Growth of e-commerce: is road freight transport essential? - Girteka Logistics

Growth of e-commerce: is road freight transport essential?

2022-02-02

One of the hot topics over the past few years has been the growth of consumers buying goods online, or to put it into a single term, e-commerce. In part, the growth was fueled by the fact that brick and mortar locations have been closed due to the lockdowns, in addition to health-related concerns of being around a group of people, and in part, because simply put, e-commerce sites have become retailing giants. The traditional consumer store Davids and Goliaths had to adapt to the new tendencies in consumption, and present online shopping solutions to their customers in order not to lose out on business.

The debate whether physical retail locations can entail a debate that could go into the wee morning hours, however, there is little to debate when it comes down to the question of whether e-commerce can make a name for itself now and in the future.

“Among people in the EU who had used the internet in the year prior to the 2017 survey, 68 % were e-shoppers, meaning they had ordered goods or services online during this period, compared with 50 % in 2007,” indicated a page dedicated to e-commerce by the European Commission (EC). Furthermore, select Member States, such as Sweden, Denmark, Germany, Luxembourg, and the Netherlands, were countries with some of the most active e-shoppers, with over 80% of the people who had used the internet the year prior to 2017 used the internet to buy goods. Per Ecommerce Europe, an association representing over 150,000 companies selling goods and/or services online in Europe, “All 37 countries [27 European Union (EU) and 10 neighboring digital economies – ed. note] experienced increases in B2C e-commerce turnover, as well as E-GDP (the share of GDP made up by e-commerce),” the association described 2021. “Turnover growth rates for Europe have remained consistently in the double-digits and are expected to continue an upward trajectory for the foreseeable future,” added Ecommerce Europe to its report about the state of the market at the end of 2021.

What is the role of the road freight transport sector in the ever-growing field of e-commerce?

The relationship between e-commerce and road freight transport‘s recovery

One of the aftereffects of the COVID-19 pandemic was, as mentioned before, that e-commerce kicked into another gear and became the way to shop for various goods, as the populace began avoiding crowds or had no other option where to buy sporting equipment for their homes, for example.

Ecommerce Europe’s report partly showcases that while the percentage of e-shoppers across Europe grew from 64% in 2018 to 66% in 2019, the percentage rocketed to 71% by the end of 2020, and 73% by the end of 2021.

The sky was not as bright for road freight transport in Europe. Unlike the steady growth of e-commerce, the industry experienced a steep shock in the first half of 2020, and only in 2021, the total market “is expected to be 2.2% larger vs 2019’s pre-pandemic peak, at a total of €352.39bn,” Transport Intelligence (TI) commented on the developments in a report on the growth prospects of road freight transport in Europe in the coming years. According to the market research firm, international markets recovered quicker than domestic markets, which could have been the result of “the retail and e-commerce driven nature of the recovery which has stimulated more cross-border flows of consumer goods,” as domestic demand-driven transport still lagged behind, due to separate economic factors and the nature of trade lanes between regions.

Furthermore, “e-commerce sales data suggests the pandemic has opened online retail channels to new demographics, and this is likely to provide an uplift in growth over the medium-term,” concluded TI.

Concluding that e-commerce will play an even bigger role in the lives of consumers and road freight transport companies would not be that much of a stretch, considering the complex logistics behind the sale of goods. Especially as next-day delivery has not stopped being the number one choice for consumers, as per Ecommerce Europe, 32% of shoppers chose the delivery option as their primary way of receiving goods in the EU in 2021. In order to be able to fulfill hand-offs on such short notice, e-commerce giants have to not only monitor their warehouse inventory closely but also be able to actually move those goods to sorting facilities that are much closer to consumers, where last-mile delivery processes kick in.

Challenges of the e-commerce supply chain

The option to order your goods, and receive them right at your doorstep without moving a single foot out of the comfort of your own home sounds like an incredible proposition – and there‘s little surprise that customers have grown so accustomed to it. Nevertheless, behind the comfort lies a complex web of processes in order to guarantee that parcels arrive at their intended destinations within 24 hours.

“Consumers are demanding ever more convenience when they buy online, particularly where delivery is concerned. They want to have multiple delivery options to choose from, and to receive their products as fast as possible,” a report by McKinsey, dated March 2014 shared insight on developments of same-day delivery method. According to the consulting company, once a consumer reaches that level of service, “they are usually reluctant to return to the previous inferior level.” For companies to be able to offer deliveries within a short time-frame, challenges remain, including “real-time product visibility across warehouses, very short fulfillment lead-times and flexible last-mile delivery, have to be overcome while bringing the cost down to a level that consumers are willing to pay for,” continued the company.

“The availability of enhanced delivery options has positive effects on customer loyalty and reduces the goods return rate, according to Shutl and Amazon,” noted McKinsey’s report.

Delivery options are not the only items in the mind of a buyer, as they also care about real-time updates of their shipment, and increasingly, they pay attention to how sustainable the journey and/or the packaging of their parcel is. Still, according to a study done by two authors from the Poznan University of Economics, based in Poznan, Poland, “without efficient logistics, in particular, without delivery of goods to the customer, implementation of the internet sales process would be very limited,” adding in that currently, “there is no doubt that logistics is a process, which affects value creation.” An older survey of companies that are involved in the e-commerce business, done by Ecommerce Europe in 2015, noted that “almost half of companies selling abroad (44%) view logistics and distribution as a difficult barrier to tackle when doing business abroad,” in addition to the fact that a quarter of the surveyed companies refrain from shipping across borders in the EU due to excessive shipping costs.

Thus, retailers have to be very careful when planning out their supply chains, if they expand into new regions, for example. “With convenience fast becoming one of the main points of competition for online retailers to gain market share, in many cases, the pressures of ever shorter delivery time requirement means that the need to be closer to the consumer is paramount,” commented a Deloitte Insight Report about the future of warehouses in a world of e-commerce. The report further provided insight that when planning a location for a warehouse, one of the primary factors that have to be considered is the ease of access for last-mile deliveries, as well as suppliers moving in their goods for them to be distributed, meaning that national and local roads must be accessed easily.

“However, there is an increasing appetite to have proximity to alternative transport modes, such as rail, air, and sea.”

Road freight transport for e-commerce

Still, the road remains the primary means of transportation for e-commerce, especially as supply chains reliant on other forms of transport have experienced difficulties throughout the past few years.

The shipping industry, which has experienced a disjointed supply and demand balance for sea containers, as well as port closures throughout Asia, and in particular, China, has sent a ripple effect throughout the whole logistics process. Air cargo rates have followed suit, while road freight transport experienced its fair share of issues, namely the struggle to deploy capacity due to a shortage of drivers and trucks. Meanwhile, while rail is an essentially emissions-free option, as intermodal rail freight transport requires a truck to only drive the last couple of kilometers to/from the distribution site, it can become problematic if the infrastructure is not up to par to handle a large volume of trailers, as well as it can become a lengthy process to fill up a train. While the option to circumvent these issues is to partner with a logistics company that is an asset-based one, such as Girteka Logistics, if a company does not have enough volume of cargo to fill a train by itself, relying on others to execute the journey in a time-sensitive manner to ensure the loyalty and the happiness of a consumer can become a long-term problem.

With speed being if not the main, then one of the main considerations, for shoppers online, more complex supply chain solutions had to be developed. E-commerce companies partnering with carriers in Europe and looking for ways to ensure that goods continue to move between warehouses, distribution centers, and their original arrival locations (airports and/or ports) without interruptions and most importantly, on time. Utilizing stand-by trailers, where the full trailers are picked up by drivers who arrive with empty trailers and then pick up the already-loaded trailers is just one of the ways how shippers and carriers collaborate to create a supply chain that is designed to withstand the challenges of a next-day or same-day delivery.

SAP, a software company specializing in many industries, including freight transport, has noted that utilizing drop trailers, as they are also called, allows both the shipper and the carrier to utilize their assets more efficiently. “Shippers can execute preloading of containers/trailers thus avoid any delays while waiting for a truck and execute site operation planning with better control,” and free up space in their warehouses, while it enables carriers to deploy the driver to be “on the road, least in the yard for a better Return of Investment (RoI).”

It has to be said that the solution is not a plug-and-play type of ordeal, as information sharing within the warehouse, and between the shipper and the carrier, is a must to execute the process without breaking a link in the e-commerce supply chain.

Cargo flows: opportunities and challenges

While the growth of e-commerce has been impeccable within Europe within the past few years, the growth has concentrated mostly in the Western part of the continent, creating a potential issue for the next coming years, especially with certain regulations coming into effect in February 2022.

According to Ecommerce Europe’s overview of 2021, Western Europe was the location of 64% of the total turnover of online-based retail, with Southern Europe “following far behind.” Meaning that more than two-thirds of the continent’s revenue comes from two parts of Europe, while Eastern, Central, and Nothern regions account for 6%, 8%, and 6%, respectively. While Eastern Europe exhibited by far the most growth out of all the regions, with 36% in 2020, it still falling behind its counterparts, as it is “likely that Eastern Europe’s lag compared to other European regions in B2C e-commerce turnover is due to low e-shopper penetration (41%), which is less than half of Western Europe’s e-shopper penetration (86%),” stated Ecommerce Europe.

Meanwhile, due to the fact that a large majority of haulers are located in Eastern Europe, and since the Mobility Package is set to come into effect in February 2022, that could create a potential problem for those Eastern European carriers, whose portfolio is comprised of lanes based in Western Europe. Because trucks will have to return every eight weeks to the country where the company is based, and drivers will have to do so every four weeks (or take their rest period in their country of residence), it is expected that lanes to Eastern Europe will be filled with empty-kilometer driving trucks, making it even more difficult to purchase import loads to adhere to the Mobility Package requirements for companies based in that region.

At the same time, if the region manages to continue on its path to growth in online retail, it might provide additional opportunities for road freight transport companies to minimize empty kilometer driving, which results in unproductive emissions released into the environment.

One has to keep it in mind that cross-border trading in Europe is still an area that is set for growth, as according to Eurostat data, over 88% of the total purchases within the EU in the previous three months since mid-December 2021 were done on national sellers’ websites, meaning that goods did not leave their country of origin. Meanwhile, 31% of shoppers bought goods from other countries within the bloc, with 21% of consumers buying goods from outside the EU. The bright spot here is that shoppers that are between 16 and 24, on average, were keener to purchase their items of desire from online stores located outside their national borders (35%), proving that there is still more potential for intra-EU e-commerce cargo lanes to open up in the coming years, especially as the lower side of the aforementioned age spectrum will join the workforce sooner rather than later.