How is e-commerce affecting european logistics?

Online services and e-commerce are helping to shape the way the European logistics sector is developing – affecting everything from demand for warehouse and distribution space to the development of more complex distribution systems and technologies.

Today’s logistics market no longer sufficiently meets the complex demands of online retailers – that’s according to a recent report from PwC, ‘E-Shaping of the European Logistics Market’. The predominant reason for this is that the traditional logistics industry has up to now been geared towards handling large consignments primarily for the B2B sector.

But the sector is changing. According to PWC, the European e-commerce market “is expected to expand amidst the further development of multi-channel selling offered by bricks-and-mortar retailers and the expansion of ‘pure play’ online stores.”

While online purchases still account for only around 4 per cent of retail sales in the EU, e-commerce is one of the fastest growing markets. It recorded 18 per cent annual growth and was estimated to be worth €200 billion as far back as 2011, with around 70 per cent of this figure coming from the three European bighitters: Germany, the UK and France.

That being said, in the years since there has been notable growth in the eastern European market as it is increasingly targeted by the large international players, and we can expect to see further development in these regions.

Derek Bryan, VP emeA

Increasingly complex demands

All of the above has had – and will continue to have – a significant impact on the way the European logistics market is evolving. In particular, the growth of the online retail market has caused rapidly increasing demand for new warehouse and distribution space. As an example of this, online retail giant Amazon has increased its distribution space in Europe by more than 1000 per cent in the last 10 years.

Furthermore, it has become apparent that e-tailers require more complex distribution systems than traditional logistics market players. One reason is that the e-commerce business is based on a Business to Consumer (B2C) model, meaning that at least one, if not several, steps have been eliminated from the supply chain, increasing the number of customers the e-tailer has to deal with directly. This also means working with multiple suppliers and distributing large quantities of goods with short delivery times.

This growing business model has led to the many e-tailers establishing e-fulfillment centres which cover the whole supply chain, from sourcing products from suppliers to sorting, packaging, delivery and even managing returns.

But it is not just the e-tailers, of course: plenty of traditional retailers with bricks-andmortar premises also have online sales operations with unique warehousing needs. With the added complication of needing to offer multiple delivery options, from home delivery to in-store pick-up, many are transforming their distribution systems in order to achieve greater efficiency and lower storage costs.

Third-party logistics opportunities

According to the above-mentioned PWC report, while it is true that a number of the larger e-commerce businesses are developing their own e-fulfilment centres, a significant number of smaller companies would still consider outsourcing some of their supply chain needs to third-party logistics (3PL) providers. And as this is still a relatively young sector with no fixed distribution strategy, there are plenty of opportunities for enterprising 3PL providers to develop tailored logistics services for individual clients.

The German 3PL market in particular has recognised the opportunities this presents, with providers such as Fiege and Hermes doing particularly well – the latter looking to attract US online retailers who are planning to move into the European market. Growing technological challenges

There’s another element to this: the ongoing importance of e-commerce is also obliging logistics businesses to put systems and technologies in place to cope with different regional requirements and risks. We spoke to Derek Bryan, Vice-President EMEA at fleet management software provider Verizon Connect, who had this to say about the growing technological challenges facing the industry:

“Operating across different international regions adds a layer of complexity for logistics businesses, particularly for their risk and compliance managers – especially in places like Europe which has ‘soft borders’ between countries with national and EU level legislation.

“As the e-commerce industry continues to grow across Europe, it’s important that logistics risk managers have systems and technology in place that are capable of coping with different regional requirements and challenges at a national and international level. This avoids each region operating in an independent silo with little to no data connectivity or integration between them.

He added: “Mobile Resource Management (MRM) can aid pan-European logistics management by combining technologies such as telematics, routing, and scheduling, alongside risk and policy compliance into a single platform, enabling businesses of all sizes, and across all borders, to communicate through a seamless interface. This makes life easier when operating across multiple borders which may all have different regulations in place, as MRM insights allow for greater control and measurement of key compliance and safety legislation.”

What is clear from all the above is that the e-commerce sector, still in its relative infancy, is likely to have a major impact on the way the European logistics sector develops. Online and multi-channel retailers will be rethinking their storage and distribution strategies, while logistics providers and their suppliers will need to adapt to meet the new challenges this presents. n