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The Logistics Trend Radar 7.0 - Insights. Shaping Tomorrow

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< 5 Years
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Cross-border e-commerce will grow to a $1 trillion - 2 trillion market by 2030, depending on scenario

Source: McKinsey & company (2022): Signal, sealed, and delivered: Unpacking the cross-border parcel market's promise

Relevance to the Future of Logistics

Large-Scale Automated Test & Reorder (LATR) Model

The large-scale automated test and reorder (LATR) model is used by companies like Shein and Temu to enable identification of innovative and inexpensive items of merchandise and then commission just a small order from a partner factory. If that item proves popular, the model allows production volumes to be rapidly increased. Already, this "test-before-mass-production" approach is directly matching consumer demand to dispersed production by a very large number of suppliers.

Relying heavily on the use of big data and data crawling, the model helps companies understand what products consumers respond to. Ultimately, it guides how companies manage their network of suppliers in producing these goods. With this model, companies can analyze data to create more successful products and, if design flaws are identified, quickly make changes and scale production. They can also use algorithms to guide consumers with purchases and match manufacturing capacity to consumer demand.

Deploying the LATR model gives companies significant competitive advantage in the e-commerce market, allowing them to respond to consumer preferences in an extremely agile manner, while keeping inventory lean and responsive. The success of these companies is reflected in an influx of products online, and these are often transported in smaller, faster, and more regular shipments. For example, the deployment of this model enabled Shein to generate 20 times as many new items as more traditional retailers H&M or Zara in 2021.

Social Commerce & Gamification

Continuous digital transformation and evolution, initiated by the advent of the internet and its subsequent transition to mobile internet on smartphones, plus the emergence of social networks, have together given rise to novel forms of online shopping. One in particular, shoppertainment, is highly popular with Gen Zers and Millennials. The aim is to give consumers a fun and immersive buying experience, as this helps build stronger connections, increase conversion and sales, and foster brand loyalty. Content is delivered through livestream selling, shoppable videos, contests and giveaways, gamification, and augmented reality (AR).

Platforms such as Facebook and Instagram with billions of users have inadvertently become sought-after apps through which to promote and sell goods. And e-commerce companies continue to integrate social commerce and gamification features on their websites to further fuel consumer purchases.

Examples include the Chinese online shopping platform Taobao which has huge followings and sells billions of dollars of products. TikTok Shop delivers shoppable short and live videos and gets creators to make captivating promotional videos, rewarding them with sales commission. The luxury brand Gucci partnered with Snapchat for the world’s first AR shoe try-on campaign; it generated a positive return on advertising spending and achieved an 18.9 million unique reach.

For now, these new forms of online shopping are fueling astounding growth in the e-commerce space. Supply chains must be agile and responsive to meet these increased demands.

Social Acceptance of Dupes & Counterfeits

Another shift in consumer behavior among the younger consumer base is a general social acceptance of dupes (products that mimic those of other companies without claiming to be the original nor including reproduced protected logos) and counterfeits (products that are copies of trademarked consumer goods and aim to appear as the original). Counterfeit goods account for $991 billion in international trade each year. Brands with the highest volumes of identified counterfeits include Celine, Dior, Goyard, Prada, and Saint Laurent.

Drivers behind the rise of dupes and counterfeits are cost-of-living concerns and inflation, resulting in consumers looking for cheaper alternatives to luxury brands. Also, online marketplaces, social media platforms, and mobile e-commerce applications have made it easier for consumers to browse and purchase these products. In addition, promotion of dupes and replicas by social media influencers can normalize and even glamorize these products, particularly with younger consumers. Perception plays a part too. Not everyone associates with a specific brand image or set of values, making them more likely to seek alternatives. And some dupes offer similar aesthetics or functionalities as brand-name products at a fraction of the cost, creating a perceived value proposition for consumers.

Examples of explicit copies include Dior’s low-top sneakers which cost $1,050 on Dior websites – the counterfeit shoes cost $68 on the Chinese cross-border platform DHgate. Temu offers a wide range of goods at unmatchable prices such as an electric cooking pot for $2.14, a retractable storage rack for $6.58, and a swimsuit for $6.18 with free shipping.

The social acceptance of dupes and counterfeits is impacting supply chains too. For example, logistics companies serving the e-commerce channels of multinational corporations may be liable to fines and penalties if caught storing, handling, and transporting counterfeit products, as these goods are illegal in many countries. As volumes continue to grow, logistic companies must navigate complexities and ensure regulatory compliance in all countries of operation.

Volume-Driven Supply Chain Implications

Due to the rapid rise of cross-border shipments, the e-commerce evolution has potential to disrupt the transportation industry. Traditionally, cross-border e-commerce products are consolidated and shipped in bulk. However, to meet consumer demand for faster delivery, smaller orders of fast-moving products are now generally shipped via air freight.

This means cross-border e-commerce retailers are increasingly competing for limited air cargo space to achieve quick shipping times. Cargo Facts Consulting estimates Alibaba ships from China around 1,000 tons of packages daily, Shein 5,000 tons, Temu 4,000 tons, and TikTok Shop 800 tons – volumes equivalent to about 108 Boeing 777 freighters per day.

The surge in demand for fast fashion and inexpensive products may have long-term implications for supply chains such as inflated air transportation prices, lack of air cargo capacity in the event of emergencies or crises, and e-commerce companies having to build logistic infrastructure globally to shorten transportation time. This puts further pressure on the supply chain to meet consumption and customer expectations.

Challenges

Challenge 1

There are growing concerns in some countries, particularly the US and Europe, about the data privacy practices of technology and e-commerce companies; this can potentially inhibit the global expansion of these organizations.

Challenge 2

Fast fashion and hyper-consumerism often raise concerns about environmental impact and labor practices.

Challenge 3

Companies accused of selling counterfeit products may be found guilty of infringing intellectual property rights.

Challenge 4

Maintaining consistent manufacturing standards and product quality can be difficult, especially when working with a large network of suppliers in China.

Challenge 5

The race to offer the lowest prices in the context of intense competition can erode profit margins and make it difficult for companies to invest in long-term growth strategies.

Challenge 6

Fast, reliable delivery is key to customer satisfaction, especially in e-commerce, but it may be impossible to deliver as quickly as a local competitor because of long distances between countries in different regions.

There are growing concerns in some countries, particularly the US and Europe, about the data privacy practices of technology and e-commerce companies; this can potentially inhibit the global expansion of these organizations.
Fast fashion and hyper-consumerism often raise concerns about environmental impact and labor practices.
Companies accused of selling counterfeit products may be found guilty of infringing intellectual property rights.
Maintaining consistent manufacturing standards and product quality can be difficult, especially when working with a large network of suppliers in China.
The race to offer the lowest prices in the context of intense competition can erode profit margins and make it difficult for companies to invest in long-term growth strategies.
Fast, reliable delivery is key to customer satisfaction, especially in e-commerce, but it may be impossible to deliver as quickly as a local competitor because of long distances between countries in different regions.

Outlook

Overall, e-commerce has become part of everyday life for consumers, notably Gen Zers and Millennials, and continues to evolve. The e-commerce market will continue to grow with established retailers jostling for market share and customers, with greater use of tools such as data crawling, LATR models, gamification, and shoppertainment. Additionally, expect to see Asian companies adopting supply chain diversification, setting up supply chain operations closer to markets in Europe and the Americas. This move, however, may trigger these regions to impose tighter import regulations in the form of custom duties on products.

E-commerce companies will need to consider and manage the complexities of international logistics, including transportation mode options and the availability of logistics infrastructure in each region and country, all while paying attention to ever-changing consumer behaviors.

This trend should be ACTIVELY monitored,with implementations available for many use cases today.

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Sources

  1. McKinsey & Company (2022): Signed, sealed, and delivered: Unpacking the cross-border parcel market’s promise
  2. Shopify (2023): What Are Virtual Fitting Rooms and How Do They Work? (2024)
  3. Frontier Economics (2017): The Economic Impacts of Counterfeiting and Piracy
  4. Financial Times (2023): Why young shoppers are cool with counterfeits
  5. Reuters (2024): Focus: Rise of fast-fashion Shein, Temu roils global air cargo industry