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For decades, the retail business model involved a direct, physical relationship between consumers and retailers. The retailer’s primary objective was to draw foot traffic to their brick-and-mortar stores in order to drive sales. Consumers would then commute to stores to purchase items and transport the goods themselves. Retailers managed inventory at their stores through a centralized network of distribution centers. These high-volume “big box” facilities would be spread throughout a retailer’s region of operation and would service the inventory needs of all the retail locations within their respective zones. The explosion of e-commerce has completely changed this dynamic. From 1999-2017, e-commerce sales increased from less than one percent of total U.S. retail sales to more than nine percent, reflecting a 3,000 percent increase in e-commerce sales. Annual growth of e-commerce has ranged between 13 and 16 percent over the last five years, outpacing the one to five percent annual growth in traditional retail sales (see below).
This shift is forcing retailers to become more flexible in how they transact with consumers by decentralizing their distribution/fulfillment networks to bring inventory closer to consumers. Unfortunately, though, many traditional brick-and-mortar retailers are struggling to manage their debt levels and have been forced to close thousands of stores. There were 2,130 fewer department stores and 385,000 fewer jobs at these stores in 2017 compared to 2015; there were 1,937 more courier services operating and just over 85,000 new employees hired in the sector during this time period.
The changing dynamic between retailer and consumer goes as follows: After purchasing products either online or in-person, consumers can opt to transport the goods themselves, or have the products shipped directly. For online orders, products can be delivered directly to their residence or place of work or picked up at a fulfillment location or brick-and-mortar store. Of critical importance is the fact that consumers now expect orders to be fulfilled more quickly and reliably than ever before: common delivery windows include same day, next-day, and two-day shipping. This change has caused a huge spike in the demand for industrial warehouse space, particularly in urban areas. In fact, “Last Mile Fulfillment Centers” represented 73 percent of the industrial real estate market in 2017, a 15-percentage point increase from the previous year. The below table shows the rapid development of large distribution centers and their proximity to customers.
An interesting trend is emerging in that not only do customers expect their deliver immediately, but they refuse to pay extra for that service. As such shippers must look to cut costs while expediting deliveries. This is forcing retailers and third-party logistics providers (3PLs) to expand their distribution networks. In addition to increased warehousing and distribution centers, retailers are offering deliveries to alternative locations. About 30 percent of deliveries are now made to such locations. To better compete, brick-and-mortar retailers are leveraging existing store space to provide one of the more popular alternate delivery locations available to consumers. Some retailers have converted vacant mall space into locations where customers can pick up or return products bought online. Many major retailers, such as Walmart, Target, and Home Depot, have attempted to contain shipping costs by offering in-store consumer pickups for online orders. FedEx has also expanded its network of pickup and delivery stations through its partnership with Walgreens rolling out these services to over 7,500 Walgreens locations across the US. Others are experimenting alternatives such as Amazon Lockers, which provide retailers, like 7-Eleven, and mall operators lockers to drive foot traffic to their locations while offering an alternative to home delivery for theft weary customers.
So, what does all this mean for the trucking industry? Well, trucking provides the critical linkages for the omni-channel needs of retailers, from the first mile to the last mile and back again. The regional fragmentation of supply chains and distribution/fulfillment networks has forced retailers and their supply chain partners to rely more on motor carriers since truck transportation is best equipped to provide the flexible and reliable services needed by inventory management systems, decentralized distribution/fulfillment networks, and tighter delivery windows. Since the supply chain is becoming more localized, long haul trucking has decreased while the number of intra-regional and last-mile truck trips has increased. Average trip lengths have decreased 37 percent since 2000, while urban vehicle miles traveled have increased for much of this time period. Registrations for single-unit trucks increased by 7.8 percent between 2007 and 2016 compared to 4.4 percent growth in combination truck registrations (see below):
These new conditions are leading to a whole new set of challenges and opportunities. For example, intrastate and local hauls for e-commerce could serve as a training opportunity for 18-20-year-old drivers, representing a huge new pool of potential interstate CDL drivers. Drivers now can expect to be able to spend more time at home and operate under the more flexible hours of service guidelines for short haul truckers. In turn, not only can this attract more people to the industry, but such scheduling could make driver retention easier for companies. Shorter, local routes also allow drivers healthier food options and more time for exercise allowing the industry to focus on the health and well being of drivers. At the same time, there are challenges that are being exacerbated due to the rise of e-commerce, such as the lack of available truck parking (both curbside and overnight), crumbling infrastructure, and heavy-handed enforcement.










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