State of Logistics: Why Global E-commerce Could Be the Next Frontier of Shipping

In this series, professionals debate the state – and future – of their industry. Read all the posts here and write your own (use #MyIndustry in the body of your post).

My first job at UPS in 1974 was sorting packages part-time at a small facility in Greenwood, Mississippi. In those days, my goal was simply to make enough money to help pay for college and to have a little left over to take my girlfriend on dates. If I ever thought about the future of the logistics industry, I certainly didn’t imagine its growth over the next four decades – much less the growing role logistics plays in connecting the global economy.

Back then, the global economy was far less integrated, with trade equivalent to roughly 16 percent of global economic output. Today, trade has climbed to 25 percent of global activity and will likely continue to grow even further in coming decades.

That’s good news because when every artisan, craftsman and farmer can sell their goods around the globe without restrictions, the world truly becomes a more fascinating – and prosperous – place in which to live.

We are constantly reminded that change is the norm today. Those of us who work in logistics have a ground-level view of many of the dynamic shifts that are re-inventing business, the world economy and the consumer experience. In some cases, we’re leading the charge:

The rise of global e-commerce. Online shopping has become a way of life for many, but the next chapter of the e-commerce story will be the rise of international online transactions. Imagine buying a single scarf online from a boutique in Prague just as easily as if it came from New York or Montreal.

That day is closer than you think: According to Nielsen, cross-border purchases by online shoppers in six countries alone – the U.S., the United Kingdom, Germany, Australia, China and Brazil – now top $100 billion annually and will nearly triple by 2018, to $307 billion. This trend could accelerate even further given the innovations by e-commerce and logistics providers that are reducing the time and cost of moving a single package from one side of the world to the other..

Alternative delivery methods, fuels and technologies. The logistics industry has made great strides in efficiency over the years. In 1980, logistics represented roughly 18 percent of U.S. GDP; today, it’s 7.7 percent. Today, the logistics costs associated with delivering the ingredients in a $3.60 box of cereal from the farm to the factory and to the consumer’s table is about 37 cents.

We’re always looking to become more efficient and reduce our environmental impact even further. UPS has taken a leadership role in our industry in reducing our dependence on petroleum. We currently deploy nearly 5,500 natural gas, propane, hybrid electric, hybrid hydraulic, bio-methane and full electric vehicles in our global fleet – and at the current pace of investment, should hit 7,500 alternative fuel and advanced technology vehicles by the end of this year.

We’re testing everything – even vehicles that run on chicken waste. Over time, other new technologies such as autonomous vehicles and robotics have the potential to make the industry not only more efficient, but safer as well.

Like others in our industry, UPS is evaluating whether drones could be used to augment our traditional fleets in certain situations. For example, we could see drones being employed to deliver medicines and other critical supplies for humanitarian relief operations, where natural disasters often wipe out roads and other infrastructure.

Shift to re-shoring, near-shoring and right-shoring. Following China’s entry into the World Trade Organization, many multinationals shifted production there and, in the process, helped accelerate China’s reintegration into the global economy.

Now, the revolution in fracking has made it much more attractive for heavy manufacturers who consume a lot of energy to re-establish operations in the U.S. or neighboring countries. That means the offshore boom has given way to re-shoring, near-shoring, and right-shoring among manufacturers.

A 2013 survey by The Boston Consulting Group found that more than half of larger U.S. manufacturers ($1 billion or more in annual revenues) were either considering or planning to return production to the U.S. from China. We already see these strategies playing out in segments such as high-tech, where companies are building flexibility into their shoring strategies to be more nimble in the wake of market changes – and in support of the steady drumbeat of product launches.

Trade Needs a Policy Jolt 

Of course, to achieve a truly global economy – one where consumers can enjoy the fruits of the world’s artists, inventors and entrepreneurs – requires new ways of thinking. This vision requires strong political leadership capable of forging bold new policies that will open a world of opportunity for the smallest to the largest businesses and bring the goods and services enjoyed by millions to emerging markets and burgeoning middle classes.

Smart trade policy ensures a future in which trade is easier, less expensive and more democratic. It also creates a world that is more prosperous and more secure. When trade begins to operate in that kind of friendly environment, we will see the global economy achieve its full potential.

David Abney is chief executive officer of UPS.