Updated: Mar 31, 2022
By Kati Suominen, Founder and CEO, Nextrade Group and Technical Director, eTrade Alliance
While ecommerce enables small businesses to reach customers around the world, businesses’ ability to engage in ecommerce is critically shaped by their location. Regions and cities within countries also face drastically different ecommerce-related challenges – most remote rural regions struggle to get firms online, while large metropolitan areas face a challenge of explosive growth of ecommerce transactions that exacerbate congestions. This summary, focused on emerging ways in which local governments are dealing with ecommerce logistics challenges, is a synopsis from a report “How can developing country cities and rural regions promote ecommerce development?”
Shoppers in cities around the world are increasingly demanding customized home delivery—rather than buyers going to stores, sellers and stores now need to bring their products to buyers. In many major urban areas in developing countries, demand for home delivery spiked across cities especially at the onset of Covid-19 in March and April 2020 (figure 1).
Figure 1: Google search for “delivery” in selected cities, 2020–2021
Source: Google Search Trends.
The growth of ecommerce in goods has created both opportunities and challenges for cities around the world. On the one hand, ecommerce delivery has created new jobs in urban regions, in logistics and supply chain management, warehousing, distribution, delivery, and the development and operation of sophisticated class-A warehouses and microfulfillment centers. Practically in all world regions, warehouse vacancy rates are plunging, even as new capacity is being built (figures 2a and b).
Figure 2a: Growth of new logistics warehouse completions and vacancy rates in 2010–2021 in the Americas
Figure 2b: Growth of new logistics warehouse completions and vacancy rates in 2010–2021 in Europe
On the other hand, ecommerce has exacerbated urban challenges such as congestion, emissions, noise, and delivery accidents, and “not in my backyard” issues associated with the build-out of mega-warehouses near residential neighborhoods. For example, in the leading U.S. ecommerce hub of Southern California, local officials that have drawn up plans for massive ecommerce warehousing projects have been met with fierce resistance from environmental groups, residents, and community organizers, who argue that warehouses would add to pollution and traffic and disproportionately impact the poor and communities of color.
Some studies estimate that last-mile delivery will grow by more than 75 percent globally between 2020–2030 thanks to the growth of ecommerce shopping and the number of people buying online, leading to demand for same-day delivery, implying that goods must be stocked relatively close to consumers.
This however does not mean that ecommerce will worsen congestion and urban ills. Indeed, research is mixed on whether the growth of ecommerce is adding to or subtracting from urban sprawl. This is likely because studies have been focused on different cities with very different starting points, for example in terms of congestion. A pre-Covid analysis found that traffic flowed in the least congested city in India twice as fast as it did in the most congested. While during Covid-19 urban traffic was reduced significantly due to lockdowns, congestion worsened in many cities after restrictions were lifted, but still varied considerably across cities (figure 3).
Figure 3: Congestion in selected developing country and emerging market cities, 2019
Source: TomTom Traffic Index
Cities also vary in terms of how they, or delivery services themselves, regulate deliveries. For example, in the United Kingdom, 12 of every 100 deliveries are sent out for delivery a second time rather than being left outside the recipient’s door, adding congestion and costs for shippers that have been estimated to reach £850 million per year. Repeat deliveries and variability in delivery times are common in developing country cities, due in part to poor addresses. In addition, in some countries and cities, there may be more “serial returners,” who order too many items on purpose and send the less desirables ones back.
Buying habits also differ from place to place, such as whether shoppers place orders for single items or buy in bulk. For example, in the New York area, the Regional Plan Association study concluded that it would be more economical to shop the old way—a full family going on a Saturday trip to the shopping mall would be cheaper than ten separate home deliveries made on different days. However, a study in Shanghai found that on balance, ecommerce helped reduce urban traffic, especially during peak hours.
In addition, the future interplay of ecommerce logistics and urban congestion and dynamics is shaped by the rapid emergence of efficient and sustainable logistics technologies and delivery models, such as:
Route optimization. Real-time dynamic routing practices among delivery services open up opportunities for maximizing the volumes handled in each trip and ensure no fleet ever runs empty. For example, Locus operating in India, Southeast Asia, Europe and the United States uses big data to provide businesses’ fleets with optimal fleet mix and route plans for the vehicles, respecting business as well as local constraints such as traffic and road closures.
Matching supply to demand. A wide range of services in the developing world are matching idle capacity to demand for logistics services. For example, Indian’s Porter is a marketplace matching businesses needing intra-city delivery to drivers. In Colombia, Liftit marketplace matches independent truck drivers with companies or people in need of last-mile delivery services. In Brazil, CargoX, a smart trucking startup, matches drivers with leftover capacity in their trucks with companies that need shipping services.
Microfulfillment and urban warehousing. In Israel, Fabric has developed software that analyzes business customers’ inventory and sales data to determine the demand for specific items in a region or a city, and distribute the right amount across its micro-fulfillment network- enabling consumers to get their products from nearby distribution centers sooner.
New transport modes. In many cities, businesses are testing drone delivery, electric vans, and delivery robots. In the United States, Flytrex is pioneering in delivering food and beverages to households across U.S. suburbs. In China, Alibaba’s autonomous delivery robots, guided by advanced algorithms, have delivered more than a million parcels in China within a year of their launch in 2020.
Interoperable logistics value chains. Post-Covid-19 shock, many companies are developing solutions for their supply chains. One example of an established provider is the U.S.-based One Network that enables ecommerce retailers to connect with their customers, distributors, suppliers, carriers and other relevant actors via one digital supply chain platform.
Technologies to reduce ecommerce returns. In the United States, retailers are increasingly adopting augmented reality and 3D holograms to enable shoppers to “try on” clothing virtually and see products in 3D before shopping, reducing the need for return logistics.
In addition, developing country cities can proactively improve ecommerce logistics—and create employment in logistics. Many leading cities are already ideating and creating logistics pilots and initiatives, often in partnership with the private sector. Some useful examples from developed and developing countries include the following (see also table 1):
Digital addresses. Some 60 percent of people in the world have a poor-quality address or no address at all. Many countries and cities have seized the opportunity provided by digital addresses to provide residents with their first-ever address. For example, the General Post Office of Dilbar in Katmandu, Nepal, has partnered with Google Plus Codes to increase the efficiency of letter and parcel delivery.
Drone delivery testbeds. In Los Angeles, the public–private Urban Air Mobility Partnership seeks to introduce low-noise electric delivery aircraft by 2023. The project enjoys support from the Urban Air Mobility Division of Hyundai Motor Group. In the nearby city of Ontario, drone deliveries were started in a dedicated neighborhood in July 2021 as a testbed for future connected communities where drones can also be used to read water meters and deliver pharmaceuticals on demand.
Sandbox for logistics innovations. The Seattle Neighborhood Delivery Hub is a testbed for innovative sustainable urban logistics strategies on the ground in Seattle’s dense uptown neighborhood. Providers can test and evaluate new technologies, vehicles, and delivery models to get more fuel- and resource-efficient solutions to market quickly. The hub is also a delivery point for last-mile distribution via electric vehicles, bikes, or on foot.
Redrawing urban plans for ecommerce. New York City’s Freight NYC is a $100 million plan to modernize the city’s distribution system through strategic investments in maritime and rail assets and new distribution facilities. It seeks to create 5,000 jobs and a more sustainable, resilient supply chains. In Shenzhen, China, the city government has spearheaded the creation of an ecommerce-driven urban logistics network with last-mile delivery depots, mainly by converting old industrial sites into modern e-tailing logistics facilities.
Models and incentives for off-peak delivery. Several large, congested cities such as São Paulo and New York City have developed plans and incentives for streamlining ecommerce delivery. For example, New York City introduced a pilot program in residential areas seeking to reduce double-parking by turning curbside parking spots into temporary neighborhood loading zones from 7 a.m. to 7 p.m. on weekdays, and created a pilot for some 500 companies such as pharmacies and grocery stores to deliver goods from 7 p.m. to 6 a.m. São Paulo and Bangalore have also worked with the World Bank to develop a new tool that helps evaluate how different transport policies and interventions can impact ecommerce logistics in urban areas.
Greening the last mile with cargo bikes. London created its Last Mile Logistics Hub to consolidate deliveries across central London, reduce traffic, and cut harmful emissions. The initiative aims to transform 39 parking spaces within the underutilized London Wall Car Park into a hub for Amazon Logistics. The final leg of parcel deliveries will be undertaken by e-cargo bikes and people on foot, in order to remove large numbers of delivery vehicles from city streets. Paris has similarly incentivized freight trucks to enter the city at night and deliver packages to microwarehouses near residences. The deliveries are then picked up in the morning by bikes and electric vans for last-mile delivery.
Parcel lockers to aggregate parcel delivery. In 2019, there were over 4.3 billion ecommerce retail deliveries by truck to customers in Tokyo and 46.4 billion via other distribution methods. There were labor shortages, overworked delivery drivers, and a rise in ecommerce delivery costs. To address these issues, the government, Quadient, and Yamato Transport partnered to establish a dense network of carrier-agnostic parcel lockers across the city and the rest of the country. As a result, large volumes of packages could be delivered to a single location, precluding residential deliveries and second or third delivery trips. The Japan Post Co. and ecommerce giant Rakuten have also set up lockers across the country.
City governments and stakeholders have deployed a wide range of initiatives to facilitate ecommerce logistics and create new logistics-related jobs. Major cities, already burdened by sprawl, traffic, and pollution, have struggled with the burgeoning volumes of ecommerce delivery. At the same time, ecommerce logistics are opening new opportunities for cities to create new jobs in logistics and warehousing, and many cities have created concerted initiatives to manage and benefit from ecommerce logistics.
Table 1: Types of logistics initiatives used by cities to manage ecommerce logistics