Observe: E-commerce led recovery may push the contract logistics sector to new heights
China-Europe Freight Train (Xian – Neuss) – Cross-border E-commerce Export Special Train

Contract logistics is on the verge of a period of sustained growth, due to the paradigm shift in consumer buying that has seen e-commerce sales explode over the past year.

The catalyst was clearly the pandemic and subsequent social lockdowns – according to a new report from McKinsey, e-commerce volumes rose 160% between 2014 and 2019.

McKinsey argues that the surge in e-commerce activity “has driven up demand for omnichannel distribution, which depends on a single inventory-management system to fulfill orders from both traditional stores and e-commerce”. The value of omnichannel distribution is predicted to grow from 2019’s $600bn to $840bn by 2025.

“The shift is likely permanent,” says McKinsey. “Our Covid-19 retail-recovery survey finds that online penetration is expected to stay six to 13 percentage points above pre-Covid levels.”

Meanwhile, a new whitepaper from Transport Intelligence found that, while the global contract logistics market shrank by 3.3% last year, the e-commerce-led recovery means the sector is likely to see growth of 6.5% this year – and with a forecast CAGR of 5.1% until 2025, within four years the sector could be some 25% larger.

In 2019, global contract logistics pulled in revenue of $226.6bn, Ti forecasts this to grow to $280.8bn in 2025.

“The consequences of the Covid-19 shock to the global economy are difficult to predict, due to its unprecedented nature,” it says. “However, it has hit labour-intensive sectors the most, such as retail, and has reduced sales of intermediate goods to affected sectors.

“Post-pandemic, the drivers of recovery will be different to those which powered economic expansion before 2020. Capital and other resources need to be allocated to productive sectors which power job creation.

“The rate of this economic transformation will be important in shaping the prospects for the contract logistics market,” the report says.

A further fillip for logistics operators, according to McKinsey, is that the added complexity of e-commerce supply chains means logistics firm can charge up to 50% more than for traditional retail logistics – although they have to contend with increased costs.

“As a result of smaller average order sizes, e-commerce fulfilments typically require more touchpoints than do traditional retail logistics. The packing process also often requires extra steps, such as gift wrapping or promotional inserts.

“The storage capacity required tends to increase to accommodate a long tail of products typical for e-commerce, and e-commerce goods are frequently stocked in decentralised locations to allow for faster last-mile delivery.

“This drives up complexity, labour, and inventory costs, and many contract-logistics companies have found it difficult to move toward more agile and diffused operations in a cost-effective way while still catering to their traditional brick-and-mortar customers,” McKinsey noted.

It advised LSPs targeting the contract logistics sector to focus their investment plans on warehouse automation, IT integration and data analytics; develop multi-customer networks, integrate with last-mile delivery partners and develop “flexible contract structures that allow customers to adjust their storage capacity”.


Source: theloadstar