Next in the Property Futures series: E-commerce has had a substantial and well documented impact on bricks and mortar retailing, yet in the logistics sector - particularly downstream, closer to the final receiver – we are merely at the beginning of a period of flux as logistics operators and retailers adjust to the new reality.

Amazon.com sold its first book from Jeff Bezos' Seattle area garage in July of 1995. The book was ‘Fluid Concepts & Creative Analogies: Computer Models of the Fundamental Mechanisms of Thought. ‘

We’ll revisit this fact later, but clearly online retail has come a long way since this point – as has Amazon! In the UK, online sales have clambered from less than 1% of total retail sales in 2000 to over 11% in 2014. The impact we have seen has been dramatic, particularly for bricks and mortar retailing. But we need to be cognisant of the fact that, even with the rate of online sales growth seemingly slowing in 2014, the effects for the property market are far from over.

On the logistics side of the equation, the industry - a few titans such as Amazon and John Lewis aside - has often been getting by repurposing existing stock and engaging in quite inefficient behaviour in order to grab market share at the expense of profitability. 

This issue of private sector inefficiency is now beginning to rub up against the ‘public good.’

For example, Transport for London (TFL) has become increasingly concerned regarding the number of goods vehicles on London’s roads, with £200bn worth of goods moved every year, serving both the expanding home delivery market and the more traditional business to business model. That substantial figure is expected to rise strongly as the city’s population and economy continue to expand.

TFL’s £4bn Road Modernisation Plan running from 2014-2022 will no doubt add further disruption to London’s roads, and consequently it has plans to reintroduce the very successful Olympic Games style approach to freight, whereby retiming deliveries outside of key hours and freight consolidation will be encouraged.  The end results of both will be lower driving hours and fuel costs to deliver a set number of goods, and lower emissions and a less congested urban environment; i.e. benefits across the commercial, environmental and social spheres.

This brings us to the thorny issue of freight consolidation. There is mileage in the notion that the efficiency of logistics could be improved by more upstream consolidation of freight; before its delivery downstream to retailers and customers. The idea of urban consolidation centres (UCCs) has been trialled for some time, and in many cases found to be economically unviable.

However, the concept and practice continues to move forward. Why is this? First, public authorities recognise that the benefits are not simply commercial e.g. assisting the efficiency and profitability of suppliers, logistics providers and retailers.  The private sector’s use of UCCs generates positive externalities that mean public subsidy can be justified. On the commercial side, the worm is also starting to turn. E-commerce has gone from a side operation to a major part of retailers’ offerings. This means both a larger impact on overall profitability but also that a point is being reached where economies of scale can make further investment in logistics viable.   

The London Boroughs Consolidation Centre offers an interesting case study into the benefits of such an operation. The pilot project, supported by EU funding, has resulted in over 80 council suppliers delivering their goods to a 2,000 sq. ft. consolidation centre operated by DHL in Edmonton, North London, on behalf of Camden and three other north London boroughs.  The pilot saw 50,000 items delivered to over 250 council buildings, resulting in a 46% reduction in the number of vehicle trips and a 45% reduction in kilometres travelled. The success of the project means Camden and its partners are seeking a logistics partner to deliver the service on a commercial basis, with the scope potentially widened to incorporate Business Improvement Districts, schools, universities, other London Borough councils, and retailers.

Now, a 2,000 sq. ft. pilot project might seem a small start. But remember Amazon’s humble beginnings.  

For more information, read the full Property Futures.