the traditional logistics processes were reasonable — even when the market was growing strongly and entering every possible industry — not just clothes, but also movies, books and electronics.
E-commerce then started to bring the convenience of at-home shopping to everyone. Online shopping became easy and cheap, thus making the process of going to a store almost obsolete.
As e-commerce is growing strongly, though, consumers’ satisfaction in the experience is starting to decrease. Logistics, as it stands, isn’t meant for the large quantities of daily shipments cities are facing every day. Whereas in earlier days, goods were efficiently delivered to local stores and consolidated on a weekly basis, today each individual parcel is brought from the outside into the city centre. One parcel, per one person, per one truck. Where in the past fixed and daily routes were efficient, this setup offers no flexibility.
Five reasons why urban logistics is about to die
Due to the ongoing developments in the e-commerce world, logistics companies need to rethink their processes and business models instead of just focusing on replacing their current delivery methods with a digital clone. Logistics companies need to become more flexible in order to offer sustainable and urban-friendly logistics.
The main factors that highlight the importance of this change are:
1. Fewer jobs in cities
As e-commerce continues to grow, local stores and shops will die. Maybe slowly, but most assuredly. In turn, this will lead to a reduction in jobs and, therefore, also a decrease in buying power within cities.
2. Less money to invest
This will lead to a massive decrease in taxes earned by the local government. If stores close and purchasing power decreases, less taxes will be paid.
Most e-commerce shops are either based in rural areas or in e-commerce clusters- meaning that city centers already aren’t participating in the e-commerce boom. This affects all taxes along the value chain- from VAT to income tax to corporation tax.
Less money will lead to a shortage of investments in the local infrastructure, and even larger cities will need to receive more subsidies to maintain services and infrastructure.
3. Infrastructures are breaking under the weight of logistics
Furthermore, even if we ignore the decline of brick and mortar shops and the decrease in purchasing power, the infrastructure is under even greater pressure as more and more delivery vehicles are driving on public roads. Since neither the e-commerce shop nor the logistics operator is paying for the local infrastructure, the full costs must be covered by the local retailers and the inhabitants. This fact cannot be neglected as it has a direct impact on the urban society.
4. Traffic is clogging cities
As more products are bought online, more parcels are being shipped. All that shipping is crowding the streets with delivery trucks. I haven’t done an empirical study, but today I see delivery vehicles everywhere all the time. They park on the street and inevitably block the only free parking spot. The power and convenience of e-commerce is clogging the city.
5. It also takes your breath away
Finally, the frequently discussed increase in urban pollution is one of the main reasons why urban logistics needs to change. I won’t discuss it in more detail as it is often discussed publicly already, but it’s important for me to point out the necessity of an overall change.
E-commerce continues to grow, but logistics is still not coping with the changes.
The increase in parcels paired with consumers’ increased demands leads to consumer dissatisfaction and an increasing burden on cities. Logistics operators should therefore face the challenges and rethink their value chain now.
Simply exchanging one method for a different one won’t solve the problem. A completely new business model and logistics concept need to be designed and implemented.
Local stores must play a bigger role in the future of urban logistics. Parcels and goods must be delivered in a consolidated and efficient manner as close to the consumers as possible and during the night to prevent clogging the cities.Local stores and retailers will then become the final distribution hubs. During the day, both new delivery methods— such as robots — and traditional ones — such as people — will make sure that parcels are dispersed smoothly and flexibly. Local stores will then benefit from the potential participation of e-commerce shipping behaviour. Cities, and even neighborhoods, will become logistics nucleuses of their own. These transformations will leave us with efficient urban logistics that can cope with the challenges it faces.
And remember: if you’re not actively working towards these necessary changes, local inhabitants and politicians will take care of it instead. Just imagine a mayor of a city forcing you to pay an entry fee for each truck that uses the common infrastructure or prohibiting its entry.
My team and I at Evertracker, a Hamburg (Germany) based software company, have been working on the future of logistics for more than three years now. We’re building an IoT and Artificial Intelligence technology that enables gapless real-time information, predictive analytics and process automation. We aim to enable our clients to gain full control over their supply chain and make them flexible enough to fully concentrate on their clients.