Why 4PL is Saving E-Commerce

The old way of doing logistics simply doesn’t work for e-commerce.

That’s one of the first things I say when an e-com client asks me why they shouldn’t go with one single major carrier for their business. It may sound controversial or defensive, but it’s true.

For the past century or two, logistics has generally operated under a ‘retail model.’ Goods were moved from production points by air or sea to one or multiple warehouses and then over to big retail warehouses by logistics providers - and not much else.

But when e-com giants like Amazon, Shopify, and Alibaba became the norm for how we do our shopping, this model flipped on its head. Today, it’s poised to flip again.

I want to discuss some of the trends that are shaping e-commerce logistics and what exactly clients need to expect from their providers today.

So What Exactly is So Tough About E-commerce Logistics?

The model that our industry’s infrastructure was built to service came down to these key features:

1. Logistics was primarily a B2B service (the retail/big box model).
2. Customers interfaced with retailers - not the manufacturers or brands?
3. Last-mile was handled by customers - After a day out shopping, customers threw their goods in the trunk and drove home.
4. Operations were transactional - money moved through the system in the form of lump transactions of thousands of units.

In contrast, if I were to break down the key traits of modern e-commerce logistics into four points they would be these:

1. Logistics companies are now both B2B and B2C - They need to ship directly to the doorstep of customers as well as to traditional retailers/distributors.
2. Returns are a normal part of the logistics process - According to Hubspot, a quarter of all consumers return between 5% and 15% of the items they buy online.
3. Manufacturers, warehouses, and individual sellers are becoming online retailers - The retail store as we know it is dying.
4. Goods are shipped per unit -? Logistics companies and sellers receive payment per individual item transferred. That means lost or poorly-packed goods are no longer an option.

You may notice that the new model is almost the complete opposite of the old model in almost every aspect. This makes things tough for companies that are used to doing things the old way that they are set up operationally to do.

Today if you ask a traditional logistics companies to take care of e-commerce for you, many of the “big guys” are going to say something along the lines of:

1. we don't have the tech
2. we don’t know how
3. we don’t do last mile delivery service (e.g. courier/postal)?

Some of them may even tell you they can do it when they really should be saying no. It's like asking a snowboarder to ski and expecting them to be an expert. The thing looks similar in theory, but in practice, it’s a different beast.

So are e-commerce businesses out of luck? And are old logistics companies doomed? Absolutely not.

Maersk recently announced they had bought a company that specializes in e-commerce logistics - and they are one of the most traditional providers out there. If you want to know where the industry is going, that's a prime example.?

And besides established businesses learning new tricks, there is a growing list of new providers who are great at both the old stuff and the new stuff.

But first I want to talk about a part of e-commerce logistics that drove the charge to what we see today, but which may also be on its way to obsolescence.

Why Companies Like Amazon Have Dominated For the Past Decade

Logistics, as we know it today, really kicked into gear when online retailers began listening to what customers wanted.

Take Amazon for example.?

When Amazon saw that modern logistics infrastructure just wasn’t there to take care of business, they did it themselves. They created their own shipping fleet and their own fulfillment centers in highly-populated areas so customers got goods fast.

People used to complain about packages not being dropped off if no one was there to sign. Amazon just started leaving packages on the doorsteps. Customers were thrilled. They much preferred the odd chance of theft over inconvenience.

But today the giants like Amazon and UPS are facing a new problem: they are struggling to give customers exactly what they want.

This is due partly to three major growth areas in e-commerce that have become increasingly specialized: warehousing, fulfillment, and last-mile courier services. I want to talk about these a little further.

Innovation Area #1: E-commerce Warehousing & Fulfillment

In e-commerce, warehousing has become almost more important than shipping.

Tracking goods is central to e-commerce because missed shipments are no longer an option. One missing or damaged shirt from an order of three means a customer leaves the business and a client gets a damning review on their Shopify.

Today tracking starts at the warehouse - that's why they increasingly need a strong technology component. One that can integrate with e-commerce software so their clients can see exactly what is going on.

Today we’re seeing quite a few warehouses owned by individual brands that do their own in-house warehousing & fulfillment.

We work with one Australian warehousing provider that I like to use as an example, let’s call them “The Warehouse Team”.

TWT started with just one e-commerce-focused warehouse. They built one location and spent a ton of money on tech to largely automate their processing. People thought they were crazy. Today, they now have five warehouses and have become the darling of the local tech and e-com scenes.?

But you’ll never hear of an Amazon working with an industry-changer like that.

You see, to slap their “seal of quality” on their process and maximize profits, these companies generally try to keep all their control in-house which comes with limited flexibility for the customer. If you want to use Amazon’s logistics and a warehouse you like in Australia most logistics providers will tell you it can’t be done.

Innovation area #2: Last-mile courier services

Any discussion of modern e-com and logistics would be incomplete without mentioning the last mile problem. Also known as “how do we get goods on the doorsteps of customers as fast as possible?”

The problem with last-mile (at least in most Western nations) is that clients are largely in the same boat with every provider. Deliveries generally take between 2-7 days across the board but everyone wants their delivery now.

Unfortunately for logistics firms, there are only a certain number of courier companies and only a certain amount of labor available. Most courier services are already at or over capacity and are struggling to keep up.?

In fact, I’d say there are less than 25 carriers operating with a global presence today that can actually keep up with last-mile capacity.

That means even the top logistics companies like DHL can’t keep up. Instead, they find themselves cross-pollinating with other carriers. This is especially true in growth regions like Southeast Asia where they don’t have a home base but want to expand their business.

But, again, here’s the issue: major logistics providers generally don’t tell their clients they have outsourced to another courier company to meet demand. They just say it was done under their umbrella of providers. This is the gaping hole in logistics today that customers want to be addressed but the guys who are supposed to be great at it can’t seem to do it.

We Made our Logistics Company, CBIP, to Help Clients Take Back Control

Innovation doesn’t happen in-house at a multinational. Innovation happens in highly specialized environments - done by people trying to solve one or two things really well.

E-commerce clients want these specialized providers, but usually lack the industry knowledge to know where to begin looking for them or contracting with them.

We created CBIP Logistics to offer clients something they cannot get from e-commerce logistics giants today: options.

We wanted to create a place where a client who doesn’t know about logistics could enter, talk about their needs, and get a tailored plan of action for their business. One they know incorporates the best providers out there.?

If one link of the chain doesn’t work or a client has a specific warehouse they want to use, they can be added or removed without a fuss. If they want to expand somewhere where we don’t have providers, we help them find some.

Our model of fourth-party logistics (4PL) isn’t new, in fact, it’s been attempted many times since the idea was originally coined in the mid-2000s.

However, today we’ve finally reached a point where clients have enough logistics options for it to work. And it may be the only method to keep up with e-commerce and its demands for fast, unpredictable growth.

I have a blog on our website about 4PL you can read here.

The Future of 4PL in E-commerce

Right now, 4PL solutions are more or less divided into two camps:

1. Tech platforms that offer a limited number of logistics services at a low price.
2. Logistics companies that offer bespoke services globally for creating a logistics network with leading technology integrated.

The vast majority of companies operating in the 4PL space today are the former: they are tech companies first and logistics providers second. They can be thought of as platforms like Airbnb that let customers interface directly with providers. Their main features are networks of warehouses using their proprietary frontend tech.

Platform solutions may well be where the logistics industry is headed eventually - but right now I believe these services don’t cut it. These providers give customers an attractive price and, theoretically, they fulfill the industry 4.0 dream of giving more choice to the client. However, because they are platforms (not logistics providers) they frequently struggle to provide anything more than a limited, cookie-cutter service that is then capped by their partner's limitations. They show true colors when operational realities set in.

Logistics is still a business of people moving goods and it still relies on relationships above all. That’s too much for a client to deal with on their own with little more than an interface. Until the industry tightens up under a more automated model, a hybrid of the two is likely what will drive logistics into the future.

We live in an exciting time for logistics and I like seeing what’s happening today because of how we shop. We may finally see old providers like DHL completely transforming their businesses to meet this more nuanced demand. Or we’ll see many 4PL providers rushing in to cover providers by offering a much more global base of products. No matter what happens, it’s a buyer’s market for the near future - decision-makers will be forced to look and think creatively to meet their growing demands. Let’s see how many providers can really meet their expectations.

Get in Touch: CBIP Logistics