From warehouse robots and delivery drones to anticipatory logistics, the logistics sector is in a period of rapid, major transformation. With the expanding potential of disruptive technologies and new players in the market challenging the status quo, the future supply chain will look very different to today. Businesses, and their logistics partners, must learn to adapt swiftly and get ready for logistics disruption in 2018 and beyond.
The need for speed
UK e-commerce sales reached £133 billion in 2016, up 16% from 2015, according to Capgemini and IMRG’s e-Retail Sales Index, with another 14% jump expected in 2017.
According to the Office for National Statistics (ONS), e-commerce’s share of overall retail sales grew to 14% in 2016, a 1% rise from 2015, and experts predict the inexorable rise of ecommerce over bricks-and-mortar retail will continue in 2018 and beyond.
A key driver behind e-commerce growth is consumer desire for ever-faster deliveries, unlimited choice and endless convenience. As retail giants such as Amazon push harder to meet these expectations, how will the logistics sector adjust to satisfy this insatiable demand for speed?
Services such as Amazon Prime are transforming the customer experience by offering delivery times that other retailers struggle to match. Same-day delivery has become common with Prime, and one-day delivery is the new standard. Last year Amazon made its first successful delivery by drone, with a 13-minute click-to-delivery time.
Retailers face huge challenges to compete with the speed and convenience offered by Amazon and a handful of other giant players, while their logistics suppliers must become more innovative and agile to compete in a fast-changing market where speed is king.
‘Uberization’ and the race for the last mile
Competition is fiercest in the most cost-intensive part of the supply chain – ‘the last mile’, i.e. the final delivery of goods from a distribution centre to a retail store or consumer.
The last mile is no longer owned by the big players, as innovative new entrants have emerged, employing the latest technology to create new, last-mile business models that deliver consumers’ purchases whenever and wherever they need them.
Because these new entrants employ an approach pioneered by next-generation taxi firm Uber, industry commentators often call this phenomenon the ‘Uberization’ of the last mile.
The explosion in omni-channel retail has increased both the demand for last-mile delivery and the costs of supplying it. As retailers become better at managing online and omni-channel fulfilment, they’re likely to seek cost savings in the last mile. We can expect more specialised last-mile fulfilment service providers to appear in 2018 to satisfy demand. Traditional parcel carrier services and in-house distribution fleets should be worried.
Large, traditional carriers like Royal Mail, DHL or UPS face a significant threat in the last mile from ‘Uberization’. Because it’s a non-asset based model where new players don’t need to invest in fleets or a conventional labour force, they can be more agile, consumer-focused and cheaper than their established rivals.
With the Uber model, on-demand courier-hailing platforms match people who need to send something with delivery couriers, at the click of a button. The platform hires drivers using flexible, demand-based contracts. Firms employing this ‘gig economy’ model have come under pressure in the UK recently to reform their working practices and offer employment contracts to their drivers, but don’t expect this to slow the pace of change.
Crowd-based parcel delivery services are also on the rise. Their technology platforms allow anyone with a vehicle to pick up and transport groceries or small packages along their daily routes, then deliver to a local consumer for a small fee.
Last-mile innovation won’t be restricted to the types of carriers used either. To satisfy customer expectations, companies must go beyond today’s last-mile delivery options and provide new services to make it easy for consumers to collect and return goods. Already, innovative concepts are appearing such as ‘smart lockers’ where deliveries can be made for later collection. Click-and-collect services are also likely to expand and may even lead to large chains converting traditional retail space into storage units.
Whether ‘Uberization’ can expand beyond the last mile is an open question. Uber itself has already launched ‘Uber Freight’ in the USA, a full-scale freight marketplace that connects a shipper with a haulier, much like the Uber app connects taxi drivers and passengers. Uber Freight is initially only working with a handful of shippers and it remains to be seen whether the experiment is going to take off. The company is clearly hedging its bets.
Anticipatory logistics dispatches products before orders
Powered by big data and predictive algorithms, anticipatory logistics means providers can work leaner by predicting consumer demand before an order is made, making delivery times faster, increasing capacity and boosting the efficiency of networks.
Anticipatory shipping uses customers’ previous purchasing behaviour to predict an order before it occurs. This data is used to move goods to distribution centres closer to the consumer who is likely to purchase the products. In theory, it allows big retailers to offer same-day or even one-hour deliveries. Prediction-based shipping will increasingly run alongside traditional order-based delivery from now on, with the challenge being how to integrate both methods.
This creates an interesting long-term prospect – logistics could ultimately become a data-centric industry, where the data becomes more important than the ability to move cargo.
Drones are arriving, but robots are already here
Unmanned cargo drones are always mentioned as a growing logistics trend, because they capture the imagination with their ability to deliver anything from pizzas to parts, faster than by road, to the remotest places.
Amazon successfully trialled its Prime Air drone delivery service in the UK in December 2016 by delivering a small package directly to the garden of a nearby customer, but that doesn’t mean autonomous aerial delivery will take off this year or anytime soon. Drones are still an expensive, emerging technology. They carry very small payloads and are heavily restricted in their range and flight operations.
Right now, Amazon Prime Air only appeals to a tiny fraction of consumers with huge gardens, who order items weighing less than 2.6kg and happen to live very close to an Amazon depot.
Similarly, disruptive technologies like self-driving trucks and autonomous cargo ships (or ‘ghost ships’) will no doubt transform the logistics industry, but industry commentators predict they won’t gain any foothold until at least 2030.
Robots, on the other hand, are already making a real impact on automation in warehouses, and this will only gather momentum in 2018 and beyond.
Amazon bought a robotics company called Kiva Systems in 2012. Kiva’s robots automate the picking and packing process at large warehouses, making human intervention increasingly obsolete. According to The Seattle Times, Amazon expanded its army of warehouse robots in 2016 to 45,000 robots across 20 fulfilment centres.
Industry commentators say the real tipping point will only come when warehouse robots can pick orders from a shelf, just like a human.
Currently, warehouse robots are used to bring goods to a human picker. They require huge investments in specialised racking and equipment, but as soon as robots can pick from shelves themselves, warehouse operators are likely to switch from manual to automated distribution centres in droves. It’s hard to say if that point will arrive in 2018 or later, but any business with high warehouse labour costs should be paying close attention.
The uncertain outcome of a final Brexit deal could also be an influential factor in persuading warehouse operators to automate their distribution centres with robots earlier, rather than later. With large numbers of UK warehouses already heavily reliant on EU migrant labour across multiple roles and a post-Brexit deal uncertain to guarantee the same employment rights EU citizens currently enjoy, is now the time for warehouses to invest in technology that will get the job done in any circumstances?
Whether the technology is a sufficiently mature or cost-effective replacement for a human workforce is an open question. It may be just as important to make the warehousing sector a more attractive place to work, for British or EU citizens, with improved training and higher salaries. Neither option is straightforward and the sector faces some tough decisions in the months and years ahead.