Chart of the month: Online retailers will outsource more logistics functions over next five years

Survey data published in Ti’s latest report, Global e-commerce Logistics 2018, suggests that e-commerce logistics providers will not only benefit from the rapid growth of online retail, they will also prosper thanks to retailers outsourcing more logistics functions.

According to Ti’s survey of 108 shippers and LSPs conducted in the months of December 2017 and January 2018, more than two-thirds of both shippers and LSPs believe that the propensity to outsource will increase over the next five years.

Just 10% of LSPs believe less logistics functions will be outsourced, while 18% asserted the situation will remain virtually unchanged. As one might cynically expect, shippers are more circumspect than LSPs, with over 20% stating online retailers will outsource less logistics functions over the next five years.

How do you expect online retailers’ outsourcing habits to change over the next five years?













Source: Transport Intelligence

On one hand, the notion that outsourcing rates in logistics are expected to increase is not that surprising; it is something of a common assumption across the industry. However, there is good reason to be sceptical about this when it comes to e-commerce logistics, specifically e-fulfilment logistics.

Looking back to our research in 2013/2014 of the UK e-commerce market, Ti found that of 20 large online retailers, 18 managed their distribution centres in-house. Interviews suggested that the main factors behind this were 3PLs’ lack of investment in developing bespoke solutions and existing systems not necessarily being best-suited to the very different demands of multi and omni-channel retail.

The latest survey evidence is therefore painting quite a different picture.

Perhaps this is in part a reflection of LSPs upping their game. Among large contract logistics providers, there seems to be a narrative of some early movers really capitalising on the opportunities in e-fulfilment logistics, while others have only seriously moved in over the last five years.

In addition, technological solutions have improved and 3PL e-fulfilment logistics service offerings have deepened and broadened. For example, the provision of digital e-commerce services by LSPs is increasingly common.

Such service improvements are often achieved through partnerships with niche specialists. Recent examples include Wincanton joining up with Virtualstock, a UK-based SaaS provider in January 2018, Kuehne + Nagel partnering with e-retail automation and optimisation software specialist 4SELLERS in November 2017, while Bollore started working with Californian software company OroCommerce in the same month.

The upshot is that a greater willingness to outsource is yet more good news for e-commerce logistics providers. However, uncovering the outsourcing intentions of retailers is just one piece of the puzzle in understanding the growth opportunities in e-commerce logistics. Ti has also delved into other elements, such as how fast online retail is growing across countries, as well as the underlying logistics cost structures of online retailers. We reveal how e-commerce logistics costs typically vary by geography, vertical sector and retail channel (marketplace vs non-marketplace sellers; pure plays vs multi/omni-channel) in addition to how logistics costs as a proportion of sales have evolved over time for almost 20 e-retailers.

Acknowledging the complexity of understanding e-commerce logistics growth prospects, Ti’s forecasts by country present three scenarios: expected, high and low. These forecasts are however of total e-commerce logistics spending by retailers; the propensity to outsource does not enter the equation. What our survey findings on outsourcing reveal is that our growth rates forecast for logistics spend by retailers should be thought of as lower bounds for e-commerce logistics provider growth.

Source: Transport Intelligence, March 13, 2018

Author: David Buckby


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