AASHTO Journal - E-Commerce, COVID-19 Revamping Supply Chain Strategies

Ongoing growth of e-commerce, which received a significant boost in the first half of 2020 due to COVID-19 lockdowns, is “redrawing” the “historic roles” of stores, distribution centers, and the parcel delivery sector, according to the 31st annual State of Logistics Report compiled by consulting firm Kearney and sponsored by Penske Logistics and the Council of Supply Chain Management Professionals.

[Above photo by Penske Logistics.]

That is forcing companies to accelerate automation and increase “last-mile” delivery services that now includes groceries, meals, and other items not typically included in the report’s parcel delivery figures.

“COVID-19 is a shot of adrenaline. It will increase e-commerce adoption across growing categories such as grocery and essential household items, expedite the growth of the last-mile delivery market, and improve scale and route density to reduce last-mile delivery cost structures,” explained Michael Zimmerman, a partner with Kearney and lead author of the report.

“The increased costs and competition – as well as the now-demonstrated need to be able to rapidly respond to unpredictable, large-scale events – will force shippers and carriers to think about up-front investments in modular networks and resilient supply chains,” he noted.

The report noted that U.S. e-commerce sales grew almost 15 percent in 2019 to $600 billion. That accounted for 11 percent of total U.S. retail sales, an increase of 11 percent from 2018. Further, the U.S. parcel delivery sector – which is main logistics corridor for e-commerce – grew almost 9 percent in 2019 to a $114 billion market. That growth is consistent with its five-year compound annual growth rate of 8.8 percent, Zimmerman noted.

He added that e-commerce continued to drive warehousing growth, especially in smaller, high-amenity urban warehouses as the disruption of consumer supply chains caused by the COVID-19 pandemic is expected to drive a new surge in warehousing demand, especially for temperature-controlled warehouse space, as more consumers’ order food online.

Overall, the report said the COVID-19 pandemic “violently wrenched supply chains across the world” and is leading to a “new emphasis” on supply chain resilience, which is to say that logistics will build in more options and suppleness.

“The pendulum that once swung toward ultra-efficient, single-source, just-in-time, and heavily cost-focused supply chains will swing back in favor of flexibility and reserve capacity to cope with uncertainty and risk,” Zimmerman said in the report. “The pandemic starkly brought risks to life. That transformed the way companies think about supply chains and the logistics that enable them.”

He added consumers “love getting their products as fast as possible, forcing retailers to figure out how to satisfy them.”

By extension, as COVID-19 pandemic-driven spikes occurred in the at-home delivery sector – for meals and groceries, in addition to traditional parcels – it forced companies to think about their delivery chains and the last-mile logistics of getting items into consumers’ hands.

Yet much of that “last mile” freight is expected to travel by road – and 37-page report issued in October 2019 by national transportation research firm TRIP indicated that growth in commercial truck freight could be put at risk by inadequate highway capacity, lack of funding for improving the freight network, and a shortage of truck drivers.

“It’s clear that the safe and efficient movement of goods and services depends on a well-funded national transportation system,” noted Jim Tymon, executive director of the American Association of State Highway and Transportation Officials at the time.

“Without strong investment from our federal partners, state departments of transportation won’t be able to meet the growing demands on the system,” he said.