The COVID-19 pandemic has driven customers around the world online, creating opportunities for e-commerce players worldwide. Like other sectors, the current crisis has affected the e-commerce space negatively in the short-term in February and March 2020.
However, from April this year, we see that the benefits outweigh the short-term challenges. The e-commerce industry is growing in an unprecedented manner. We have many reasons to remain optimistic as economies open up for e-commerce logistics. Here’s why.
How lockdown and social distancing measures have influenced consumer behaviour
First, let us examine the impact of COVID-19 and the past lockdown measures on consumer behaviour.
With social distancing measures, lockdowns, and work from home measures in place, consumers fear going out and contracting the virus. That’s a significant change of behaviour for many people. Instead, people are now spending more time online. They get comfortable ordering online and buy their daily essentials and indulgences online instead of offline.
You would imagine that e-commerce is having an impressive time at the moment with the enormous leap in adoption. It’s easy to assume that the e-commerce industry is a huge benefactor of this crisis.
However, this has not been the case – at least initially.
E-commerce businesses are also experiencing several issues during the onset of the COVID-19 pandemic
1. Offline components of e-commerce businesses were badly affected: The growth in online delivery volumes did not fully compensate for the losses businesses were making offline. Overall revenues shrunk and businesses adopted cost-cutting measures to survive.
2. Inventory mismatch from consumer demand: Not everyone is buying the same things that they were buying before. New categories in demand were not in inventory for long. Retailers also could not adjust quickly enough to the changes in demand and replenish because of disruptions in logistics processes and capacity.
3. Reduced logistics productivity: Initial infections at warehouses and processing facilities meant logistics carriers had to shut down or scale down operations. This significantly affects productivity in warehouses and facilities. Not all internal processes support social distancing to adequately fulfil demand.
4. Longer parcel transit times for cross-border deliveries: Flight or line hall cancellations, closed borders between countries have affected parcel transit times, especially for online retailers dependent on cross-border traffic or supply chains. In addition, there’s increased waiting times at customs with fewer manpower at hand. All these factors combined resulted in increased transit times for many parcels, especially for cross-border shipments.
5. Difficulty of scaling operations: For example, if you grow 50 percent in parcel volume, you can’t extend warehouse capacity the same amount in an instant as you may not have the infrastructural space or trucks available. A pandemic is a terrible time to scale your infrastructure even if your business grows.
However, our data on global parcel delivery volumes reveal promising developments:
We are seeing encouraging signs from our parcel volume data from our customers. Early indications in February and March were not promising as parcel volumes trailed the volume that one would expect seasonally around that time of the year. These were the first days of the crisis where e-commerce players were struggling to figure out how to react to the virus and therefore could not fulfil demand.
Towards the end of March and April, we have seen an unprecedented surge in volumes across the industry and the e-commerce sector. If you compare April volumes with January volumes in our data this year, volumes are 40% higher than what you would normally expect at this time of the year. This is monumental news for the industry.
Naturally, growth patterns differ across product categories in e-commerce
There are some clear winners out of this pandemic, even among e-commerce players.
Products related to health, medical supplies and masks are seeing an exponential growth in demand. Sports and leisure goods are also seeing huge uptakes as people increasingly exercise at home. Food and groceries is also seeing significant growth as people avoid the supermarket.
In comparison, anything that’s related to luxury or fashion are at a comparative disadvantage. These categories are seeing slower growth compared with 2019. One reason is the postponing of discretionary spending as people are sitting at home and are less inclined to wear fashion-related items or use luxury goods.
We are optimistic that e-commerce is likely to see unprecedented, sustainable growth this year
Despite the downturn brought on by COVID-19 across industries, we are optimistic that e-commerce is likely to see unprecedented growth this year even as brick-and-mortar shops and economies open up after the lockdown. Here’s four reasons:
1. Merchants will be focused on online growth and market development: Having seen the importance of e-commerce, they can introduce key experiential elements like visibility and tracking on delivery journeys. They can improve logistics route planning to reduce transit times and deliver a stronger overall customer experience.
2. Supply chains are working again and new inventory is arriving for commodities in-demand: More attention and resources will go towards ensuring that logistics and supply chains are not bottlenecks when online demand and sales surge.
3. Logistics teams have figured out how to operate under social distancing: People can operate with social distancing measures in place, which will be around for a longer time. They’d set up distinct shifts in warehouses and have made sure that their new sorting processes work effectively.
4. Consumers are getting used to the new “normal” and start buying online rather than offline: Businesses should continue to see the value in retaining these digital channels alongside traditional payment methods and shopping avenues. The pandemic and lockdown has exposed people to a way of life where e-commerce is a vital way to get products into their home. It’s unlikely they’ll go back.
We will probably see an unprecedented growth for e-commerce. There’s hardly any imagination that we will go back to where we were.
I am optimistic that as we head into the second half of 2020, e-commerce will be a very interesting industry to look at for all players; including investors, logistics companies, consumers or anyone who is looking at seizing opportunities from these growth patterns.
ABOUT THE AUTHOR
Dr Arne Jeroschewski
Founder and CEO
Dr Arne Jeroschewski is the Founder and CEO of Parcel Perform, the leading carrier-independent parcel tracking SaaS platform. He has held senior management positions in DHL eCommerce Asia Pacific and Singapore Post SP eCommerce and was a founding CEO of ZALORA in 2012. Arne holds a Ph.D. in regulatory economics.