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E-commerce logistics spend touches $117.2 billion

The e-commerce logistics spending in the US has touched $117.2 billion in 2017, representing 6.9% of all domestic logistics costs, up from 5.2% in 2016, quoting a new report from the third-party logistics research group, Armstrong, and Associates, multichannelmerchant.com reported.According to the report, the online buying continues experiences 14% annual growth. The report also estimates that e-commerce logistics costs will touch $196.2 billion by 2020, for a compound annual growth rate (CAGR) of 18.8%. The research group’s estimates include inbound and outbound transportation, warehousing and distribution, reverse logistics, administration and inventory carrying costs, and outstrips the projected e-commerce CAGR of 14.4% in the same period.“Keeping up with the ‘new normal’ (as defined by Amazon’s Prime’s two-day delivery service level) is the biggest challenge facing e-commerce retailers today,” Armstrong & Associates was quoted as saying in its report. “Above all else, these three factors—delivery speed, delivery price, and assortment—have transformed e-commerce logistics from a niche service to a $117.2 billion industry.”Extra MileIn addition to the frequently cited “last mile” from final sortation to the customer, Armstrong & Associates has created a category called it calls the “extra mile” to describe the complicated flow pattern of online goods from seller to buyer that is driving the e-commerce logistics boom.“The well-traveled path from distribution center to store location is being replaced by a much more involved series of moves: from distribution centers to fulfillment centers to parcel hubs and sortation centers to last-mile delivery providers for residential delivery,” citing the company’s annual report states, the report pointed out.

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Increase of locationsTo keep chasing Amazon, retailers that used to rely on one or two distribution centers now need at least five to enable reliable two- to three-day delivery, according to Armstrong & Associates. “The increasing frequency of next-day and same-day delivery requires an even more dramatic increase in locations,” the report states. “Next-day delivery works best with 40-50 locations and same-day requires 80-100 locations.”While retailers using stores as distribution nodes can get to this level easier than e-commerce pure plays, the inventory balancing act between physical and online channels is a complex challenge that can easily deplete store stocks and cause customer dissatisfaction, the report said.Role of 3PLsGiven the challenges of e-commerce fulfillment in a demanding atmosphere, more merchants are turning to 3PLs to handle it for them. According to Armstrong & Associates, 3PLs took in $12.8 billion in 2017 in the U.S., with a projected CAGR of 18% through 2020 to $20.9 billion, the report concurred.While much has been made of Amazon’s potential to take business away from UPS and FedEx through its various logistics endeavors – most recently FBA Onsite – Armstrong & Associates sees 3PLs as facing more of a competitive challenge. It estimates 27.5% of units sold through Amazon, both first party, and the third party is using FBA, representing 12.7% of all domestic e-commerce shipments.“Rather than being a threat to parcel carriers, FBA Onsite exerts a more significant impact to 3PLs working with third-party Amazon sellers,” the company said in its report. “(Amazon’s) recent reported efforts to enlarge its shipper base also hint at the company’s interest in expanding its role as a logistics provider.”