Welcome to the February issue of CrossDock, our monthly newsletter that provides you with the most recent stories and insights on the warehousing, logistics, and e-commerce sectors.
Everyone seems to want a piece of the very lucrative pie, e-commerce fulfillment.
E-commerce fulfillment and logistics is naturally the next logical ambition for e-commerce platforms such as Amazon and Shopify. Once you have done enough to connect buyers and sellers, owning the fulfillment experience helps have control over the complete e-commerce lifecycle; which over time can potentially pay leaps and bounds.
Our biggest story this month is of Shopify Logistics, a newly coined term that encompasses all of Shopify’s offerings around e-commerce fulfillment, shipping aggregation, freight forwarding, and more. The goal here is simple to understand – to go up against Amazon head-to-head and grab a sizeable portion of the $97 billion e-commerce logistics market.
Below are the top stories from February 2023:
- UPS’ RFID program to enhance shipping accuracy and efficiency
- Walmart’s plan to close down e-commerce-only stores
- Shopify’s ambition to become a logistics provider for its merchants
- Fall in demand for cardboard boxes as consumer demand declines
- The many challenges restricting the adoption of robots in dark warehouses
UPS's RFID program will extend to the rest of the US network in 2023
UPS intends to roll out its smart package initiative across the majority of its U.S. network this year after its massive success at a few facilities.
About the initiative:
The smart package initiative aims in enhancing the customer experience by reducing the rate of packages being delivered in the incorrect vehicle.
Through this initiative, UPS aims to lower the frequency of misloads from one in 400 to one in 800, with an opportunity to grow.
The initiative involves attaching RFID tags to packages, and wearable devices to workers to eliminate manual scans, reduce misloads, and speed up parcel throughput in the delivery giant's warehouses
Results:
Misload rates have already decreased in some sites. At 50 of the facilities where the plan is still active, misloads are now one in 1,000.
For the staff loading UPS package cars, the use of wearable devices and RFID tags will remove 20 million manual scans each day.
Future Plans:
UPS eventually wants to stop using wearable devices and instead have the delivery car communicate with the RFID tags.
The giant intends to invest $140 million in the initiative in 2023, as it installs the technology in its 940 remaining U.S. facilities.
Due to inflation and an unstable economic situation, warehouse demand declined as businesses scaled down their capital expansion plans.
Walmart plans to close the e-commerce-only stores
A decade-long experiment by Walmart to improve convenience for e-commerce customers will come to an end with the closure of a few stores that only provide pickup and delivery service, like those in Arkansas, Bentonville, Illinois, and Lincolnwood.
Reasons behind the decision:
Walmart has added pickup and delivery operations to their full-service stores, hence the decision to close its e-commerce-only stores.
They closed the Bentonville store along with its Lincolnwood counterpart by Feb 17 after implementing the insights it gained about consumers' online shopping needs and preferences from the pilot to its overall e-commerce operations.
Closure of full-service stores:
Walmart also plans to close its full-service stores in Illinois, Florida, and New Mexico by March 10 as they are underperforming. The associates of these stores are eligible to move to their nearby counterparts.
Future Plans:
Walmart has decided to cease running stores that are solely dedicated to fulfilling online orders for the time being. They intend to innovate the pickup and delivery services to serve their customers in the “best way possible”.
Shopify’s latest bet on taking on Amazon’s logistics offerings
In yet another stab at grabbing market share in logistics and fulfillment from Amazon, Shopify announced ‘Shopify Logistics’, an umbrella program that includes shipping, e-commerce fulfillment, freight, and more.
Shopify Logistics is a blend of various facilities and services of Shopify, its recent acquisitions, and strategic partnerships such as Flexport.
Detailed view
First off, Shopify’s partnership with Flexport will enable merchants and retailers with “front-of-the-line” access to container ships.
Once goods are received, inventory will be appropriately routed to a warehouse in Shopify’s unified fulfillment network consisting of both Shopify Fulfillment and Deliverr’s network. The routing of goods will be powered by Deliverr’s fulfillment technology based on projected demand and inventory velocity, among other factors.
Over time, Shopify aims to lower the share of total orders fulfilled from its owned warehouses and instead have the third-party network of warehouses in the forefront.
What’s in it for the merchants
Merchants enrolled in the Shopify Logistics program get to add the ‘Shop Promise’ on their storefronts to boost credibility and customer experience. This feature, although a small visual element, goes head-to-head with Amazon’s Prime Shipping offering and the latest Buy with Prime feature.
Moreover, Shopify’s key goal here is to make supply chain efficiency and effectiveness more accessible to smaller and mid-sized merchants. Some of the best freight and fulfillment services have been traditionally accessible to larger retailers, and Shopify aims to change that with Shopify Logistics.
“Just as we've always done at Shopify, we're using our scale to our merchants' advantage – this time providing access to logistics services previously only available to larger retailers”, said a company spokesperson.
A decade-long experiment by Walmart to improve convenience for e-commerce customers will come to an end with the closure of a few stores that only provide pickup and delivery service, like those in Arkansas, Bentonville, Illinois, and Lincolnwood.
Cardboard demand plunges amid a slowdown in consumer demand
Demand and output of cardboard boxes, among other materials used for packaging, saw a steep decline in Q4 2022 as per data released by the American Forest & Paper Association and Fibre Box Association.
Steep fall
U.S. box shipments fell by 8.4% last quarter, as per the Fibre Box Association. KeyBanc’s Adam Josephson, who leads the bank’s analysis of the packaging industry, described the situation as “the most severe quarterly decline since the Great Financial Crisis”.
The Fibre Box Association also added the operating rates for U.S. boxes have fallen to 80.9%, stagnating roughly 20% of the United States’ capacity to produce boxes.
Another packaging material called boxboard saw a five-year low in operating rates in the final quarter of the fiscal year 2022.
Factors contributing to the same
The ongoing pandemic and the subsequent dwindling savings, inflation, rising interest rates, and fears of a recession have all been major contributors to the decline in consumer spending.
The bloodbath in consumer spending has had a direct impact on the cardboard industry, one of the biggest enablers of retail and commerce.
Containerboard and box demand continue to be negatively impacted from the deterioration in U.S. and global economic conditions, rising interest rates, and a cooler housing market”, said Thomas Hassfurther, executive vice president of corrugated products at Packaging Corporation of America (PCA).
However, top executives at PCA seem to have an optimistic view of the recovery of the US cardboard industry. During their investor call, they suggested that the demand in 2023 will be “healthy”, and is predicted to be 6% higher in Q1 2023 compared to Q1 2019.00
Adoption of robots in dark stores remains limited, impacting the fulfillment capabilities
Although over a fifth of dark warehouses now have some level of automation given the e-commerce surge, the limitations of the robots - like high upfront costs and lack of picking capabilities to cater to different product classes - seem to be a major deterrent to widespread adoption.
Automation is the end-goal
The average salary of a warehouse associate saw an uptick from $41,110 to $43,820 between 2019 and 2021.
Given the current hiring market and labor costs, a majority of warehouse operators seem to be shifting in favor of warehouse automation.
“You’ve got the combination of not enough people and very expensive people. It makes the automation much easier to justify,” said Sean Wallingford, president and chief executive of warehouse automation company Swisslog Holding AG.
Risk and reward
There have been various examples of successful automation projects. One such case is that of German online pharmacy Apo.com, which opened a 220,000 sq. ft. automated warehouse that handles 25,000-30,000 orders a day with only 20 employees in each shift.
The company invested over $100 million in setting up its automated warehouse in 2019. Michael Fritsch, Apo.com’s founder, suggested that the warehouse would have needed north of 400 employees to process the same volume of orders otherwise.
About 20% of warehouses used some level of automation in 2022, rising from 15% in 2018, according to research firm Interact Analysis.
However, the adoption has come with its challenges; one being training and configuring robots to mimic very specific human actions.
Ocado Solutions, the grocery division of Ocado Group, which has been attempting a successful automation implementation for the last few years, has also run into a myriad of challenges like training robots to pick 50,000 types of unique and specialized grocery items, limited interoperability with the warehouse workforce, and fire incidents in their facilities. The company has witnessed three fires in its warehouses, due to a collision of robots, faulty batteries, and more.