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Shortening the Last Mile 1 SHORTENING THE LAST MILE: WINNING LOGISTICS STRATEGIES IN THE RACE TO THE URBAN CONSUMER A custom report compiled by Euromonitor International for Deutsche Post DHL Group In cooperation withShortening the Last Mile 2 Project Manager: Bassam Aoun Consulting Manager: Stella Vatcheva +971 4 371 2635 euromonitor Euromonitor International Ltd 2018. All rights reserved. The material contained in this document is the exclusive property of Euromonitor International Ltd and its licensors and is provided without any warranties or representations about accuracy or completeness. Any reliance on such material is made at users own risk. This document is confidential and for internal use by Deutsche Post DHL Group and its affiliates only. Publication or making available to any third party of all or part of the material contained in this document (or any data or other material derived from it) without Euromonitors express written consent is strictly prohibited. Please refer to the applicable terms and conditions with Euromonitor. Shortening the Last Mile 3 LIST OF CONTENTS 1. Introduction 4 2. The Urban Consumer Today 6 3. Global Trends, Innovations per capita disposable income of Asian consumers will expand by 34.3% between 2018 and 2023. 5In Asia Pacific, primarily China, social commerce is taking center stage with a shopping model similar to Groupon a platform where bulk purchases from groups generate discounts but with the added influence of a P2P (peer-to-peer) element. Similarly, the growth of P2P mobile payments is affecting shopping trends in Africa, with a rise in both the bankable urban population as well as smartphone ownership having laid the foundation for African e-commerce. In the Middle East and North Africa, a shift towards infusing Western lifestyles into local tastes and habits has driven the rise of modernized local brands. 6 I want it when I want it These consumer trends have had a significant impact on transport operators. Urban consumers now have a wider array of products from which to choose, making impulse purchases with fast deliveries in mind not only do they want products a certain way, they also want them at a certain time. When shopping online, rather than adapting their daily schedule to receive their purchase delivery, consumers are seeking a seamless experience where deliveries adapt to their schedule. Tracking and delivery scheduling solutions have become commonplace, and a basic service offered to customers. From a consumer perspective, these changes are timely. When asked via Euromonitors syndicated Lifestyles Survey what they consider a driver for their online shopping habits, consumers identified these drivers and adjacent factors, with the most popular being “best price,” “time savings,” “ability to order anywhere and anytime,” and “free shipping.” 7 5Euromonitor International, Passport Database 2018 6 Euromonitor International, Country Reports 2018 7According to Euromonitors Lifestyles Survey, a global syndicated survey on consumer trends.Shortening the Last Mile 8 Across the world, key industry players have heard the call and are mobilizing. In France, giant retailer Carrefour is planning to invest 2.8 billion (US$3.2 billion) in e-commerce by 2022 to challenge Amazon, making the development of home delivery likely. Even emerging markets are playing a role in India, for example, Alibaba Group has expressed interest in growing its portfolio of companies that are experienced in deliveries for online retail players, such as local delivery companies. With these investments, e-tailers have also acknowledged that urban consumers are also seeking more transparency. With a few taps on a smartphone or tablet, they can see that their order has left the warehouse at a specific time and is currently out for delivery, at a time they have likely selected as most convenient to them. As Lee Spratt, CEO DHL eCommerce Americas, stated, the “industry is already quite dynamic,” but these changes illustrate how inter- twined e-commerce strategies and the role of transport operators truly are, as well as the challenges they both face from a digitally connected, commercially opinionated and more informed urban consumer. 88Interview with Lee Spratt, CEO DHL eCommerce Americas The transport industry has had to consistently reinvent itself to tackle the impact from these changes in urban consumer behavior and environment. By using todays world to envision the future, the following section will describe the latest innovations and pivots that the logis- tics industry has undergone in realigning itself with todays last mile. Shortening the Last Mile 9 Today, urban consumers around the world live in a more diverse and fast-paced environment than ever before. They spend more time on social networks, so their choices are better informed, and their preferences are widely voiced. They are willing to spend more on convenience and positive experiences. These combined factors have provided a favorable environment for the expansion of e-commerce. But it has also posed a great challenge for facilitating the last mile and placed pressure on the logistics players servicing this ever-expanding segment. Hence, innovation in the final mile has been focused on three core areas: localizing delivery networks enabled by enhanced capabilities in predicting consumption, providing flexible delivery solutions to guarantee convenience, and addressing cyclical cost concerns by reimagining seasonal demand. 3. GLOBAL TRENDS, INNOVATIONS & DISRUPTIONSShortening the Last Mile 10 Approximately three quarters of adults who shop online would pay a premium for an expedited shipping option. 9This result is a manifestation of the urban consumer seeking faster and more flexible delivery options and being willing to pay for them. In response, delivery networks today are becoming more localized, shifting their supply chain to focus more on regional fulfillment strategies with the aim of shortening the last mile. Rather than a country-level localization, fulfillment hubs are get ting closer and even embedded within urban centers and major cities (New York, Beijing, etc.). According to Roy Hughes, EVP Network Operations Europe, DHL Express, several of these “power cities” are “facilitating and driving this localization trend with numerous implications for transport operators.” 109Euromonitor International Lifestyles Survey 2018 10Interview with Roy Hughes, EVP Network Operations Europe, DHL Express A foundational shift A localized delivery network enables the kind of flexibil- ity, connectivity, and convenience necessary to shorten and streamline the last mile. A decentralized but pegged system with a large warehouse that feeds into smaller regional warehouses closer to urban centers has its ben- efits. These smaller warehouses stock the most common and seasonal items to shorten the last mile. This has aided the industry to shift from making bulk deliveries to more frequent, smaller deliveries. The result has been the creation of a system of micrologistics, where transport operators place more emphasis on these smaller regional warehouses and increasing fulfillment centers. Amazon, for example, started with one fulfillment center and has 787 as of 2018. 11According to Lee Spratt, CEO DHL eCommerce Americas, transport operators as a result have been able to create better synergies for deliveries to streamline the last mile. For example, DHLs eCommerce division in the US works with the United States Postal Service (USPS) to facilitate the last mile of delivery, capitalizing on its more localized presence across the country. Fitting this vision into the wave of fundamental and tech- nological changes that have altered how delivery systems are “supposed to be designed” to “the way they should be” has been gradual. The previous model of shipping packages involved parcels loaded onto shipping contain- ers, then onto large trucks driven to the transport com- panys warehouse, and from there, sent out in a fleet of smaller, company-owned delivery trucks operated by transport employees. Overhauling this model to absorb more inventory storage and management on the back end is a substantial task. However, optimizing the fulfill- ment timetable and shortening the last mile can be best achieved by increasing proximity to the urban consumers location. 11Internal expert interview 3.1 LOCALIZED DELIVERY NETWORKS
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