Is Singapore's logistics landscape ready for e-commerce?
By Tay Huey Ying,
June Yang
/ JLL |
In this era of technological revolution, technology and the Internet of Things have permeated every aspect of human life, including shopping. In fact, e-commerce is expected to see explosive growth.
Based on a 2015 survey by eMarketer, global e-commerce sales are expected to grow an estimated 21% a year from 2016 to 2019, with Asia-Pacific leading the pack. Closer to home, a joint study by Google and Temasek Holdings released in May forecasts that e-commerce in Southeast Asia could see a 16-fold increase from US$5.5 billion ($7.5 billion) in 2015 to US$88 billion in 2025. The study also predicts that Singapore’s e-commerce market could grow from US$1 billion to US$5.4 billion over the same period — larger than the city state’s casino industry in 2015, which was valued at about US$4 billion.
This staggering growth of e-commerce will unquestionably change the dynamics of the retail scene. Brands embracing online and offline stores are jumping on the bandwagon of omnichannel marketing and distribution in response to changing consumer preferences. This is driving an evolution in logistics solutions, as the requirements for business-to-customer operations are fundamentally different from those of traditional business- to-business trade.
Evolution of the retail experience
For example, while the traditional B2B trade usually involves pallet storage and retrieval, the warehousing operations for e-commerce entail itemised storage, picking, sorting and packing. To drive operational efficiency and raise productivity — particularly where a diversified customer base/trade mix is involved — automation helps to reduce returns and fault losses often associated with the manual system. Thus, logistics facilities catering for e-commerce are typically fitted with advanced building specifications and infrastructure that requires large floor areas.
Another distinction between logistics solutions for traditional B2B trade and e-commerce is the delivery pattern. While the former involves large truckload delivery from the warehouse to a single or a few destinations such as a retailer’s store, the latter entails parcel delivery to multiple destinations such as stores, individual consumers and click-and-collect points. To reduce delivery time, smaller-capacity vehicles such as vans and motorcycles are often utilised. Thus, there is a need to provide ample parking facilities, given the large fleet of such vehicles needed to cope with the sheer volume of e-commerce orders.
Equally important, logistics facilities for e-commerce need to provide flexibility for expansion and contraction of space requirements to cater for the high volatility in the volume of orders, as e-commerce is highly exposed to seasonal effects.
Consequently, warehouses have evolved into mega distribution hubs and e-fulfilment centres, housing the e-commerce processes of picking, sorting, packing and, increasingly, parcel returns. In e-commerce strongholds such as the US and the UK, big is the way to go, with these fulfilment centres typically measuring in excess of one million sq ft. Examples include Skechers’ 1.8 million sq ft distribution centre in Moreno Valley, California, and John Lewis’ 1.3 million sq ft cross-dock distribution centre in Magna Park, Milton Keynes. In Asia, Hong Kong boasts the 2.4 million sq ft Goodman Interlink in Tsing Yi.
In land-scarce Singapore, how has the logistics landscape kept pace with e-commerce?
Over the last two decades, the stock of logistics warehousing space more than tripled from 24.4 million sq ft in 1988 to 97.6 million sq ft in 1Q2016. While this is quite a feat, given our state of land scarcity, half of the total stock today was built before the 2000s, with less than a quarter built in the last five years. This raises the question of whether the technological specifications of these older facilities are able to serve newage businesses.
To close this gap, a number of players have turned to new-builds. LF Logistics recently opened its largest distribution centre in Southeast Asia. The one million sq ft, nine-storey facility is equipped with advanced technologies in product handling and hosts Nike’s global e-commerce distribution centre for the Asian market. DHL’s newly completed 0.97 million sq ft Advanced Regional Centre includes a specialised automation system with robotic shuttles to pick and store products from 72,000 locations spread over 26 levels. Separately, Singapore Post’s 0.55 million sq ft, three-storey regional e-commerce hub, scheduled to be operational in 2H2016, will be fitted with sorting automation and warehousing equipment.
The shift in consumer expectation from reliable to speedy next-day delivery has also led to the emergence of small logistics start-ups such as Ninja Van and Maxcellents, which tap technology to improve last-mile deliveries. Technology-driven logistics minimises distribution inefficiencies through the consolidation of orders, maximising loading and unloading processes, as well as optimised delivery routes. In some cases, the use of these logistics systems allows crowdsourcing of deliveries among vehicle fleets of multiple companies. The idle vehicle capacity of some companies during non-peak periods is optimised by taking on delivery jobs for other companies, and vice versa.
Additionally, to overcome the rising trend in failed delivery attempts arising from changing demographic patterns as well as inefficiencies in delivery processes, parcel lockers have been rolled out under SingPost, Ta- Q-Bin (in collaboration with 7-Eleven) and Bumbox at various residential estates and convenience stores to allow the pickup and drop-off of parcels. Ninja Van has also recently partnered a myriad of local retail shops to allow parcel collection from stores most convenient for consumers. In fact, a federated locker system serving residential areas was announced by the government in April to improve last-mile deliveries. According to Deputy Prime Minister Tharman Shanmugaratnam, Singapore will probably be the first in the world to provide such a nationwide common parcel locker system.
While Singapore has made progress in catering for the logistics needs of e-commerce, more can be done and more quickly, too, if it is to tap the burgeoning e-commerce market in the region. Moreover, a well-developed e-commerce logistics ecosystem is essential to propel Singapore’s growth of e-commerce.
Tay Huey Ying is head of research and June Yang is assistant manager, research and consultancy at JLL Singapore
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