The e-commerce boom of the Covid-19 pandemic hit a snag in 2022 when things started getting back to normal and people spent their money elsewhere. Now falling package volumes mean retailers will have to navigate an e-commerce environment that requires them to control costs, regionalize distribution and ensure supply chain visibility.
Many e-commerce retailers came out of last year with tepid results compared to the halcyon days of 2021. In total, 2021’s e-commerce growth shrank about 5 to 10 percent depending on the sector, according to Lee Spratt, CEO of DHL eCommerce Solutions, Americas.
“Everybody is predicting there’ll be normalization this year. But right now, it doesn’t feel like it’s getting back to normal,” Spratt said, noting that the start of 2023 has seen “relatively flat” package volumes year over year.
Despite being down from where things where in 2020-2021, overall package volume tallied by DHL eCommerce Solutions is still about 20 percent higher than it was in 2019.
DHL eCommerce Solutions, a division of Deutsche Post DHL Group, launched its fourth annual E-tailers’ Almanac to help online merchants plan their shipments and identify the trends that will impact their operations this year. The trends are based on DHL eCommerce Solutions’ U.S. customer feedback and lightweight parcel industry developments over the past year.
Related Stories
As cost-consciousness weighs on the average consumer, e-tailers will bear the burden of managing their expenses in the year ahead, Spratt said. This shift in online consumer spending is impacting online merchants’ shipping requirements and making the cost of shipping their No. 1 priority, while speed of delivery to a close second place.
“We are seeing that the market is very tight,” Spratt said. “We’ve got to work incredibly hard to keep our costs down. If you’re not a cost leader in this space, it’s really difficult to basically make money.”
With cutting costs remaining a chief priority, supply chain investments are likely to be regional, with more companies looking to save on transportation costs and get products closer to the end consumer by building out more localized distribution centers. However, to have make this feasible, retailers will need to have strong third-party logistics partners with an extensive footprint, according to Spratt.
In essence, merchants are now tasked with striking a balance between cost effectiveness and consumer experience.
“Getting those SKUs closer to the consumer without paying express delivery for everything is really what they’re trying to do. At the same time, you’ve seen a huge explosion of startups that have come into the space for 3PL, especially in the micro-3PL space, as a way to try to replicate FBA, for instance,” Spratt said, using the acronym for Fulfillment by Amazon. “We’ve seen a ton of these companies pop up over the last two years, and it’s more supply and demand, so the merchants are getting better pricing to have somebody else do the inventory management.”
Spratt noted that many startups today don’t even think about keeping inventory management and warehousing capabilities in-house, instead automatically opting for a third party to manage all logistics aspects of their business.
If there is one thing that should stay the course for the time being, it’s freight rates, which have significantly plummeted over the past year in line with demand. Trends pointing to a slowdown in the growth of wages, which rose during the hiring pandemic hiring spree, will keep rates from soaring again, according to Spratt.
“During Covid, wages went from $17-to-$18 an hour to well over $20 an hour,” Spratt pointed out. “It was a supply-demand imbalance to get people to come in and work in the warehouses, so you’re starting to see some of the logistics companies trying to recover some of that cost. Those wages are starting to come back down and stabilize a little bit at just over $20 an hour, where it was up closer to $24 an hour during Covid.”
E-commerce sellers also want more reliability, proactive real-time visibility and tracking capabilities when it comes to their supply chain technology. E-tailers ask for timely updates via email or API real-time updates and feeds.
With that in mind, DHL eCommerce Solutions expects increased investments among logistics providers in data analytics and instant tracking and transportation disruption notification capabilities. This means that just like how speed has been such a supply chain imperative, predictability is now becoming just as pivotal.
DHL uses API connections to offer expected day of delivery (EDD) so merchants can find out exactly what’s going on from one facility to the next. That way, merchants can assess the data at hand to determine which service level of delivery, whether it be “day-definite,” expedited or ground shipping.
“It’s a balance among speed, cost and information,” Spratt said. “A lot of merchants are now starting to take the information we provide them and turn that into a value add for their services. And that allows them to start differentiating themselves, such as by advertising through these data notifications about where your packages are. We can give them as much information as they want or as little as they want, depending on what they choose. But everything that happens inside our four walls, we’re now collecting that data.”
Consolidation ahead?
Spratt also had one more prediction for the logistics industry: he expects to see some consolidation shaking up the sector this year.
“I think that you’re going to have some of the smaller players getting eaten up by either marketplaces or maybe even logistics providers like ourselves. You’ve seen some big sales that were made over the last, let’s call it 18 months,” Spratt said. “You’re going to see a fair amount of market consolidation and some of these players are just going to go away because of lack of funding, and kind of the whole tech bubble that’s bursting right now.”
On the retail end, he is more bullish on innovation propelling newer, lesser-known companies into the forefront. Spratt highlighted categories like apparel and wellness as areas where smaller businesses are sprouting up.
“You can buy just about anything from a startup merchant, and I think you’re just going to see more of that where people are moving away from corporate America,” Spratt said. “More people are going to start these small businesses. Maybe one in 100 survive, but just the degree that you’re going to see these new guys coming and going is going to be dramatically different than what we’ve seen in the past.”