With the advent of e-commerce, a new stress point is emerging. It used to be large volume importers vs. ocean carriers. This may be shifting to large e-commerce importers vs. ocean carriers. Ocean carriers need economies of scale and prefer to deploy large vessels that need to call as few ports as possible in order to generate enough income to pay for themselves. E-commerce retailers compete on the basis of increasingly shorter times between placing an order online and physical delivery to the consumer. E-commerce importers are likely to prefer ocean carriers to call at more ports in order to support the growing geographical spread of same-day delivery strategies that allow them to gain share from traditional “brick-and-mortar” retailers. Other changes in the geographical distribution of manufacturing activity also line up with potential e-commerce interests in seeing imported volumes arriving at more ports rather than concentrated in a few large ones. It is not clear how this will pan out.
Prior to the severe 2007-2009 recession, when imported container volumes exceeded containers with exports goods by a much greater margin, very large importers needed to reduce costs by exerting control on the route their goods traveled from origin to destination, including the port of entry. Investments in physical facilities—primarily international distribution centers and warehouses—increased on the U.S. East Coast to receive these goods and distribute them via a network of regional distribution centers to their retail outlets.
As the global volume of trade has increased, ocean carriers have increased the size of vessels they deploy across all types of cargo, including containers. This lined up with a large international distribution center-driven delivery system for imports.
Prior to the severe recession, e-commerce sales accounted for less than 3 percent of retail sales. However, e-commerce sales continued to gain share of retail sales, particularly those occurring during the peak fourth-quarter holiday sales season, as shown in the chart below.
Announcements by retailers over the last 12 months have revolved around poor revenue performance and store closures. Many of these companies are making major efforts to improve their online sales competitiveness and find better ways to integrate their store, catalog, and Internet sales strategies in what are generally referred to as omnichannel strategies.
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While the pioneers of e-commerce are considered to be technology companies, it is probably better to think of them as “nouveau logistics” companies. Most are simply deploying technology that has existed and been deployed in other parts of the world for the better part of two decades. Same-day, Internet-based grocery purchases and delivery has been available in Europe since the 1990s and in parts of Asia for more than 10 years. This approach to retail sales is very efficient from a transportation infrastructure investment point of view. A single truck can make a journey from the warehouse to the various delivery locations and have a lesser impact on traffic congestion than if each of the households made a trip to the store.
The bottom line is that e-commerce is a proven concept that works as well for most physical goods as it does for services such as hailing a ride. With road congestion likely to worsen as the population and economy grow and transportation infrastructure continues to lag, e-commerce is likely to increase its share of retail sales.
As e-commerce sales continue to grow and sellers compete on the basis of time to delivery, as well as cost, it is likely that they will prefer to have imported goods arriving at a large number of entry points, such as ports. Against that trend is the deployment of larger vessels, facilitated now by the expanded Panama Canal and Suez Canal, which would indicate that more containers will arrive on fewer vessels at fewer ports. How this pans out depends on how the importers configure their distribution networks. To get a grip on these trends and position properly, it is recommended to seek the advice of companies that have expertise in real estate and logistics.
Walter Kemmsies is managing director, economist and chief strategist for JLL Ports Airports and Global Infrastructure. He can be reached by email at Walter.Kemmsies@am.jll.com.