ore people are living in cities and shopping online than ever before. While 54 percent of the world's population currently lives in cities, that figure is expected to surge to 66 percent by 2050. Meanwhile, e-commerce sales jumped 25 percent in 2017 to $2.3 trillion and are projected to continue growing for the foreseeable future.
Those two trends are on a collision course with one another, according to Josh Wofford, Director of Competitive Intelligence at Sealed Air.
“The pure volume of population growth is going to be disproportionate in the urban environment,” Wofford said. “And that will bring a whole host of challenges for e-commerce and retail companies in an increasing number of urban centers.”
Gridlocked streets and more deliveries are just the tip of the iceberg of factors setting up a logistics nightmare. But Wofford does not believe that a world of slower and unreliable e-commerce deliveries is inevitable. He believes that the industry can navigate these challenges and maintain efficiency and profitability. And the first step is recognizing what lies beneath the surface of these trends and getting ahead of those challenges.
Life On Demand
The first thing to note, according to Wofford, is that this isn't some future scenario. It's happening right now. Eighty-one percent of business leaders said that their companies have already been impacted, according to a survey from United Parcel Service (UPS) and GreenBiz Group.
How specifically? Thirty-three percent said increased e-commerce and urbanization have affected their ability to meet their customers' expectations.
“Globally, we see consumers who appreciate the efficiency and breadth of product choice through e-commerce,” said Erin Sellman, Vice President of Global Marketing for Sealed Air. "Whether you are talking about China or North America, customers now believe they should have whatever they want and have it whenever and wherever they want it. Those changing expectations are a direct result of e-commerce and urbanization."
The convenience of online shopping has bred a mentality of "life on demand." Urbanites expect goods to appear at the click of a button, giving rise to on-demand e-commerce sites such as Postmates and Amazon Prime Now. In a recent survey, 99 percent of consumers said fast delivery is an important factor when they shop online.
Consumer expectations around delivery are only increasing, according to that same survey. Forty-three percent of consumers expect companies to have "much faster" delivery times in 2018, up 23 percent from just last year, and nearly two times as many consumers said they used same-day delivery last year compared to the previous year.
So, if businesses are concerned about meeting their customers’ expectations today because of e-commerce and urbanization, the bar is only going to be raised in the near future.
Stuck in Traffic
While customer expectations increase, so too will traffic congestion in cities. In 2017, New York City drivers sat in traffic for an average of 91 hours during peak hours, a 2 percent increase from the previous year. Drivers in other cities also saw increases; Washington, D.C. and Boston drivers saw 3 percent year-over-year increases.
With congestion like that, it's easy to understand why 91 percent of business leaders are concerned about traffic in cities. When you combine that problem with limited available parking, some UPS drivers find it easier to abandon their truck and use a handcart to complete their route instead.
Traffic congestion is also wasting valuable resources, including fuel and productivity. The latter is particularly critical as approximately 900,000 drivers are needed to meet rising demand, leading many to look to self-driving trucks to avoid a labor shortage crisis.
Many cities have moved to put policies and regulations in place to improve traffic flow. Restrictions on the size and use of delivery trucks in cities to specific time periods only further complicate the last-mile for e-commerce deliveries. For instance, New York City has reduced delivery times and traffic with an Off-Hours Delivery program in which goods are delivered in the evening or early morning instead of during the day.
"Urban centers pose the biggest challenge when it comes to the final miles of getting a product to the consumer in a timely, safe and secure manner," Sellman said. “There are a lot of roadblocks, and you see companies like UPS working with municipalities to try and overcome those challenges.”
For example, UPS is expanding their Access Point program to improve delivery efficiency in Europe, and Amazon offers a similar service through its locker program in the United States. These programs provide convenient package pick-up and drop-off points located at local retail shops and gas stations, reducing the need for individual home deliveries.
“We are looking to critical new technology to solve certain obstacles created by urbanization.”
Unprepared for Urbanization
Although 95 percent of business leaders are aware of the business implications associated with growing cities, only 47 percent feel prepared to deal with those challenges.
“Many companies just don’t have the right individuals in the right places to manage that process, creating a gap for them,” Wofford said. “Some are unaware that other options exist and continually see pressure on delivery times rise without knowing what the right recourse is.”
Just as businesses are seemingly unprepared for ongoing rapid urbanization, many cities are as well. For instance, many cities in Latin America are working to improve transport and waste management, and secure water supplies to support their populations.
These shared challenges provide an opportunity for increased collaboration between businesses and cities. It also opens the door to innovation.
“Every time we see friction in a new system, we should see innovation,” Wofford said. “We are looking to critical new technology to solve certain obstacles created by urbanization.”