1、Continued Growth of E-commerce Amid Uncertainty

On July 5, 1994, Jeffrey Preston Jorgensen (now known as Jeff Bezos) began selling books from his garage in Bellevue, Washington, USA.

The company he founded, named Amazon, was chosen because Bezos believed naming it after the world's largest river would be meaningful for its development goals. Indeed, Amazon's expansion has proven this point, as it now covers an endless array of product categories and traffic.

Undoubtedly, e-commerce is driving significant changes in the economy and every supply chain operating model. For example, when searching for a specific product online, one might see responses from Walmart, Target, or Home Depot stating, "Online orders only, no in-store availability." From the perspective of inventory management, control, and transportation costs, this makes sense, prompting substantial changes in freight modes and bringing more B2C sales, shifting the mode from trucks to parcels over a broader geographical range.

Paradoxically, this new shift has not weakened brick-and-mortar stores. In recent years, there has even been development in the brick-and-mortar sector, with more new stores opening than closing. However, with the decline of old brands and the influx of new brands, the retail experience has changed.

As a crucial component of e-commerce trade, the rising prices of cardboard packaging suggest an upturn in the commodity economy. This is especially true since manufacturers have increased prices for the first time since the Federal Reserve began raising rates early last year.

Furthermore, businesses have begun implementing supply chain strategies practiced during the pandemic. Coupled with the effects of the Suez Canal blockage and long-standing concerns over the Panama Canal, there appears to be more uncertainty in global supply chains in 2024.

Initially, during the pandemic, warehouse space became extremely tight and expensive. However, this trend is now changing. From the current situation, it seems that the warehouse demand surge driven by the pandemic has ended. According to data from Cushman & Wakefield, the average vacancy rate for warehouses in the United States reached 5.2% in the fourth quarter of 2023, a significant increase from 4.6% in the previous quarter and 3.1% in 2022.

Additionally, with the increasing shift of global supply chains towards e-commerce, there is a growing demand in the industry for efficient handling of returns and replenishment capabilities.

It is estimated that U.S. consumers purchased goods worth over $5 trillion in 2023, making the retail industry a crucial component of the U.S. economy. According to data from the U.S. Consumer Returns Association, consumers returned 16.5% of the goods they purchased online and in stores in 2023, worth nearly $817 billion, double the return rate in 2019.

Taking into account additional transportation, warehousing, and labor costs, Inmar Intelligence estimates that handling returns for $100 worth of online orders costs businesses approximately $27 billion. Therefore, analysts at Gartner estimate that when considering the initial cost of selling the item and the cost of handling returns, businesses may lose about 50% of their profit on returns.

According to data from Cass Information Systems, destocking and declining consumer goods consumption are the main features of freight decline, but it seems that the driving factors of these two cycles are beginning to reverse. After a year of decline, actual retail sales data is showing positive growth, and after 18 months of destocking, restocking is imminent.

Finally, turmoil in international waters from the Panama Canal to the Suez Canal and the Red Sea is disrupting trade flows, inevitably affecting delivery times and costs. For example, bypassing the Suez Canal adds approximately 10 days to shipping time, leading to a surge in container freight rates from around $1500 to over $4000.

Despite being influenced by so many factors, e-commerce continues to grow steadily. According to the Boston Consulting Group, by 2027, the e-commerce market is expected to account for 41% of the global retail total, compared to only 18% in 2017.

2、Parcel Delivery: Shifting to a Buyer's Market in 2024

Over the past five years, e-commerce has had a significant impact on the parcel delivery industry. According to Satish Jindel, president of SJ Consulting, based in Pittsburgh, these impacts mainly include:

Amazon has developed a rapidly growing proprietary fleet for its online deliveries.

Supply chains have shifted, with more products stored closer to consumers for faster delivery.

New opportunities have emerged, allowing small carriers and courier companies to compete with parcel giants like FedEx and UPS for last-mile delivery of e-commerce parcels.

Residential delivery has shifted from a five-day to a seven-day operation, presenting labor challenges for carriers responsible for delivering packages to homes seven days a week.

Artificial intelligence will play a role in future parcel management, such as streamlining fulfillment processes, consolidating multiple online orders into one package for delivery to consumers, reducing delivery costs for parcel carriers, and reducing order returns.

The general weakness in the e-commerce market has a more significant impact on the parcel business than on any other segment. Recent reports in The Wall Street Journal regarding UPS layoffs illustrate this point profoundly. The article mentions, "Due to soft demand, UPS is cutting 12,000 jobs, possibly including its Coyote logistics brokerage division. With the decline in domestic and international parcel volumes in the United States, UPS is trying to save $1 billion and expects growth in its small parcel business volume in the United States to be less than 1% this year."

Brian Sternberg, a veteran of the parcel industry and consultant, said, "As we enter 2024, parcel carriers will continue to make money year after year, as they have since the late 1980s. A year ago, the industry looked more like a seller's market, with an average increase in overall parcel rates of 6.9% in 2023, the highest average increase in history. In 2024, it's the opposite, with the industry shifting more towards a buyer's market."

Another challenge facing the parcel industry is data management and reporting, which are related to the overall supply chain operating costs. Currently, most shippers have implemented transportation management systems (TMS) in some form or another. Mike Reiss, Managing Director of EY's Supply Chain Practice, said, "Integrating and equipping TMS to handle parcel transportation will pave the way for more effective analysis of freight (rate comparison), provide higher-quality service, generate labels, and increase parcel tracking possibilities."

According to data from EY's Supply Chain Practice, the global parcel delivery market is expected to grow from $466.87 billion in 2022 to $648.84 billion in 2030, with a compound annual growth rate (CAGR) of 4.2%. The rapid shift to parcel transportation, especially in the B2C sector, makes increasingly integrated transportation management capabilities more critical for effective supply chain management.

3、Air Cargo: E-commerce Volume to Increase in 2024

Despite weakening demand due to the pandemic, e-commerce has undoubtedly had a significant favorable impact on air cargo. David Cyrus, former Vice President of Exel Airways and a long-time industry veteran, predicts that cargo volumes in 2024 will increase but revenues may be lower than during the pandemic period from 2021 to 2022.

The International Air Transport Association (IATA) predicts a 3% to 4% increase in air cargo volumes in 2024, with most of the growth coming from the B2C sector. Air cargo accounts for only 1% of the world's trade volume, but the value of goods transported by air accounts for 35% of the world's trade value. Although only 8% of commercial jetliners are cargo aircraft, they handle 54% of air cargo volume.

With the expansion of passenger aircraft routes, belly cargo capacity is expected to increase by 3.5%, especially in the Asia-Pacific region. According to data from the International Air Transport Association (IATA), cargo aircraft and passenger aircraft belly capacity are equally distributed, so the buyer's market should continue for most of 2024.

Currently, revenue from express companies and integrators FedEx, DHL, UPS, SF Express, and China Postal is approximately $65 billion, accounting for 38% of total revenue for global express companies, with most B2C e-commerce flowing into China.

Chuck Clowdis, an industry expert in air cargo, said that as the share of e-commerce in consumer purchasing plans continues to grow, air cargo services will play a crucial role in meeting the rapidly growing demand for fast delivery. Goods purchased through e-commerce may not endure long transit times if transported by ocean carriers, and the recent turmoil in the Red Sea and the Suez Canal has exacerbated the situation. At least until these issues are resolved, goods may increasingly shift towards air cargo.

Furthermore, e-commerce has now expanded to larger items such as furniture, durable goods, and household appliances, all of which can be found and purchased through e-commerce channels, and even cars can be found on Amazon's website. These trends will also drive demand growth for air cargo.

4、Maritime Shipping: Channel Disruptions Leading to Cargo Shifts

In recent months, maritime freight rates have been on a downward trend. Since peaking at the end of 2021, rates from the Asia-Pacific region to the US West Coast have fallen by 51%, and rates to the US East Coast have fallen by 55%. However, events in the Red Sea and the Panama Canal are changing everything.

Prices for goods moving around the world have skyrocketed in the wake of the six-week Red Sea interruption. This disruption poses a threat to the global economy, marking another occasion, after the pandemic four years ago, when the world became aware of the existence and vulnerability of supply chains. According to Jonathan Colehower, Managing Director of UST's global supply chain business, about 30% of container ships worldwide transit through the Suez Canal, which connects the Red Sea and the Mediterranean.

According to a report from the international freight booking and payment platform Freightos, spot freight rates from Asia to Northern Europe have risen by 173%, and rates to the US East Coast have risen by 52%, compared to before shippers started changing shipping routes.

With global maritime disruptions in 2024, there may be an increase in the volume of goods transported by air and land. The blockage of two major routes from Asia to the US East Coast due to conflicts in the Red Sea and low water levels in the Panama Canal restricts access to the US East Coast. Ports on the West Coast and intermodal networks may continue to face increased demand.

The disruption in the Red Sea has led to maritime transport options bypassing the Cape of Good Hope, adding about 10 days and 3,500 miles to the journey. This will affect prices and services, especially for e-commerce goods, and may lead to a shift towards air and land transport. As reported by The Wall Street Journal and Logistics Management, "As carriers divert ships to avoid attacks by rebels, billions of dollars' worth of goods have been diverted from the canal route."

Data from Drewry Shipping Consultants shows that since the supply chain disruption at the end of November 2023, average transportation costs for 40-foot containers have nearly doubled.

In summary, although the situation in 2024 may seem similar to 2023 in terms of supply chain execution and e-commerce costs, uncertainty becomes even more pronounced with instability and conflicts bringing no benefits, only further disruption, inevitably impacting services and costs.