Logistics service providers need to adapt their e-commerce playbook

By Matthias Hanke

E-commerce offers attractive opportunities for logistics service providers (LSPs). But many players are uncertain how to participate in the online market. Before they make any major strategic decisions, they need to fully grasp how the supply chain between consumer goods producers and consumers has changed in recent years and, above all, the impact of these changes on retail. We examine the evolution of retail, the rise of cross-border e-commerce, changes in the supply chain, new opportunities in retour logistics, and how LSPs can benefit from the dynamic growth of e-commerce – both now and in the future.

The evolution of e-commerce

The emergence of online retailers radically changed the downstream distribution of consumer goods to consumers, especially when such players began setting up online marketplaces for the goods they sell. But even today, many online retailers have a predominantly local footprint for distribution/e-fulfillment, enabling them to offer short lead times and fast last-mile delivery. At the same time, consumer goods producers have also started cooperating directly with LSPs in precisely the areas of e-fulfillment and last-mile delivery.

The picture continues to evolve, however. Several major Asian online retailers are offering cross-border e-commerce, injecting thousands of parcels directly into the national postal networks of their target countries, often duty free. In our detailed analysis of how the sector is set to develop, we identify five key trends: (i) Retour logistics will emerge as an opportunity for LSPs; (ii) some consumer goods producers will also move into direct-to-consumer (D2C) distribution; (iii) regulators will increasingly impose sustainability requirements on consumer goods producers and LSPs; (iv) online retailers will look for greater control along the supply chain; and (v) national tax authorities will review the minimum thresholds for duty free. All of these developments will have a significant impact on LSPs and their potential strategies going forward.

Opportunities in cross-border e-commerce

In 2023 the total business-to-consumer (B2C) e-commerce market, excluding B2C services such as banking, insurance, travel and the much bigger B2B e-commerce sector, was worth more than USD 4.1 trillion. Crucially, B2C e-commerce is forecast to grow between 12 and 14 percent a year through 2027, far outperforming any other industry in the medium term. Within this, cross-border e-commerce is forecast to grow more than 20 percent in the coming years, from an estimated USD 800 million in 2023 to more than double this by 2027. In the past, LSPs performed many of the supply chain steps involved as an outsourcing provider. But e-commerce players are now injecting parcels directly into national postal networks. LSPs therefore need to rethink their approach, if they wish to participate in the growth of this sector.

One option for LSPs is to provide retour logistics. Currently, it is often cheaper for online Asian retailers to simply send customers a new product if they are unhappy with the item they received. But this is likely to fall foul of upcoming regulations, and is in any case unviable for higher-value items. LSPs are uniquely positioned to leverage their operational capabilities, existing warehousing footprint and available space to meet the local needs of these retailers when it comes to return flows. In particular, they can develop the capability to decide whether returned items should be re-stocked, refurbished or recycled, which ultimately benefits all stakeholders.

Three options for logistics service providers

What strategy should LSPs adopt in this fast-changing market? Their first option is to simply do more of what they do at present, that is, e-fulfillment and last-mile operations. This strategy of horizontal growth could mean fully adapting to the needs of Asian online retailers or pursuing targeted growth in selected European countries or global regions. Their second option is to investigate the options for vertical growth along the value chain, in areas such as forwarding/linehaul services, warehousing and fulfillment services, last-mile operations and retour logistics. They could also consider introducing a kind of meta-search engine across their e-fulfillment assets and in this way creating a consumer interface. The third option is to branch out into new areas for growth in the opportunities provided by e-commerce – areas such as "social commerce", the circular economy or B2B e-commerce.

This paper was co-authored by Jens Stratmanns

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