Is e-commerce forcing all logistics providers to change?


The world of exploding e-commerce is firmly upon us and nobody is more aware of this than a plethora of logistics providers. Everybody is counting on propping up their margins by grabbing a slice of the e-commerce pie, ideally the slice with the cherry perched on top.

Post offices struggling with the high cost of meeting their Universal Service Obligation and shrinking mail volumes see e-commerce as the way back to profitability. 3PLs see it as a way to increase profits shrinking in other areas. Integrators like DHL, Fedex, et. al. position themselves as better at handling end-to-end flows. And every transportation company is also hoping to be more than just a highly commoditized means to an end in the e-commerce logistics landscape.

Realistically speaking, there is not enough of the margin pie for all those companies to make decent profit. Inevitably, there will be losers as well as winners. Let’s consider what the winning ingredients are and how to go about acquiring them. In the following paragraphs I will use a term crowd-sourcing. Taken from the world of startup investing, it symbolizes pooling resources of individuals or companies, then making them available to other companies, or individuals, at a moment’s notice.

Ability to handle uncertainty is going to be the primary ingredient. E-commerce is finicky. The volumes ebb and flow. Origins and destinations are uncertain. Product categories flowing through trade lanes shift more quickly and less predictably. Markets appear overnight and may have long lasting effects, or create only fleeting spikes. To handle all this unpredictability, a company either needs coverage at every origin and destination, or it needs unlimited access to contingent resources (fleets, workforces, storage, sorting, etc.). The former is a domain of post offices. The latter of technology platform companies capable of crowd-sourcing resources and reining them in to support uninterrupted service moving e-commerce shipments along the delivery and return chain. Score one for the post offices and integrators with on-demand contingent resources.

Ability to timely re-assign resources across any geography is the second ingredient. Transportation assets need to plentiful and portable enough to move quickly between disparate geographies. E-commerce depends on availability of trains, planes and automobiles. In island nations of South East Asia, a variety of ships needs to be added to the mix. How do logistics companies buy new assets? Well, they look at what happened in the past, and make a bet on the future. But e-commerce rarely follows patterns for long, if at all. It is more like a stock market, where past returns are no indication of future performance. Here, the type of goods, their size, weight, volume, direction of flow is guaranteed to change faster than it takes to acquire and depreciate an asset. Score one for the crowd-sourced resources arranged by nimble technology players.

Ability to harness technology, whether existing, or yet to be invented is the third ingredient. Since predictability is low and quality of decisions is highly uncertain, computer-based resource optimization running in real or near-real time is the logical answer. Along with real time optimization, real time analytics are the must. Real time route optimization uses predicted fictitious points to set the most efficient shipment pick up point and delivery route by exploring each route and combination of transport: plane/truck/human/drone/etc. Then, once the orders are being taken for the next day/next hour delivery, the optimization engine replaces the fictitious delivery points with real delivery points and re-optimizes the delivery route and sequence to meet the on time/in full/lowest cost delivery objective. Score one for the logistics player equipped with the most modern optimization technology platform. As the required technology investment is relatively high, the winners will be found amongst the integrators.

What should be clear to everyone is that business as usual is not a viable option. Nor are partial solutions which only use one of the three ingredients. Only the systemic management and advancement of each ingredient will suffice. The increasing in e-commerce transactions and volumes will test every single weakness of logistics providers, causing reduced margins or outright losses. Exactly opposite of what they were hoping for from participating in e-commerce value chains.

If you found this topic interesting, leave your comment or suggestion. I look forward to hearing from you.

This post was previously published on LinkedIn. For more posts like this, follow Kris Kosmala on LinkedIn.