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  March 16th, 2018 | Written by

Ecommerce Logistics Costs Set to Rise

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  • Ecommerce shippers are unwilling to adapt pricing models to costs pressures.
  • With ecommerce retailers competing on cost and speed of delivery, the practice of subsidizing shipping will continue.

Ecommerce logistics costs as a proportion of sales look set to rise in the coming years, driven by an increase in the volume of returns, a higher proportion of premium deliveries, and the cost of labor, according to the findings of an ecommerce logistics survey released by Transport Intelligence.

108 retailers and logistics companies around the world took part in the survey which was conducted over the holiday period in 2017-18.

Despite the cost increases the survey also found that shippers are unable or unwilling to adapt their pricing model to compensate for these pressures. For example, even though premium deliveries are the second most important cost driver, only 12 percent of shippers said that they would be prepared to charge a higher rate for such deliveries.

This reluctance is likely to be rooted in customers’ delivery expectations and in the highly competitive nature of the market. So, with retailers being increasingly forced to compete with rivals on cost and speed of delivery, it is likely that the common practice of subsidization of shipping will continue.

“The ecommerce logistics sector faces multiple challenges as shippers and logistics companies struggle to come to terms with an ever-changing market environment,” said Ti’s analyst Violeta Keckarovska. “Although volumes will continue on their stellar path, our survey makes it clear that harnessing this growth to provide sustainable profitability is still the key challenge for the industry.”

The survey also looked at the factors impacting on the profit margins of last mile carriers. As well as the increasing cost of driving and warehouse staff, respondents identified deliveries to rural areas, where drop density is far smaller, as a threat to profitability.

Looking at the next five years, the main threats to logistics companies’ ecommerce operations were perceived to be providing capacity in peak times as well as the challenge posed by disruptors such as Amazon and Alibaba. The increased demand for same-day delivery was also identified.

The survey also highlighted the difference in investment priorities between shippers and logistics companies. For shippers, the highest priority is improving visibility in their supply chains through improved tracking, a service undoubtedly seen as a competitive advantage and a vital service attribute for end-recipients. Logistics companies, meanwhile, see as their main priority the development of alternative delivery networks which will provide convenience and choice to consumers. By delivering multiple parcels to banks of lockers or to convenience stores for collection by the buyer this also reduces costs and eliminates the risk of an end-recipient not being at home.