Ecommerce is also becoming something of a ldquodestructive forcerdquo in the retail sector which represents a key freight demand market for trucking according to a new report released last month Photo by Sean Kilcarr for Fleet Owner

E-commerce is also becoming something of a “destructive force” in the retail sector, which represents a key freight demand market for trucking, according to a new report released last month. (Photo by Sean Kilcarr for Fleet Owner)

E-commerce: Is it truly good for trucking?

Amazon and others in e-commerce seem to be pursuing cheap freight strategies; that may only continue as online ordering keeps growing.

One would think ever-increasing volumes of e-commerce shipments tied to time-sensitive delivery demands would prove a boon to trucking companies in terms of boosting freight rates.

However, that may not be the case.

John Larkin, managing director and head of transportation capital markets research for Stifel Capital Markets, noted in a recent research update that e-commerce giant Amazon, in particular, seems to be increasingly pursuing a low-cost model when purchasing truck transportation.

“First, core carriers and dedicated carriers appear to be used by Amazon only in cases where brokers cannot find cheaper capacity in the open market,” he said. “This is a new, less attractive version of what core carriers and dedicated fleets traditionally represented [and] we have heard that several carriers have backed away from this customer for this reason.”

This is also occurring within a truckload pricing environment that continues to be difficult, as well, Larkin added.

“[The truckload market] is still tough; excess capacity continues to exist, prolonging a very competitive pricing environment,” he said. “Trucking companies are still having trouble finding drivers and, to boot, poor weather is troubling the first quarter.”

E-commerce is also becoming something of a “destructive force” in the retail sector, which represents a key freight demand market for trucking.

The inaugural Benchmark Report: e-Commerce Impacts Global Trade launched by the American Association of Exporters & Importers (AAEI) in partnership with software provider Amber Road last month, stressed that retailers that are slow to adopt new online channels are suffering in slowing brick-and-mortar sales, “leading to store closures or bankruptcy.”

Meanwhile, e-commerce activity continues to increase rapidly. According to a report by Adobe Digital Insights, between November 1st and December 31st last year, online sales hit $91.7 billion – up 11% from $82.5 billion during the same period in 2015.

“E-commerce is not new but it has reached critical mass; it’s increasing 20% per year and is a destructive force most prominently in the retail sector,” Marianne Rowden, AAEI’s president & CEO, explained in a recent conference call with reporters.

“The impact of this colossal growth on online sales is especially being felt in cross-border sales, affecting shippers, transport providers, and others,” she said.

And those challenges are carrying over to 2017, noted Gary Barraco, director of product marketing for Amber Road, on the same call.

“The pace of change is only accelerating – redefining what it means to be ‘agile’ in supply chain operations,” he said. “Online [sales] grew by leaps and bounds [last year] especially emerging markets where low cost goods are hard to find in local shops.”

Barraco pointed out that sales of goods over the Internet is expected to be worth $1 trillion by 2020 and will comprise 13% of global trade by 2019. E-commerce alone will be worth $3.5 trillion by 2023, he added.  

“The sheer size and potential of e-commerce sales are too lucrative to pass up,” Barraco stressed. “Some 95% [of retailers polled in the new report] have an optimistic experience with online sales and 51% are seeing an uptick in overall sales due to it. This is indicative of a new dynamic in retail [with] e-commerce beating 3-to-1 online sales to brick-and-mortar sales over the holidays.”

He added that led to widespread “retooling” of retail supply chain models in January and February; a “retooling” that no signs of stopping.

“[Retailers] are scrambling to change their sales processes to meet change in consumer habits; we’re looking at a 12-month pattern of falling in-store sales, with a huge corresponding increases in online sales,” Barraco noted. “We have a huge swing. For example, the Sports Authority closed 400 stores last year and Walmart closed 269 stores.”

He pointed out that, ultimately, more than one industry will get impacted by this shift in the retail sector to online sales.

“Distribution centers [DCs] and logistics providers are slowing down their business with brick-and-mortar stores; shopping malls are taking it on chin; and [local] governments are seeing a loss of tax revenues,” he emphasized. “Technology is also changing rapidly [as] the consumer sets the bar – they are driving demand. They want to purchase products easily across the globe, so there will be competition with online marketing places and manufacturers selling direct to consumers.”

This is already triggering change in “seemingly the most entrenched supply chains,” Barraco said.

“Kellogg is overhauling its supply chain – they are shuttering 39 of their own DCs, consolidating, then shipping right from the manufacturing plant to grocery store warehouses directly. Why? Because customers are increasingly doing more shopping online,” he stressed. “These colossal changes are being made to meet consumer demands.”

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