Global e-commerce Logistics 2018

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2 4.4. Cross-border vs. domestic e-commerce CONTENTS 1. INTRODUCTION 1.1. History of e-commerce 1.2. e-commerce and e-commerce logistics definitions 1.3. e-commerce and e-commerce logistics fundamentals 2. TRENDS AND DEVELOPMENTS 2.1. Cross-border e-commerce logistics 2.2. City Centre logistics model 2.3. On-demand delivery platforms and implications for the parcels sector 3. E-RETAIL RETURNS 3.1. The challenge of returns in the e-retail sector 3.2. Dealing with returns 3.3. Returns as a tool for competitive advantage 3.4. Existing return solutions 3.5. Future returns solutions 4. E-COMMERCE LOGISTICS SURVEY 4.1. Demographic profile of participants 4.2. Proportion of e-commerce sales/traffic 4.3. Proportion of B2C sales/traffic 4.5. Brand differentiation 4.6. Logistics Outsourcing 4.7. Top challenges in e-commerce logistics 4.8. Strategies for peak season 4.9. e-commerce logistics costs Threats for LSPs Future developments Technology adoption 5. TECHNOLOGY 5.1. Introduction 5.2 Significant Technologies 5.3. Fast fashion is getting faster 6. E-COMMERCE LOGISTICS COSTS STRUCTURES, MARKET SIZES AND FORECASTS 6.1 Definition of e-commerce logistics costs 6.2 Summary of logistics cost structures in e-commerce 6.3 e-commerce logistics costs as a % of sales for selected retailers 6.4 Differences in e-commerce logistics cost structures: Vertical sectors 6.5 Differences in e-commerce logistics cost structures: Retail channels 2

3 6.6. Differences in e-commerce logistics cost structures: Warehousing/fulfilment costs vs Last-mile/outbound shipping costs 6.7. Differences in e-commerce logistics cost structures: Geographies 6.8. Differences in e-commerce logistics cost structures: Other considerations 6.9. Differences in e-commerce logistics cost structures: Store-based vs e- commerce e-commerce logistics market sizing methodology Global e-commerce logistics market size and forecast Asia Pacific e-commerce logistics market size and forecast Europe e-commerce logistics market size and forecast Middle East & North Africa e-commerce logistics market size and forecast North America e-commerce logistics market size and forecast Russia, Caucasus and Central Asia e-commerce logistics market size and forecast South America e-commerce logistics market size and forecast Sub-Saharan Africa e-commerce logistics market size and forecast 7. E-COMMERCE LOGISTICS STRATEGIES 7.1. Competitive comparison 7.2. Alibaba 7.3. Amazon 7.4. ASOS 7.5. JD.com 7.6. John Lewis 7.7. Ocado 7.8. Walmart 7.9. Souq Mercado Libre Rocket Internet 8. E-COMMERCE LOGISTICS PROVIDERS 8.1. Competitive comparison e-fulfilment logistics 8.2. Competitive comparison last-mile logistics 8.2. Clipper Logistics 8.3. Deutsche Post DHL Group 8.4. FedEx 8.5. Kuehne + Nagel 8.6. La Poste (DPD) 8.7. Royal Mail (GLS) 8.8. SEKO Logistics 8.9. Singapore Post UPS USPS 3

4 8.12. XPO Logistics ABOUT TI Table of Figures Figure 2.1 Global Annual Online Sales Growth Figure Global cross-border B2C e-commerce transaction value (US$ billion) Figure 2.3 Drivers changing City Last-Mile Deliveries Figure 2.4 Share of online shoppers who used Click &Collect (2016) Figure 3.1 Typical returns network Figure 3.2 Returns options Figure 4.1 In which industry does your company operate? Figure 4.2 What type of e-commerce logistics services do you provide? Figure 4.3 How do you predict that the proportion of your company's current sales/volumes that relate to e-commerce will change within the next five years? Figure 4.4 How do you predict that the percentage of your current B2C e- commerce sales/traffic will change within the next five years? Figure 4.5 How do you predict that your share of cross-border e-commerce sales will change within the next five years? Figure 4.6 Listed below are a number of attributes that have been used to describe different e-commerce logistics providers. Could you please tell us which, if any, apply to the brands listed below that you are aware of? Figure 4.7 How do you expect online retailers outsourcing habits to change over the next five years? Figure 4.8 Which type of retailer do you think is more likely to outsource logistics functions? Figure 4.9 What are your top 3 challenges in e-commerce logistics? Figure 4.10 What strategies do you have in place to handle seasonal and promotional peaks? Figure 4.11 How do you expect retailers e-commerce logistics costs as a % of their sales to change over the next five years? Figure 4.12 If your e-commerce logistics costs are changing, what drives this change? Figure 4.13 What strategies do you have in place to reduce your e- commerce logistics costs? Figure 4.14 Which of the following factors has the greatest impact on your margins on last-mile and e-fulfilment Figure 4.15 What do you consider to be the main threats to your e- commerce logistics operations in the next five years? Figure 4.16 Which of these areas are of interest to your company for future development? Figure 4.17 What technology are you looking to invest in to improve your e- commerce logistics? Figure 6.1 Core determinants of e-commerce logistics cost structures Figure 6.2 e-commerce logistics costs as a % of sales for selected retailers Figure 6.3 Multi-channel vs omni-channel fulfilment 4

5 Figure 6.4 Multi-channel/omni-channel spectrum Figure 6.5 Division of fulfilment and last-mile costs Figure 6.6. USA top 10 online retailers by GMV 2016 Figure 6.7 Europe top 10 online retailers by sales 2015 Figure 6.8 Sales structure of China s Online Retail Sales Figure 6.9 Global e-commerce logistics market size and forecast Figure 6.10 Global e-commerce logistics market forecast scenarios Figure 6.11 Global e-commerce logistics market size by region (2017) Figure 6.12 Global e-commerce logistics market size by region (2021) Figure 6.13 Asia Pacific e-commerce logistics market size and forecast Figure 6.14 Asia Pacific e-commerce logistics market forecast scenarios Figure 6.15 Asia Pacific e-commerce logistics market size by country (2017) Figure 6.16 Asia Pacific e-commerce logistics market size by country (2021) Figure 6.17 Europe e-commerce logistics market size and forecast Figure 6.18 Europe e-commerce logistics market forecast scenarios Figure 6.19 Europe e-commerce logistics market size by country (2017) Figure 6.20 Europe e-commerce logistics market size by country (2021) Figure 6.21 Middle East & North Africa e-commerce logistics market size and forecast Figure 6.22 Middle East & North Africa e-commerce logistics market forecast scenarios Figure 6.23 Middle East & North Africa e-commerce logistics market size by country (2017) Figure 6.24 Middle East & North Africa e-commerce logistics market size by country (2021) Figure 6.25 North America e-commerce logistics market size and forecast Figure 6.26 North America e-commerce logistics market forecast scenarios Figure 6.27 North America e-commerce logistics market size by country (2017) Figure 6.28 North America e-commerce logistics market size by country (2021) Figure 6.29 Russia, Caucasus and Central Asia e-commerce logistics market size and forecast Figure 6.30 Russia, Caucasus and Central Asia e-commerce logistics market forecast scenarios Figure 6.31 Russia, Caucasus and Central Asia e-commerce logistics market size by country (2017) Figure 6.32 Russia, Caucasus and Central Asia e-commerce logistics market size by country (2021) Figure 6.33 South America e-commerce logistics market size and forecast Figure 6.34 South America e-commerce logistics market forecast scenarios 5

6 Figure 6.35 South America e-commerce logistics market size by country (2017) Figure 6.36 South America e-commerce logistics market size by country (2021) Figure 6.37 Sub-Saharan Africa e-commerce logistics market size and forecast Figure 6.38 Sub-Saharan Africa e-commerce logistics market forecast scenarios Figure 6.39 Sub-Saharan Africa e-commerce logistics market size by country (2017) Figure 6.40 Sub-Saharan Africa e-commerce logistics market size by country (2021) Figure 7.1 National Markets Served Through Dedicated Sites Figure 7.2 Strategies to compete with Amazon Figure 7.3 Alibaba-affiliated companies handled more than 70% of the 31.3bn parcels handled in China during 2016 Figure 7.4 Cainiao Financials Figure 7.5 Amazon Net Sales 2008 to 2017 Figure 7.6 Amazon Net Sales by Geographic Region (and AWS) % to Total 2017 Figure 7.7 Amazon Net Sales by Country % to Total 2017 Figure 7.8 Revenue by Business Segment % to Total 2017 Figure 7.9 Amazon Fulfilment Costs 2009 to 2016 Figure 7.10 Amazon Outbound Shipping Costs 2009 to 2016 Figure 7.11 Amazon Outbound Shipping Revenues 2009 to 2016 Figure 7.12 Amazon and key competitors Figure 7.13 ASOS 2017 Retail Sales by Region Figure 7.14 JD.com fulfilment process Figure 7.15 Mercado Libre Net Revenues by Geography Figure 8.1 The e-fulfilment logistics market Figure 8.2 Clipper Logistics Finances: Revenue by Business Segment % to Total (2016) Figure 8.3. Clipper Logistics: Returns Process Figure 8.4. PeP Revenue by Business Segment % to Total 2016 Figure 8.5. Parcel Revenue by Business Segment % to Total 2016 Figure 8.6. Parcel Germany Sorting Centre Network Expansion 2010 to 2016 Figure 8.7. DHL Parcel Europe Geographic Presence Figure 8.8. DHL ecommerce fulfilment process Figure 8.9. DHL ecommerce fulfilment centre network Figure DHL s view of the future of US e-commerce supply chains Figure DHL Express Revenue by Business Segment % to Total Figure 8.12 FedEx SmartPost zone skipping Figure 8.13 Kuehne + Nagel global e-commerce fulfilment footprint Figure 8.14 K+N end-to-end e-commerce offering across all business units 6

7 Figure 8.15 Kuehne + Nagel e-commerce logistics ecosystem Figure 8.16 DPD Predict Service Availability Figure 8.17 GLS ParcelShops network Figure 8.18 SEKO Logistics: Omni-channel logistics network Figure 8.19 UPS Delivery System Figure 8.20 My Choice and Access Point Coverage Figure 8.21 XPO Logistics Finances: Revenue by Vertical % to Total (2016) 7

8 1. INTRODUCTION As e-commerce markets have matured, consumer expectations on deliveries have increase dramatically. Retailers often use the last-mile to differentiate themselves and gain a competitive advantage, at least in the short-term. In the early stages of e-commerce adoption, online purchasers demanded relatively fast delivery at a low-cost point, preferably free. However, as these markets matured, and customers became accustomed to greater choice, expectations on delivery speed, quality, certainty, cost and flexibility increased. With next-day and same-day delivery now the norm in more established markets, online purchasers are seeking ever faster delivery options, with more than 50% of online shoppers now stating that they want e-commerce sites to offer one-hour deliveries in metropolitan areas. Expectations are now so high that if a retailer does not offer the delivery service (speed or certainty) that a consumer expects or does not use a lastmile company that they approve of, the individual will terminate the purchase. According to a recent study undertaken in the US, 27% of shoppers (among the most experienced online purchasers globally) stated that they had left an online retailer s website due to same-day delivery not being provided as an option (an increase of 10% from the previous survey). Another 25% also terminated a transaction due to the lack of a day-certain service. In addition, 28% of purchasers abandoned an online purchase because the last-mile operator used by the e-retailer was a company that they had previously had a bad experience with. This latter point, the ability for consumers to choose the carrier that will handle their online purchase, is becoming a key consideration for a growing number of online shoppers. This constant increase in delivery choice, and control by the consumer, is forcing e-retailers and last-mile providers to adapt their operational and pricing models, despite it being considered by many to be unsustainable. A number of companies are looking at developing new distribution models to serve high delivery-dense locations, such as cities, whilst others are implementing additional charges, or increasing the sales limit before free delivery becomes available. This is the case with UPS which not only charges extra for Extended and Remote Areas but also for the delivery of packages during Peak Periods, e.g. Christmas, Black Friday and Cyber Monday. These surcharges are in addition to the usual fees paid by retailers or customers. It is unknown how much more choice online customers can be provided with. However, it is clear that if retailers keep acceding to the ever-increasing demands of purchasers for faster deliveries, to a greater number of locations, at minimal cost, with the option to choose provider and change delivery windows, then we are likely to see more last-mile operators implementing additional charges or risk further erosion of profit. Aside from last-mile, fulfilment presents its own set of issues. Retailers continue to grapple with transforming their multi-channel operations to omnichannel and deciding whether they should do it themselves or outsource to an LSP. Traditional LSPs are having to adapt, moving into new areas such as digital e-commerce services to differentiate themselves from the competition. They are competing against a raft of start-ups as well as the behemoths of global e-commerce, such as Amazon (Fulfilment by Amazon) and China s Alibaba (Cainiao) and JD (JD Logistics). As the Chinese providers expand their footprint globally, they won t just be competing with Amazon for online sales, they will vie for a greater piece of the e-fulfilment logistics pie too. Life could get much tougher for traditional LSPs. e-commerce evidently presents unusual and difficult logistics challenges, which are exacerbated by its rapid pace of change. The key for LSPs is delivering services which both satisfy their clients and are consistently profitable. For many, this remains elusive, and it is likely to get more difficult as both consumer demand and supplier competition increases. 8

9 Figure 4.4 How do you predict that the percentage of your current B2C e- commerce sales/traffic will change within the next five years? commerce, however, translate into business opportunities for LSPs. With logistics becoming a key differentiator in cross-border e-commerce, LSPs that specialise in this area are poised to capture a larger market share from the burgeoning cross-border e-commerce growth. Figure 4.5 How do you predict that your share of cross-border e-commerce sales will change within the next five years? 4.4. Cross-border vs. domestic e-commerce Moving forward, cross-border sales will prove to be a significant growth driver of overall e-commerce, according to survey participants. This was the view held by both shippers and LSPs. The key implication here is that cross-border and going global will be a major opportunity for retailers moving forward. However, every opportunity comes with challenges. In the context of cross-border e-commerce, these include higher logistics costs as the cost efficiencies offered by localised fulfilment and quicker shipments cannot be captured with cross-border shipments. In other words, cross-border retail is putting a strain on traditional operating models, making them no longer fit for purpose. This, combined with the everincreasing customer expectations for premium shipping options are some of the main factors that might discourage many retailers from reaching a bigger, international customer base. Retailers pain points in cross-border e- 9

10 6.10. e-commerce logistics market sizing methodology Definition of e-commerce logistics For Ti s definition of e-commerce logistics, refer to page 8. What sales channels are involved in Ti s definition of e-commerce logistics market sizes? The logistics costs incurred from all internet retailing of physical goods are included in the e-commerce logistics market sizes. Logistics costs incurred from all other sales channels are not included in the e-commerce logistics market sizes. The only B2B sales that are included are those classified as retail sales. Are both domestic and cross-border e-commerce logistics activities included in the market sizing? Yes. Any domestic e-commerce logistics activity is allocated to the country in which it takes place. For cross-border e-commerce logistics, it is a matter of the location of the seller. For instance, for goods ordered from a Japanese website destined for China, the logistics costs incurred are attributed to Japan s e-commerce logistics market size. Does the market sizing include both outsourced and in-house e- commerce logistics activities? Yes. Each e-commerce logistics market size should be seen as the total e- commerce logistics market for a given country or region. Of the total market, some proportion is accounted for by in-house logistics activities, with the remainder being outsourced logistics. Estimates of the proportion of inhouse or outsourced ecommerce logistics in any given market are not provided in this report. Growth rates Nominal growth rates All market size growth rates in this chapter, including forecast growth rates, are estimates of nominal growth. That is, they estimate how much the market has grown due to both volume and price changes. Logistics costs as a % of online retail sales Note that all 2017 growth rates of e-commerce logistics markets (including forecasts) are estimates of how much online retail sales of physical goods have increased in a given market. It is assumed that logistics costs as a % of online retail sales remain constant year-on-year. This ensures that online retail sales growth equals e-commerce logistics market growth for any given country. The assumption that logistics costs as a % of online retail sales remains constant will not be correct in reality. The more this proportion changes year-on-year, the larger any error will be. However, given the fact that logistics costs as a % of online retail sales for many online retailers tends to display no clear upward or downward trend over time, it appears to be the most reasonable assumption to make. Moreover, year-on-year deviations to logistics costs, as a % of online retail sales for many online retailers, tend to be relatively small. On aggregate, it is expected that errors arising from this assumption are usually relatively small. For a table containing data of logistics costs as a % of online retail sales over time for various online retailers, see page 62. Exchange rates For all relevant 2017 market sizes, conversion to euros has taken place by applying the 2017 average annual exchange rate. Note that while all growth rates take into account volume and price changes, they do not account for exchange rate movements. Thus, all 2016 market size figures, as well as forecasts to 2021, have been calculated on a constant exchange rate basis. In other words, all market size figures are measured on a 2017 annual average exchange rate basis. 10

11 Forecasts Three scenarios (expected, low and high) of how the market may develop are presented for each market. Expected The expected scenario assumes that logistics costs as a % of online sales remain constant over the course of the forecast, or equivalently the net impact of changing logistics costs as a % of online sales over the forecast horizon is zero, such that online retail sales growth equals e-commerce logistics market growth. High The high scenario assumes that in each year of the forecast, logistics costs as a % of online sales are two percentage points higher than compared to what they were in For instance, if logistics costs as a % of online sales were 15% in 2017 for a given market, then the forecast assumes that they are 17% in 2018, 2019, 2020 and Low The low scenario assumes that in each year of the forecast, logistics costs as a % of online sales are two percentage points lower than compared to what they were in For instance, if logistics costs as a % of online sales were 15% in 2017 for a given market, then the forecast assumes that they are 13% in 2018, 2019, 2020 and CAGRs It should be noted that in the majority of cases, it is expected that growth rates in the earlier years of the forecast will be higher than in the later years, as online retail sales growth tends to slow over time. Some volatility should be expected, especially in nascent and emerging e-commerce markets Alibaba The Alibaba Group is the world's largest retailer by GMV. For the year ended March 31, 2017, Alibaba reported GMV of $547bn. To put this into context, Chinese rival JD had GMV of $94.8bn in 2016, while Amazon s GMV was estimated at $206bn in 2016 by FTI Consulting. In China, Alibaba operates 11

12 online retail marketplaces including Taobao (China s largest mobile commerce destination), Tmall (China s largest third-party platform for brands and retailers) and Juhuasuan (sales and marketing platform for flash sales), as well as the wholesale marketplace 1688.com and the Rural Taobao programme (addresses consumption needs in China s rural areas). Its international cross-border operations include AliExpress (global marketplace for buying Chinese goods), Alibaba.com (China's largest global online wholesale marketplace), Tmall Global (platform within Tmall for overseas brands to reach Chinese consumers) and Lazada (operates commerce platforms in Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam - Controlling stake acquired in April 2016). Alibaba also offers cloud computing services, and media and entertainment services. Through a mixture of investment and co-operation Alibaba is involved with several non-consolidated companies including AliPay (online payments), as well as Cainiao (logistics). In the year to March 2017 Alibaba Group achieved revenues of $22.99bn, which represented a 56.5% increase on the previous year. Meanwhile EBITDA rose by 42.3% to $10.817bn. Alibaba s Chinese retail marketplaces accounted for 72% of revenues and had 453m active buyers (an increase of 8.3% over 2016). Mobile commerce accounted for 80% of Chinese commerce retail revenues and together its China retail marketplaces had 507m mobile monthly average users (an increase of 23.7%). Each partner performs a different function, such as warehousing, last-mile delivery etc., whilst Alibaba manages information and finance. In the year to March 2017 Cainiao Network's fifteen strategic express courier partners employed over 1,800,000 delivery personnel in more than 600 cities and 31 provinces in China. Collectively they operated more than 180,000 hubs and sorting stations, and Cainiao Network's same-day or next-day delivery services covered a total of 1,029 districts and counties (more than double its coverage in 2016). Cainiao Network and its logistics partners enabled the delivery of 16.6bn packages from Alibaba s China retail marketplaces, which represented 81% of all items sold on Alibaba s China retail marketplaces in the year (up from 60% in the previous year). The top six courier partners handled the majority of these packages and Alibaba believes that these orders represented a significant portion of these express courier partners total delivery volumes for the year. According to the Chinese Government, the eight largest express couriers in China (STO, ZTO, YTO, Yunda, Best Express, Tiantian (TTK Express), SF Express and China Post s EMS) handled 76.7% of the country s 31.3bn parcels in As depicted in the image below, six of these companies are embedded in Alibaba s ecosystem, and partner extensively with Cainiao. The exceptions to this rule, for different reasons, are EMS and SF Express. Whilst the former is a state-owned entity, and therefore neutral, the latter has Cainiao Network Alibaba does not own its supply chain, but rather partners with key providers through the Cainiao Smart Logistics Network, which was a 51% owned subsidiary as of September Cainiao Network was established in 2013 and does not deliver packages itself. Instead it operates a logistics data platform that provides real-time data to enable LSPs to share information to increase efficiency. The network was initially formed of five express delivery companies, one retailer, and two investment companies: YTO Express (Logistics) Co., S.F. Express (Group) Co., ZTO Express Co., Yunda Ltd. and Shentong Express Co., Yintai Holdings, Fosun Group and Forchn Holdings. 12

13 Figure 7.3 Alibaba-affiliated companies handled more than 70% of the 31.3bn parcels handled in China during 2016 Note: Solid lines represent primary courier relationships. Dotted lines represent business ties of lesser importance. Faint dotted lines represent insignificant business relationships. Delivery companies depicted above include the eight-largest express companies in China, in addition to JD Logistics. 13

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