- YANG MING IS standing beside his red electric
tricycle in a courtyard in Beijing. A former factory worker from an
industrial town outside the capital, he and dozens of other men are
awaiting the arrival of a lorry. As it pulls in from JD’s warehouse, the
men form an assembly line to unload boxes. They reload the packages to
their tricycles and are off, weaving through the traffic. JD has about
400 such delivery stations in Beijing alone. Across the country, 2.5m
couriers are at the ready to shuttle packages to their final
destinations. When he first started several years ago Mr Yang made about
80 deliveries a day. Now the number is closer to 130 and still rising.
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- To a consumer, e-commerce’s rapid delivery seems
like magic: a few clicks, and within an hour or two a package can land
on your doorstep. Behind this, however, lies an enormous amount of
investment, engineering and hard work as firms face ever-rising
expectations of fast, cheap delivery. Delivery networks are likely to be
strained as the volume of parcels grows. That is spurring new
experiments in logistics, some mundane (picking up parcels in stores)
and some apparently mad (Amazon patents for underwater warehouses).
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- In emerging markets, e-commerce has relied on an
army of delivery men with relatively low wages, such as Mr Yang. In
America, points out Christian Wetherbee of Citi, a bank, the United
States Postal Service has subsidised the rise of e-commerce by
systematically underpricing the cost of parcel deliveries. Amazon has
been a main beneficiary, sorting goods by zip code in big warehouses,
then delivering them to post offices to handle the last mile of
delivery.
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- Both these things look set to change. In America,
the postal service owes $34bn in defaulted worker benefits. Mail volumes
are declining, which means fewer deliveries per stop, and thus even
lower efficiency and more financial duress. If the post office
introduces reforms, as some politicians are now asking, parcel delivery
will become more costly. Labour costs are rising, too. That is no
surprise in Japan, where the broader labour market is tight. But even in
China, a shortage may loom: swelling parcel volumes will require 4m
express delivery staff by 2020, according to Goldman Sachs. In
September, BEST Inc, a logistics firm backed by Alibaba, had a
disappointing initial public offering in New York, in part because
investors were anxious about labour costs. Pressures on e-commerce
companies to deliver cheaply will only rise, yet customers are thinly
spread, making it less efficient to deliver to them than to offices or
shops.
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- Another challenge is sorting out how to deliver
packages across international borders. DHL, which with FedEx and UPS
forms a triumvirate of global parcel firms, estimates that 15% of all
e-commerce sales already move from one country to another. By 2020 it
expects that share to exceed 20% as customers seek lower prices and a
broader selection. The big carriers are keen to capture that business.
In 2014 FedEx bought a company called Bongo that specialises in
cross-border deliveries, to help customers with duties and protect them
from fraud.
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- E-commerce firms are testing innovations that might
help. Cainiao, the logistics network in which Alibaba now owns a
majority stake, has built bonded warehouses where foreign manufacturers
can store goods, duty-free, within China’s borders, ready to be shipped
to consumers. Alibaba wants to build free-trade zones around the world
to help small businesses with customs clearance, warehousing and
financing.
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- Automation may lower costs. In one of JD’s huge
warehouses outside Shanghai, men still operate forklifts, but by the end
of the year robots will take over. Amazon’s robots already bring
packages to warehouse staff. The next frontier of warehouse automation
is for robots to pick individual items and put them in bags or boxes.
More than 90% of such work is still done by hand. Amazon holds a regular
robotics contest for automating the process. Robotic pickers may be
more broadly deployed as technology becomes cheaper and labour more
expensive.
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- Lowering delivery costs is tricky. What has been
achieved so far does help, though it can seem unexciting. With the aid
of machine learning, demand is predicted on the basis of past shopping
patterns, weather and other inputs; that information is then used to
decide which goods should be stored where. Amazon has opened small
warehouses where it keeps popular products, so they can be dispatched
quickly to impatient shoppers. Companies are also trying to concentrate
deliveries by sending goods to central pickup points rather than to
customers’ homes.
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- Retailers have long used “click and collect” models,
though the ease of collecting online orders varies greatly from one
shop to another. Now some stores are becoming hubs for online orders
from third parties. From November FedEx will have package-pickup
counters in about 8,000 Walgreens pharmacies across America. In Japan,
both Rakuten, Japan’s leading e-commerce firm, and Amazon deliver
packages to convenience stores.
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- The most enticing ideas in logistics involve
unmanned delivery. Driverless delivery trucks may one day help, and
Amazon has patents for flying warehouses and drone-charging stations
atop church steeples. But all such new methods have drawn scepticism.
Many drones carry only one parcel, then must recharge. Asked about
technological changes that might bring down costs, FedEx’s Mr Smith
says, “We don’t see them on the horizon for the last-mile delivery at
present.”
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- As this experimentation continues, once again the
largest players are the most likely to win. They have the cash to pour
into new technologies and the volume of sales to reap the benefits from
big investments. If America’s postal service were to raise its charges,
Mr Wetherbee reckons, Amazon might, perversely, be the one to gain.
Driven by higher charges, independent sellers that once used the postal
service might turn to Amazon to handle their distribution. It has more
bargaining power with logistics firms like FedEx and UPS and has
recently expanded its network of delivery partners, using both regional
firms and crowdsourced couriers. So Amazon would become even mightier.
The opinions expressed herein are the author's and not necessarily those of The OLO News.
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