The Evolution of E-Commerce Fulfillment: 5 Challenges for Logistics Companies to Overcome

Last year, e-commerce sales grew by over 15 percent, confirming how valuable e-commerce fulfillment can be to the success of your business. Challenges in your fulfillment process inevitably lead to delayed, broken, or missing orders, which result in poor customer experiences, churn, and the steady erosion of gross profits. Yet added complexity, increasing customer demands, industry consolidation, and shifting market conditions are causing a perfect storm for mid-sized e-commerce fulfillment companies, making it harder than ever to compete.

Mid-sized companies in particular must wrestle with how to compete with giants like Amazon, Walmart, and Radial.

The five biggest challenges that mid-sized e-commerce fulfillment companies will need to address include the following:

1. Market evolution

Recently, we’ve seen the swift emergence of third-party e-commerce fulfillment vendors that handle orders for traditional e-commerce companies, online marketplaces, and brick-and-mortar stores. These companies are masters of simplifying e-commerce management and reducing order and fulfillment cycle times.

They offer flexible capacity through either dedicated or shared-use networks, and they efficiently weather ebbs and flows in business. Most importantly, they accomplish this while simultaneously reducing costs and supporting faster delivery times to most geographic locations. Today, 55 percent of shoppers abandon their carts due to high shipping costs, and 38 percent of consumers abandon their online orders when the estimated delivery time is eight days or more. Furthermore, 69 percent of consumers are less likely to shop with a retailer in the future if a purchase isn’t delivered within two days of the date promised.

Given the emergence and success of e-commerce fulfillment specialists that can deliver inventory faster, cheaper, and more reliably, those of us who are not e-commerce fulfillment experts will find that our time is better spent focusing on core competencies.

2. Increased e-commerce fulfillment

By 2021, it’s estimated that global B2C e-commerce sales will exceed $4.5 trillion, almost double 2018 sales. In that same time span, global B2B e-commerce sales will rise from $7.7 trillion to $17.6 trillion. This growth has heralded the emergence of more startup vendors and smaller businesses that simply don’t have the infrastructure or logistics abilities to handle their orders in-house. An estimated 165 billion packages are shipped in the US each year, and if current trends continue, that number will reach 285 billion by 2021.

This growth puts additional pressure on firms to simplify inventory management, order processing, and shipping to meet rising demands and curb shipping costs. Even established e-commerce fulfillment experts like Amazon are experiencing a rise in shipping costs. Amazon’s shipping costs (including product sortation, packaging and delivery), for example, rose from $11.5 billion in 2015 to $21.7 billion in 2017. As customer demands and complexity increase, these figures will continue to rise, which is why Amazon is looking to cut costs through automation, technology adoption, and the creation of its in-house delivery service.

3. More competition

The companies currently providing e-commerce fulfillment services include divisions of large e-commerce or logistics behemoths, pure-play e-commerce fulfillment services companies, and technology-focused startups. This makes for tremendous competition. The order fulfillment industry, including storage and warehousing, is huge: worth $27 billion in 2019.

Amazon and FedEx Fulfillment are examples of established players offering warehousing, packaging, fulfillment, transportation, and other services. The pure-play companies, such as Radial and Red Stag Fulfillment, are substantial organizations capable of fulfilling millions of orders and providing high-touch customer service. And technology-driven startups like ShipBob and Shipmonk market to small and mid-sized clients based upon simpler pricing models and scalable platforms.

4. Shifting customer demands

Amazon set the standard with its guaranteed two-day Prime delivery service. Now it’s besting that by offering deliveries within one day (including Sundays), and even same-day deliveries in certain markets. As more becomes possible and the best e-commerce fulfillment experts become even better, customer expectations will continue to rise.

5. Industry consolidation

Industry consolidation is already underway. Recently, Bpost acquired Radial and Target acquired Grand Junction and Shipt. Additionally, an influx of venture capital investment into startups like ShipBob, Shipwire, and Shipmonk will threaten to disrupt incumbents. The most promising startups will continue to attract sizable investments and will race to either scale or sell. Mid-sized companies will likely continue to be bought up by competitors, further changing the competitive landscape.

Companies may choose to respond to these challenges in multiple ways. They can shore up their customer experience, tighten their corporate identity, partner with third-party e-commerce fulfillment firms, or join the M&A craze. The answers depend on the circumstances. The important thing is to come up with a sound strategy now. The industry won’t stop its breakneck evolution to wait for you.

For more of my thoughts on ecommerce and fulfillment, please visit https://www.youtube.com/watch?v=wc6eiOVtp08 and https://www.supplychainbrain.com/blogs/1-think-tank/post/29073-e-commerce-fulfillment-the-golden-age-or-nuclear-age.

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This article draws on a blog originally published at bengordonpalmbeach.com on June 3, 2019, and was updated on August 9, 2019.