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Home News Warehousing, logistics and industrial Last link of e-commerce accounts for half of total supply chain costs

Last link of e-commerce accounts for half of total supply chain costs

New research from real estate services firm Cushman & Wakefield, reveals the last link of the eCommerce supply chain can account for 50 percent or more of total supply chain spend.

The findings in the Last Link: Quantifying the Cost report, were enabled by a newly-created model called Total Last Link Cost (or TLLC model) which allows developers, investors and occupiers to quantify the total last link costs for any property. The ‘last link’ refers to the final stage in the eCommerce supply chain, whether carried out by van or electric bicycle, urban or rural, to a collection point or a home.

As consumers become ever more accustomed to purchasing online, expectations about delivery service and speed have increased. Last link efficiency therefore has a critical impact on delivery time and cost by reducing the drive time between the urban depot and delivery point, or the ‘STEM distance’ as it is known.

Cushman & Wakefield’s report attributes the last link’s formidable share of total supply chain costs to various inefficiencies related to transportation, such as lack of delivery guarantee, sub-optimal delivery routes and separate return trips, all of which increase costs. This is especially true of the congestion-prone dense urban areas found across continental Europe.

Analysing four major European markets – London, Paris, Madrid and Milan – revealed that reducing the STEM distance invariably brings down total last links costs. Despite significantly higher rents, urban depots have consistently lower total last link costs when compared with distribution warehouses which are usually located outside towns or cities. Use of urban depots reduces drivers’ time and wage costs, requires less fuel, and even optimises van usage. Reducing the STEM distance to 10 minutes closer to an average-size urban depot generated a saving of €1 million per year.

Lisa Graham, from Cushman & Wakefield’s Logistics Research & Insight team, said: “Our findings from using the TLLC model prove why the logistics premium for urban land is worth it due to the enormous savings possible through total transportation costs. Unsurprisingly, the rents for urban land reflect the maturity of the eCommerce market in any given location. We expect rents for urban depots to increase significantly across major European cities as logistics hubs develop further. Strong rental growth potential for last link depots now puts logistics in the same revenue ballpark as traditional urban land uses.”

The tool provides insight to aid last link business decisions including portfolio management and restructuring, site selection and optimisation of delivery routes.

Rob Hall, Chair EMEA Logistics & Industrial, at Cushman & Wakefield, said: “As more people choose to order online, customer expectations about delivery increases and so does the need for air-tight last link strategies. The last link is the most expensive part of the logistics supply chain, but it is also the only link in the e-commerce supply chain in which customers typically have a real-life interaction. Optimising the last link not only has revenue-enhancing potential, it can also improve a company’s overall reputation for excellent customer service.”

In the longer term, Cushman & Wakefield expects green solutions and technology to further improve distribution efficiency. Once legalised in Europe, autonomous vehicle technology has the potential to make a transformative impact on transportation costs, with a previous Cushman & Wakefield report, ‘The Changing Face of Distribution’, estimating the potential reduction in its share of total logistics costs from 50 percent to as low as 32 percent.

Joanna Sinkiewicz, Partner, Head of the Industrial and Logistics Agency, at Cushman & Wakefield, said: “The Last Link report contains an in-depth analysis of e-commerce distribution, with a special focus on its final stage: last-mile logistics. The last link is the most expensive part as it accounts for more than 50 percent of total supply chain spend. It is also facing increasing challenges as consumers expect faster deliveries, lower costs and efficient post-sale services. Optimised last mile logistics must be able to deal with all that.

Cushman & Wakefield’s report shows a direct link between the distance from an urban depot to the first delivery point and total transportation costs. This has led to an increasing focus on reducing the distance (from a warehouse to the first delivery point) and the growing popularity of urban or suburban warehouses.

The key finding in the report is that all last link strategies for a supply chain should aim to cut transportation costs and that the right choice of location rather than rents has a critical impact on final logistics costs.

The report’s findings are further reflected in the expansion of urban logistics on the warehouse market, with Panattoni building City Logistics Warsaw III near the western section of Warsaw’s Expressway Ring Road. Trena Sp. z o.o., an online retailer of professional beauty products, will be the first tenant there.”

Damian Kołata, Associate, Industrial and Logistics Agency, Cushman & Wakefield, said: “E-commerce, which will account for a third of all retail sales across Europe by 2024, requires a complex supply chain comprising both large distribution centres and smaller warehouse units close to urban locations and guaranteeing timely shipments and returns. This is due to the consumption growth in recent quarters, with companies expecting a surge in orders within a short time.

This will also require finding an effective solution for last-mile logistics which, according to Cushman & Wakefield’s latest report Last Link, accounts for 50 percent or more of total supply chain spend. On the other hand, measures such as the #Warszawa2030 strategy are being undertaken in large cities to regulate courier traffic in city centres, which will restrict deliveries and lead to the growing popularity of small ‘city logistics’ or ‘city flex’ units.

Urban logistics is also a theme of another Cushman & Wakefield report ‘How to Get the Hang of E-commerce in Warehouses?’. An urban logistics facility can be an excellent place when it comes to quick order collection or return, and can also act as a showroom for the latest products or even as a centre of value-added services such as express small-scale tailoring services for fashion retailers, which perfectly fits in with another market trend: personalised production. An SBU can also provide a spacious office or a small place for light manufacturing, if requested by a client. All key business operations can thus be accommodated in a single location.”

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