E-commerce: Logistics redefined – Logistics Management

Former Canadian Prime Minister Justin Trudeau, speaking at the World Economic Forum in Davos, famously said: “The pace of change has never been this fast, yet it will never be this slow again.”

Nowhere is this more evident than in the rapid evolution of artificial intelligence (AI) and its sweeping impact on industries—including logistics and supply chain management.

E-commerce, in particular, is driving unprecedented shifts in logistics and transportation. The relentless demand for faster fulfillment, real-time visibility, and greater operational efficiency is reshaping traditional supply chain models at a pace few could have predicted.

When we put together the first instance of this annual look at the impact e-commerce is having on the overall freight business back in 2021, circumstances were heavily influenced by the pandemic.

Most notable was the tsunami-like effect of product moving to e-commerce, as people were stuck at home and many businesses were shuttered. This shift drove migration of freight away from more traditional delivery methods to a much higher reliance on small package/parcel freight.

According to data analyst firm Statista, the average daily package volume in 2016 was 7.53 million, it rose to 10 million in 2020. As of November 1, 2024, that number reached 16.5 million units.

What does this look like on a more granular level: Capital One Research says that the number of packages the average American received between 2017 and 2022 increased 73%—or 64 packages per person each year.

So, the most common “old” model, where truckloads of product moved to large distribution centers for sorting and shipping off to retail stores in either multi-stop truckload (TL) or less-than-truckload (LTL) shipments, has radically shifted.

Persistent challenges

The promise of fulfillment at practically light-speed—same day or next day—requires different distribution models, largely driven by forward-positioning inventory much closer to the end-user. Order size and quantity has radically changed for many providers, causing shifts in modal choices for moving product through the supply chain.

Bill Hutchinson, formerly senior vice president of enterprise logistics at paper and packaging product manufacturer WestRock, has a view that the impact of smaller parcel carrier bankruptcies—like Pitney Bowes—will continue to put price pressure on shippers as they have fewer alternatives to UPS and FedEx.

“I believe this market compression is not limited to the U.S. parcel industry and is happening in Europe as well,” says Hutchinson. “There have also been a number of retail consolidations this year, such as JC Penney consolidating to form Catalyst Brands with other smaller mall retailers. This will be a requirement if they have even a chance to stay relevant—they will need to consider consolidating fulfillment operations to drive economies of scale.”

That leads us to evergreen challenge of returns. As the returns volume increase with the rise in e-commerce growth, a local return option with intelligence for re-use versus disposal will be another shift that attempts to mitigate cost inflation and reduce wasteful miles in the supply chain.

The forward transport of goods from retailer’s store or fulfillment center to customer home continues to erode physical product shipping density compared to wholesaler truck movements from suppliers to retailers. All of that is to say that we’re applying a lot of resources to manage these small, customer destined shipments. This hardly seems sustainable in the longer-term.

One of the persistent challenges in managing complex global supply chains has been visibility. The subject has been talked about for decades and technologies for addressing it abound, yet there are still significant gaps—black holes—where key information is lacking.

Our sister publication Supply Chain Management Review recently quoted Frank Kenney, director of industry solutions at the software company Cleo:

“Visibility is the new currency of customer experience in the supply chain industry. The future of this sector will be shaped by Visibility as a Service—a model where information is simplified and presented through intuitive dashboards, alerts and notifications. Consumers aren’t interested in the underlying complexities of technology, infrastructure or integrations; they simply want clarity on when their product will arrive.”

During the intervening period between 2021 and today, AI and generative AI (Gen AI) has grabbed a significant portion of the headlines. While not brand new, experimentation and testing is galloping forward to see how these tools can be applied in advancing the speed of decision-making and actions to improve supply chain performance.

Will AI and Gen AI help alleviate some of the challenges? That remains to be seen, but improvement is certainly in the offing.

According to Brian Lynch, managing director of supply chain at EY, it’s important to follow the money and track where private equity firms are placing their bets. He sees private equity investors focused on value-accretive businesses such as supply chain management software; last-mile delivery solutions; e-commerce delivery platform solutions; green logistics such as electric and self-driving fleets; and fleet management solutions.

“All of this bespeaks how investors are viewing the continuous changes in supply chain behavior, largely driven by the impact of e-commerce,” says Lynch.

The bottom line is that no one has yet become “master of the universe” on this thorny, e-commerce freight issue. The shift is on, and the outcome remains to be seen, as providers seek to find the right balance between service and cost. Now, as we have in the past four March issues of Logistics Management, we tap into a series market analysts in the various modes to gauge their take on how shifting e-commerce trends are making an impact on the overall business of moving freight.

Parcel

Satish Jindel, president of shipping analytics software provider ShipMatrix, closely monitors the parcel market. He believes the industry will continue to face significant challenges, driven by the rapid rise of alternative last-mile delivery solutions from mega-retailers like Amazon, Walmart, Target, and Costco.

At the same time, the explosive growth of online retail has begun to normalize, with more consumers opting to return to physical stores for a better shopping experience. Jindel also notes a trend of online-only retailers, such as Warby Parker, opening physical locations to expand their reach.

And then, foreign online retailers (like Temu, Shein, Tik-Tok) are using local courier companies for delivery of parcels coming to the U.S. at major airport gateways, and thus either gaining leverage to avoid using the national networks of FedEx and UPS or getting much lower rates from them than otherwise practical.

While e-commerce may have grown by mid-single digits in 2024, Amazon is growing at double that rate, delivering over 90% of its own online orders. In the meantime, B2C volume available for FedEx, UPS and USPS is shrinking.

During 2024, Amazon achieved the distinction of delivering more door-to-door parcels per day in U.S. than FedEx and UPS, and even more than USPS with exclusion of its Parcel Select service, which only does last-mile delivery for other carriers like UPS, FedEx, DHL, and Amazon.

In addition, 2024 is the year when Wal-Mart delivered millions of its online orders on the same day or next day from its 4,000 plus stores by using UberEATS and DoorDash—these are parcels that would otherwise have been delivered by FedEx and UPS.

In 2024, several emerging parcel delivery companies—such as Veho, Jitsu, SpeedX, and Uni-Uni—gained traction by partnering with online retailers. These companies focused on handling significant shipment volumes, streamlining the process by drop-shipping orders into major
markets and managing the last-mile delivery themselves.

Brian Sternberg is a 40-year veteran of parcel combat, including a long career with UPS in contracts and pricing management. “Let’s begin with sizing up what an e-commerce package is to the carriers,” he says. “It’s usually lightweight, it can be large or very small in size containing a lot of air, and usually doesn’t have very many companion packages arriving at a single destination.”

These destinations typically aren’t near one another and are residential, and these characteristics simply drive up cost for UPS and FedEx and are typically low revenue due to low weight, size, delivery density (single package per stop), unlike businesses (commercial delivery), and diminish driver stops per hour.

Typically, these aren’t the ideal high-margin packages that the carriers want to have in their portfolio. Couple that with a soft parcel market, carrier service limitations on extended locations, hub and center closures, sort consolidations, and labor issues, whether it be filling the job or pay per-hour.

Amazon has continued to suck e-commerce from UPS, FedEx and USPS with their contractors, who are driving economical Rivian electric sprinter vans. In addition, Amazon, with their fulfillment side, are driving consumer behavior through expectation of same-day or next-day delivery, at a lower product cost, which carriers can’t or struggle to do.

Many companies, are relying on regional carriers and USPS, which have both low base rates and only limited accessorial charges, unlike FedEx and UPS.

The outlook for the coming year is similar to 2024, with a soft parcel market, due to reasons similar to 2024. However, this is coupled to an expected uptick in B2C purchasing. These results will push both UPS and FedEx to offer very competitive overall rates, both fighting for every package to fill some residential voids in the overall parcel market.

Amazon, with its supply chain advantages (lower consumer product cost, labor, vehicles, fulfillment, learned consumer behavior, expectation and resulting demand), will continue to flourish in 2025. With Amazon, big box is also getting more involved with same-day deliveries, and in many cases avoiding FedEx and UPS, which they relied upon for many years for consumer deliveries.

UPS CEO Carol Tome was interviewed recently by Michelle Livingstone, former head of transportation for The Home Depot as a part of the University of Denver’s Transportation and Supply Chain Institute’s “Transportation Talks” program.

Regarding the shifting trends in transportation, Tome remarked: “There’s a company headquartered in Seattle that’s our largest customer and our largest competitor.” This is a relatively recent development.

Tome also pointed out how the small package industry is being disrupted by changing patterns. When she was at The Home Depot in 2019, 30% of on-line orders were picked up at the stores. Today that’s now 50%.

Collectively, the changes of 2024 shrank the addressable portion of U.S. parcel market for FedEx, UPS and USPS to 50% compared to 95% just ten years ago. Even though the average daily volume has grown to about 88 million, FedEx and UPS will end up having excess capacity. And that’s good news for all parcel shippers, because, with good guidance, they can regain some pricing leverage with the parcel carriers that they lost during the pandemic period.

For companies that ship via both parcel and LTL carriers, 2025 will present quite a reversal of their relationships with them. A few years ago, extensive competition among 20 large LTL carriers allowed shippers to control their LTL costs leaving those carriers with just single-digit margins, while FedEx and UPS were generating nice double-digit profits.

However, it is now reversed, and in 2025, the LTL carriers will be generating double-digit margins while FedEx and UPS will be at single digit levels.

Trucking

Trucking perpetually goes through ups and downs, and, at times, lingers in the doldrums. The impact of e-commerce is profoundly altering supply chain behavior, taking a bigger whack at truckload carriers, as inventory management shifts to meet new demand patterns.

As Larry Gross, president of Gross Transportation Services and one of our key freight transportation sources says: “Stop waiting for the market to normalize.” As the chart shows, semi-controlled chaos seems to be the long-term pattern—so, that’s what “normal” looks like.

EY’s Lynch shares a recent study of the current landscape that reveals four supply chain trends that are shaping the future of long-haul trucking in the United States, with e-commerce playing a pivotal role:

Nearshoring, friend-shoring, and onshoring. This trend is influencing trucking demand and routing, in large part through increased cross-border traffic with Mexico.

Shifts in inventory management. This strategic change is leading to higher quantities of inventory being held close to population centers and greater reliance on short-haul routes.

U.S. population shifting southward and more suburban. These demographic trends are driving trucking demand toward the south and to the periphery of metropolitan areas.

Increased focus on sustainability. Various pressures are pushing truckers and other carriers to reduce carbon emissions across the value chain, from product to delivery. As a result of these emerging supply chain trends, long-haul trucking—from a total miles perspective—has declined in recent years.

John Larkin, veteran industry analyst and strategic advisor at Clarendon Capital as well as senior partner at Venture 53 says: “E-commerce has had a large impact on trucking. Due to the forward positioning of inventory, allowing for rapid order fulfillment, much of the truckload industry has been regionalized.”

According to Larkin, the long-haul expedited truckload markets are a shadow of their former selves, as forward-positioned inventory can be replenished by rail intermodal and slower, less expensive long-haul truckload options.

Meanwhile, LTL carriers have received a shot in the arm from e-commerce as near-urban fulfillment centers are smaller due to the high cost of near urban real estate. This phenomenon creates the need for smaller, more frequent, LTL-compatible shipments to maintain the precisely calculated safety stocks. Also, B2B and B2C e-commerce shipments are often best handled by LTL carriers.

“Looking forward, expect further regionalization of the truckload markets and more inventory replenishment by LTL carriers, as e-commerce continues to build retail market share,” adds Larkin.

The LTL market continues to benefit from the reduction of number of carriers, with three regional carriers—DHE, RMX and Sutton Transport—being bought by other larger LTL carriers. And, there will be finally be some changes to 50+ year old NMFC pricing system, whereby dimensional pricing will be embraced starting in May, 2025, which will provide tailwind pricing for carriers, with many more shipments being priced closer to their true cost.

Finally, on December 19, 2024, FedEx confirmed that its Board has approved the spin-off of FedEx Freight. However, it will not be completed for about 18 months. While the spin-off will bring some noticeable changes to the LTL market, it will be delayed till 2026.

Air cargo & ocean freight

Is e-commerce driving a meaningful shift from ocean to air to gain speed and reliability?

According to Chuck Clowdis, managing director at Trans-Logistics Group, this is happening with at least several major higher-dollar retailers. “We’ve seen inventory planners at several large retailers shift from ocean to air from items as large as import automobiles, motorcycles and electric scooters to electronics moving via air. While this happens at times, the trend seems to be accelerating.”

The consumer comfort of ordering online is still growing. We now see more buyers feeling confident to order these items from their laptops or phone, with these purchases extending from high-dollar automobiles, furniture and accessories to new phones or other electronic goods.

E-commerce will continue double digit growth and rates may be higher, but consumer demand is fickle. The adage is still true that “e-commerce deliveries must be fast because delays give buyers time to change their minds.” The driver of same-day and next-day delivery choices put air cargo at the top of the modal list.

The rise in ocean rates, expected to grow even more next year due to the general skyrocketing of consumer confidence, has already shown that trend. We’ll see air rates rise as need for quick imports cause the trend to become the major rate-driver that makes air cargo service a wider choice.

“We’re getting more questions about the much touted ‘tariff increases’ President Trump is using in early talks,” says Clowdis. “We’ll see what really happens, but inventory carrying costs make air mode and delivery speed-to-market way more attractive than 24+ days on the ocean. While port labor unrest has quieted, buyers have heard all this before. Capacity is adequate in air cargo space at present. In our talks with aircraft manufactures and converters they appear confident.”

Intermodal

Intermodal has had a generally upbeat year, growing 13.9% in the face of a 2.9% decline in carload freight.

According to Larry Gross, a long-time veteran of the intermodal wars, he doesn’t see much change in the situation. “You have a major player in the form of Amazon that has acquired its own sizeable fleet of domestic containers,” he says. “These are being used to haul Amazon product, but Amazon is also beginning to provide freight services to others using these boxes. Beyond that, of course there are the UPS and FedEx fleets, both of which are busy handling e-commerce parcels.”

Ted Prince, long-time industry observer, consultant and now CEO and founder of Tri-Cities Intermodal, adds that the big news is that e-commerce has fundamentally changed the import supply chain. “What used to be a model where import loads went to large DCs and then to stores within approximately 300 miles has morphed into being able to reach every customer directly within about 50 miles.”

According to Prince, the level of transloading required to better enable e-commerce is rising to unprecedented levels, but executing at facilities near the ports is becoming untenable due to land availability, public and environmental concerns and labor availability.

“Operations are migrating outward to places like Bakersfield and Barstow from Compton and Carson,” says Prince. “A new model would use Phoenix or Pasco to serve the West Coast ports via shuttle trains. This would expedite clearing volume from the piers, limit the need and use of local drayage, which would reduce emissions and highway congestion and provide for more economical operations in terms of land values and labor costs.”

Prince says that this would also enable improved visibility in the supply chain, as there are still a number of dark spots in the current operations involving the liner companies, ports, drayman and terminals. “Going directly from the vessel to the outbound train would eliminate a number of extra handlings and enable getting the data into the system more readily,” he adds.

Union Pacific’s recently-opened new intermodal terminal in Phoenix is well-positioned to enable a significant shift in supply chain operations, as is the Tri-Cities facility in Wallula, Wash.