Megacities demand new logistics playbook

architectural design architecture Beijing

The world’s growing urban population presents significant logistics challenges which must be solved over the coming decades. In 2018, some 1.7bn people lived in one of the 548 cities across the world with a population exceeding 1m. Over the next decade or so, the number of cities of at that scale will rise to 706, and be home to 28% of all the people on earth. It is in a small band of those cities, however, where the logistics challenges will be most acute.

Megacities – those cities with more than 10m inhabitants – require vast resources and innovative solutions to the challenges which emerge at such scale. Globally, the number of megacities is projected to rise from 33 in 2018 to 43 by 2030. Those 33 cities were home to 529m people in 2018, a figure expected to rise to 752m, or 8.8% of the global population, by 2030.

Many of the world’s megacities are concentred in the ‘global south’ as is much of the population growth expected over the next decade. Of the 33 megacities in 2018, 27 were located in emerging regions, with six of these in China and five in India, including New Delhi with 26.5m inhabitants and Mumbai, India’s financial centre, with 21.4m. Of the 10 new megacities expected by 2030, nine are in emerging markets.

Megacities are a double-edged sword so far as development is concerned. The UN reports that big cities create wealth, generate employment and drive human progress. However, the World Economic Forum points out that the trajectory is not always up-and-to-the-right – “On the downside, megacities are also responsible for driving climate change, inequality and exclusion.”

Logistics has a vital role to play in supporting the development of megacities. As populations grow, so too does the demand for goods, in turn creating demand for logistics services across the spectrum. However, the challenges are complex and often evolve rapidly and with unpredictable consequences. Perhaps most significantly, however, no two megacities are the same – indeed, rarely are two neighbourhoods within a single city – demanding solutions which are not only context-specific, but also flexible and adaptable to changes in demand.

Retail provides an example of two trends currently emerging in megacity logistics provision. Across many of the world’s emerging market megacities, retail is at various stages of an uneven process of formalisation. Nanostores – small, family-owned outlet operated by fewer than five people located in a densely populated neighbourhood – are common. Estimates suggest more than 50m nanostores globally, with the number on the rise as megacities grow. They are a valuable retail sector too, accounting for half of the retail market in emerging economies.

Many of the challenges related to distributing goods to nanostores are caused by the characteristics of emerging market megacities – urban population density is high, mobility is low meaning products have to come to consumers and many more small and independent retail locations make FTL distribution from centralised inventory holdings – common in developed markets for consumer goods, for example – inappropriate and inoperable.

Last mile networks in emerging market megacities must adapt to increased size and complexity as populations grow and demands shift, too. Evidence from China, where Alibaba and have built vast last mile infrastructures in recent years, provide perhaps the best examples of the efficiency, flexibility and resilience required.

JD’s network provides evidence that multi-tier systems are emerging as a solution. The retailer’s owned fulfilment infrastructure is made up of strategically located warehouses and delivery and pickup stations. By the end of 2018, it consisted of:

  • Regional fulfilment centres in seven cities
  • Front distribution centres in 28 cities
  • Other additional warehouses in another 46 cities.
  • Together, there are a total 550 warehouses with an aggregate gross floor space of approximately 12m sq m in 81 cities.

The network supports’s 211 programme, introduced in 2010. It provides a range of delivery options, with same-day and next-day delivery of goods in stock at regional distribution centres provided order cut off times are met, both within China’s megacities and across the country. The programme, though, doesn’t apply to all products, and neither does it cover deliveries made through third parties or products shipped directly from third-party sellers. It does, though, offer 2-hour delivery for an extra charge, provided the recipient is in a city supported by a regional distribution centre. JD also provides consumers in major cities same-day delivery of high-end luxury goods using high-speed intercity trains. The key behind the system is inventory velocity, consumer demand and delivery density – where all three are high enough, the service levels are offered, however, a lower tier of service options are in place for the remaining goods.

Megacities are rapidly growing and changing, and emerging markets they call home must design, build and adapt the infrastructure that supports that at the same pace. So too must logistics providers react and establish the networks that will support and enhance growth now and in the future.

Source: Transport Intelligence, September 2, 2019

Author: Nick Bailey


Get the latest logistics news and high level analysis delivered straight to your inbox:

  • Create a password
  • By clicking submit you consent to creating a Logistics Briefing account