High delivery costs, consumer demand for immediate fulfillment, price increases in traditional distribution space and the rise of e-commerce have created a multitude of issues for logistics managers, a shipping report shows. But a developing trend to meet consumer demand could help to resolve the issues.
Gregory Braun, senior vice president of Canada-based information technology company C3 Solutions, recently completed a white paper on trends in e-commerce logistics, and he highlighted hyperlocal fulfillment, or micro-fulfillment, as a concept that might meet demand and reduce costs for shippers and consumers.
In the existing market, fulfilling customer orders should not always be completed from a large, remote distribution center, according to the report. Over the past couple of years, logistics managers have started to try a new shipping model to meet demand for final mile shipments. The concept of hyperlocal fulfillment has been used to meet the rising demand in e-commerce shipments. The method uses multiple small fulfillment centers in downtowns or at the core of cities to stock and ship goods for e-commerce orders. This allows the products to be closer to customers, and when orders are created and shipped, they can be fulfilled much faster from the smaller centers.
About 10% of retail sales comprise e-commerce sales, and this accounted for about $137.7 billion in U.S. sales in the first quarter of 2019, the report shows. In 2009, e-commerce comprised less than 4% of total retail sales. The market share of e-commerce continues to rise, and it has impacted brick-and-mortar stores, especially those selling apparel and other items that can be easily shipped, such as books, music and games. From January to early December, U.S. retailers announced more than 9,271 store closures, according to Coresight Research. This was more than twice the number of closures in 2018.
The market share of e-commerce sales with regard to general merchandise rose to 28% in the first quarter of 2018, according to the C3 Solutions report. General merchandise includes furniture and home furnishings, electronics and appliances, clothing and accessories, sporting goods, hobby, book and music, and office supplies, stationery and gifts.
Through acquisition in the final mile segment, Lowell-based carrier J.B. Hunt Transport Services Inc. has been expanding its capacity to haul bulky general merchandise. In the most recent example, J.B. Hunt announced Jan. 2 the purchase of South Easton, Mass.-based carrier RDI Last Mile Co.
“Growing our final mile delivery capabilities is a priority, and the acquisition of RDI further extends our expertise in furniture delivery,” said John Roberts, president and CEO of J.B. Hunt.
In February 2019, J.B. Hunt purchased New Jersey-based carrier Cory 1st Choice Home Delivery for $100 million to expand its abilities in the delivery of bulky items, especially furniture. In 2017, J.B. Hunt spent $136 million to buy Houston-based carrier Special Logistics Dedicated as it expanded its pool distribution and fulfillment delivery services. Pool distribution allows a company to combine multiple less-than-truckload shipments into one shipment, resulting in a lower shipping rate, and the service is used in the distribution of e-commerce freight.
While the number of retail store closures continues to rise, an increased amount of real estate has become available in the core of cities, according to the C3 Solutions report. Some retailers have repurposed the stores into distribution centers, while others have taken advantage of the vacancies by moving there from more expensive suburban real estate.
Retailers can’t make money if their delivery costs are too high as customers won’t pay for the high costs though they want same-day delivery, the report shows. Free shipping is important to customers, according to a recent survey. It showed 58% of customers will add to their order to qualify for free delivery, while 54% won’t complete the purchase if the shipping costs too much.
Meanwhile, people continue to move into cities, and by 2050, the Boston-Washington megalopolis is expected to account for 18% of the U.S. population, with nearly 71 million people, according to the report. However, traffic congestion in cities has led to a rise in delays and energy use and increased costs to ship goods. Final mile shipping costs for e-commerce freight account for 53% of the total shipping cost, the report shows. E-commerce retailers offer several solutions to meet consumer demand, including home delivery, in-store pickup, drive-thru pickup, curbside pickup, virtual supermarket and automatic subscription.
Hyperlocal fulfillment could eliminate the need for final mile delivery by positioning the fulfilled order close to a customer’s home or workplace and put the onus on the customer to pick up the order. This should help to reduce prices. Customers who still need their orders delivered could receive them via Uber-style delivery services, drone or bicycle, according to the report.
As same-day delivery becomes the norm in cities and consumer demand continues to rise, retailers might look to meet the “30-minutes or free” standard that pizza shops promise, the report shows. The time to complete an order could be reduced with deliveries that start blocks from customers’ doors as opposed to miles. Local distribution hubs would allow shipments to be completed sooner.
A shortage of good commercial properties has led to a rise in prices, and new e-commerce fulfillment centers have required more space. A large distribution center was 100,000 square feet 15 years ago, but the newer centers have expanded to nearly 500,000 square feet and have been using more land that’s zoned to allow for them. To overcome the lack of space, retailers have looked to class-B developments where the rent is cheaper and transportation costs are higher, operate multiple distribution centers or use recently vacated retail space in the city core.
As another solution, hyperlocal fulfillment can be achieved in multiple ways, with some retailers creating a small distribution center in the back of an underused store. Others have established tiny centers in mall parking lots. In 2017, Target announced it would renovate 600 stores to include micro-fulfillment centers, with delivery and pickup options. Walmart and Albertsons also have established the centers. Technology automation has been driving the push toward the centers, and this has allowed for the smaller spaces. Grocers lose $5 to $15 on every online order that is manually picked because each $100 order requires an hour of picking at $20, according to Common Sense Robotics. With automated technology doing most of the work, the centers can operate with few people and reduce labor costs.