The unrelenting march of technological innovation and continuing shift from brick-and-mortar to online and e-commerce platforms have completely changes consumer experiences and expectations. People who live in both densely populated and rural areas have come to expect a vast array of consumer goods be available to them within a few days shipping time. Delivery windows have shrunk, and consumers expect those delivery windows to come at a more inexpensive price.<\/p>\n\n\n\n
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Industries have had some difficulty adapting to this new\nparadigm. Take Sears and JC Penny as just two examples of big industry players\nwho have been unable to keep up with the consumer-driven e-commerce changed in\nretail. Those businesses that have adapted, such as Kohl\u2019s and Target, have\ndecentralized their distribution channels and evolved them into flexible\nomni-channels. Consumers now define the interfaces, points of sale, and methods\nof order fulfillment. <\/p>\n\n\n\n
Yet, how have these changes impacted the trucking industry?\nSectors are still adapting to these changes and how this all will shake out is\nstill not understood quite well. How will transportation companies adapt to\nthese trends? What will trucking\ncompanies<\/a> do to ensure they are staying ahead of the\ngame when it comes to e-commerce disruption? These are the types of questions\nwe are going to analyze in this two-part series.<\/p>\n\n\n\n The Evolution of\nTraditional Commerce<\/strong><\/p>\n\n\n\n E-commerce began to explode onto the scene in the mid-90s.\nAs the internet began to take over so many aspects of our lives, traditional\nretail and buying methods began to change. Now, e-commerce is defined by\nretailers who are using online platforms, or omni-channel retailing, to sync\nthe different selling methodologies across disparate platforms. Technology has\nfueled this change and now promises a customer experience that is far superior.\nThe customer experience is leaps-and-bounds ahead of where it was just a decade\nago.<\/p>\n\n\n\n As a result, consumer spending patterns have changed.\nTraditionally, the retail business model involved a direct, physical\nrelationship between the consumer and the retailer. Businesses were primarily\ninterested in raising foot traffic into physical locations. Foot traffic drove\nsales and retailers competed on price, selection, and quality. The consumer\nwould go to the location and purchase the product.<\/p>\n\n\n\n Behind the curtain, the retailer used a centralized method\nof distribution. Big box warehouses would often be spread throughout a\nparticular region and store inventories would be replenished within that\nwarehouse\u2019s zone of operation. Retailers often used an intermodal method of\ndelivery, whether it be air, rail, or truck to fulfill local or regional shipping\nneeds. <\/p>\n\n\n\n This paradigm has now changed, however. The change in\nconsumer spending patterns have changed the traditional retail model. Consider\nthe numbers. In 2017, retail\nsales in the United States<\/a> amounted to just over $5 trillion. Of that\nnumber, $449.9 billion, or nine percent of the total, represented e-commerce.\nIn 1999, e-commerce represented less than one percent of total retail sales, so\nyou can see the huge growth that e-commerce has gone through over the past two\ndecades. In fact, the average annual rate of e-commerce growth has been 13 to\n16 percent. <\/p>\n\n\n\n E-commerce has also come to be drive by the rise in\nnon-store retailers. Businesses like Amazon, eBay, QVC, and others have tripled\ntheir overall share of the commerce pie between 2006 and 2016. Traditional\nbrick-and-mortar retailers have suffered as a result. Yet traditional companies\nthat embrace this new paradigm, such as Walmart and Target, have seen their fortunes rise<\/a> while others\nhave fallen. <\/p>\n\n\n\n The extent to which this is happening is unprecedented.\nSince 2011, employment at traditional brick-and-mortar retailers has fallen by\nmore than 385,000 jobs. In 2017, there were 2,130 fewer brick-and-mortar\nretailers than there were just wo years prior. The numbers are quite shocking,\nbut not entirely surprising given the changing nature of consumer spending\nhabits. <\/p>\n\n\n\n Fortunately, this isn\u2019t all bad news for job-seekers. In 2017, over 16,000 new non-store retailers opened. This rise in non-traditional retailing outlets has led to the creation of over 140,000 jobs since 2011. While this represents only half of the overall loss, as these numbers grow, more and more jobs will be created. <\/p>\n\n\n\n [wp_ad_camp_2] <\/p>\n\n\n\n <\/p>\n\n\n\n Transportation and\nDigital Spending<\/strong><\/p>\n\n\n\n There is certainly a concentration of consumer product\nsegments that are dominated by digital spending. Things like apparel,\nfurniture, furnishing, and electronics make up the largest share of the pie.\nYet, other sectors that previously only operated in the physical space are also\nstarting to move in this direction. Industrial and construction supplies are\njust two examples. Even truck parts can now be found online. <\/p>\n\n\n\n Overall, online spending across all consumer categories,\nwhether commercial or industrial, has risen substantially over time. The extent\nto which e-commerce spending is crowding out traditional spending at\ntraditional retail outlets has grown exponentially. How are these changes\nimpacting the transportation sector? Certainly, transportation-based businesses\nwill need to adapt. <\/p>\n\n\n\n Of course, traditional retail stores remain an important\npart of retail operations, but retailers are adapting to the new environment.\nThis has changed the way retailers are handling their interaction with\nconsumers and order fulfillment. As a result, this has changed the way the\ntransportation sector handles these goods.<\/p>\n\n\n\n After making a purchase, whether online or in-person, a\nconsumer can now either transport the materials themselves, or have the items\nshipped directly to them or their home or work. Consumers also now expect to\nreceive these goods faster and cheaper. Ten years ago, 3 \u2013 5-day delivery was\nthe standard. Today, 2-day delivery is the standard. <\/p>\n\n\n\n This change has created a higher level of behind-the-scenes\ncomplexity for distribution and fulfillment operations. Companies are now\noperating with hub-and-spoke networks, using robotic sortation, enhanced\ndistribution, and hi-tech fulfillment facilities to ensure reliable delivery\nand narrow the gap between the retailer and the consumer. <\/p>\n\n\n\n An example of this can be seen in the last mile fulfillment\naverages. Last mile delivery averages have shrunk from around 15 miles on\naverage to between 6 and 9 miles. As robotics continues to infiltrate\ntransportation, this number will drop even further. This trend is also what is\nbehind the drop in average long-haul distances. The gaps are closing as\ne-commerce moves the source and the end user closer and closer together.<\/p>\n\n\n\n Changes in Industrial\nCapacity<\/strong><\/p>\n\n\n\n Although it may not align with conventional wisdom, despite\nthe vast buildout of urban distribution and fulfillment networks, industrial\nwarehouse capacity continues to be in high demand. Industrial vacancy rates for\nwarehouses and large distribution centers fell to an all-time\nlow in 2017<\/a>. This high demand has shown in the steady price appreciation\nfor this type of real estate. <\/p>\n\n\n\n E-commerce has not only led to a high demand in big\nwarehouse footprints, it has also changed the way warehouses operate. Smaller\nwarehouse facilities in dense urban zones have been retrofitted to provide the\nlast mile delivery solution, whether it be human or robotic. Smaller\nfulfillment centers operate as the spokes in the large hub-and-spoke\ndistribution system. This model has grown so much that these urban facilities\nnow represent a whopping 7% of the industrial\nwarehouse market<\/a>. Considering these spaces accounted for a mere 58 percent\nin 2016, the growth is quite remarkable. <\/p>\n\n\n\n But even as urban distribution centers have shrunk one of\nthe warehouse footprints, others have grown. The largest class of distribution\ncenters has actually doubled in overall size in the past decade. Where 32-foot\nbuildings were once the norm, we are now seeing buildings with 40-foot tall\nfacilities. Taller warehouses allow a wider array of goods to be stocked and\ndelivered. They also require many more workers, which is great for the job\nmarket. <\/p>\n\n\n\n As large facilities have rapidly developed over the past\ndecade, payrolls have been boosted and job losses in other sectors have been\noffset. By the numbers, employment in the warehouse and storage subsector has\nincreased by over 360,000 jobs between 2007 and 2017. <\/p>\n\n\n\n Several major geographical areas are now serving as major\nhubs for the flow of goods from e-commerce. This change has also provided a\nwindfall for third-party logistics (3PL) companies. As transportation networks\nevolve and retailers attempt to harness the power of e-commerce, partners are\nneeded to ensure there is no disruption within the network. <\/p>\n\n\n\n Over the past five years, as millions of square feet of warehouse space became occupied, the geographic footprint of logistics has changed. Ports, airports, interstates, and other inflection points now supplement shrinking supply chains. The flexible movement of goods is turning from a predictable web into something akin to an octopus.<\/p>\n\n\n\n [wp_ad_camp_2] <\/p>\n\n\n\n <\/p>\n\n\n\n As the distribution and warehousing models have changed, so\nhas the methodology by which the transportation sector ensures the movement of\ngoods and freight gets to where it needs to go. As firms alter everything from\nshipping to inventory management, trucking companies are adapting. Join us in\nPart II of our series where we take a closer look at exactly what trucking\ncompanies are doing to ensure they can weather the change without major disruptions\nto their business model. <\/p>\n","protected":false},"excerpt":{"rendered":"