E-Commerce shifts business gears

Published: Wednesday, May 11, 2016

E-commerce has revolutionized not only how we buy things but also how businesses interact with each other. Thisis specifically true in the case of Middle East whereE-Commerce has become more of a norm.

The UAE’s e-commerce sector is growing tremendously, including its logistics and warehousing industries. Many businesses across the region are either investing in expanding their in-house storage and handling capacity or subcontracting it to third parties.

Various studies have indicated that e-commerce in the UAE, which is the largest e-commerce market in the Middle East, is growing at a fast pace. According to Frost & Sullivan, the country’s e-commerce market is worth nearly $2.5 billion a year and is expected to grow to $10 billion by 2018.

A booming industry

Tiby Varghese, Managing Director of Verks Global Logistics noted, “E-commerce industry in the UAE, is purely driven by three factors –Infrastructure, buying power of the consumers and technology. These factors have given an edge for various e-commerce companies to set base here, thus trying to tap into the ever growing business sector.”
Geoff Walsh, Country Manager, DHL Express UAE, said, “The e-commerce industry, in general,is driven by two main channels – the B2B and B2c models. Each model has its unique framework and market drivers that overall contribute towards the industry. When it comes to B2C, the primary drivers would be the mass consumerism approach of individuals, whereby the need for purchasing commodities and services online is what drives revenue. This is mainly done through your online retailers such as Amazon, Ali Baba on a global level and Souq.com, Marka VIP, etc in this part of the world. On the other hand, we have the B2B model which is more of a niche model that does not rely on the mass market, rather specialized vendors that offer services and products online for businesses to drive efficiencies.”

Logistics redefined

Logistics has always been evolving in time, the biggest challenge of logistics has always been how to deliver in time and how to reduce the gap between the supplier and the consumer. E-commerce today has made it even more challenging for logistics industry by creating a single window access for the customer to connect multiple vendors and their products. As the gap has tremendously shortened, logistics activities have to be redefined and redesigned.

Geoff Walshnoted, “Nowadays, everyone is looking for convenience and streamlining any red tape or bureaucracy and this is extremely evident in the e-commerce industry, whether it is the B2B or B2C model, customers want their items delivered faster, easier and at a more convenient way and timing for them. That is where the future of logistics is shaping the industry and that is what DHL is investing in.”

David Buckby, an economist at Ti, said, “It is no secret that e-commerce logistics is growing considerably faster than other logistics markets – be it freight forwarding, contract logistics or express. Emerging market e-commerce growth is rocketing along and even most developed markets are growing in double digits. However, there are significant challenges for logistics providers to surmount. For one, it is not clear that online retailers are increasingly outsourcing e-fulfilment operations: a huge slice of pie is being left in-house. By far the biggest obstacle, though, remains to get e-commerce logistics services, especially last-mile delivery, to generate sustained profits. Any provider who establishes a strong reputation in the field and finds a formula which yields a consistently decent margin is set for years of success.”

E-commerce transformed

DHL Express UAE believes that Big, Data, Low-Cost Sensors and the Last Mile Delivery supported by automation are the leading platforms that will change the way Logistics supports the e-commerce industry.

Low cost sensors: Head-mounted devices, Gate system and Mobile System
Low-cost sensor technology is definedas sensor technology originally developed for consumer applications. Competitive and low cost because of economies of scale, these sensor technologies enable new applications or allow more cost-effective utilization of sensing in production and logistics processes and environments.

Big Data

• Operational efficiency is to increase level of transparency, optimize resource consumption and improve process quality and performance;
• Customer experience is to exploit data to improve customer loyalty and retention, perform precise customer segmentation and to target and optimize customer interaction and service;
• Capitalize Data on expanding revenue streams from existing products, creating new sources of income from entirely new data products.
Last mile delivery

• Support vehicles for letter and parcel deliveries – A significant inefficiency in the process of delivering letters and packages to their final destination avoiding the need for long-distance walking. Alternatively, self-driving parcels capable of controlling its integrity and appropriate handling to find its way directly to the recipient
• Self-driving repositories – Another attractive solution for the future of last-mile delivery is the concept of the ‘self-driving Packstation’. In future, the Packstation could autonomously come (closer) to them or be reloaded independently
• Autonomous shared cars – Self-driving vehicles for private use could similarly be deployed as shared resources. They could; Customers can order goods online and book a stand-alone shoppingcar.
• Assisted driverless car for assisted deliveries could be used. The delivery person drives the vehicle out of the depot to the first point of delivery, and the driverless car follows autonomously.

Online retail sector growth

There is no doubt that the online retail industry is growing very quickly especially with the current trend of customers wanting convenience and ease of use when it comes to interface. For example the need of having a mobile platform, where all transactions can be done seamlessly on your smartphone. This trend by itself will drive the overall e-commerce industry to new heights over the next 5-10 years.

Mr Varghese added, “The three combination factors is the reason for the growth of online retail. Retail companies are opening up to their mindset to accept the concept of having a virtual retail outlet. They also realize this platform helps them to reach a wider market, give them a better display of their products, establishing a virtual retail outlet for the fraction of the cost incurred to set up a physical store. Although the concept is still young in this market. The realization has today helped the e-commerce industry to transform into a booming industry.”
Ti’s David Buckby said, “The core drivers of such an impressive growth rate are the relative nascence of e-commerce, as well as the fact that online retail sales as a proportion of total retail sales (online retail penetration) are consistently increasing in virtually all markets year-on-year. Online retail sales growth in 2015 exceeded 10%, even in many developed e-commerce markets such as the USA, the UK and Germany. In emerging markets, online retail sales growth was considerably higher.”

Evolving supply chain management

According to Lilith Nagorski, Head of Research at Ti, online marketplaces and the adoption of omnichannelstrategies mean the distinction between B2C and B2B markets has become blurred. By replicating B2B strategies, the B2C providers could guarantee higher levels of delivery success, but this is only part of the solution.

Logistics and supply chains also need to respond to the challenges created by the evolution of the sharing economy business model.

Mr Walsh highlights the use of robotics, automation and the investment in technology in enhancing the efficiencies (savings) when it comes to the supply chain e-commerce businesses and their logistics needs, which will overflow for quicker and cheaper services to their customers.

Mr Varghese reiterated, “Supply Chain process has been regularly redesigned as per the e-commerce client requirement. Everyone needs a process in a nutshell. Earlier it was difficult. However, now as the time passes by, several stages in the supply chain process have been reworked starting from the collection to delivery and the time frame involved in carrying out the operation has been drastically cut down. The evolution of supply chain has been splendid since the commencement of e-commerce.”

E-commerce growth region

E-commerce has been growing tremendously in Western, European and Far East sectors. However, in the middle east, UAE will top the list for electronic commerce growth. As many new companies are entering this market, along with year or year, population growth of the country is favoring the growth opportunities of e-commerce in the country.

Mr Walsh noted, “I think the MENA region has much potentials and will experience a lot of growth when it comes to e-commerce industry and again driven by the rise in need and reliance on the mobile platform across the region.”
Accordingly to a recent study conducted by Google’s consumer barometer, three global audiences were identified: Millennials (Internet users 16-34yrs), Digital Moms (female Internet users with children under 18yrs), and Brand Advocates (internet users agreed to ‘if there is a brand I love, I tend to tell everyone about it’).What they all have in common is that mobile plays a crucial role in the research process of the purchases they make.

Mobile matters more to Millennials in the region compared to global, where 82% of under 35s in KSA and 59% in the UAE researched their last purchase on a smartphone.

Digital moms are well-informed and highly connected where 22% in both KSA and the UAE prepared for purchase using their smartphones, very close to 26% of digital moms globally.

In the UAE, 15% of Brand Advocates use their smartphones to research something they are just about to buy in-store and the figure is 26% in KSA.

Business turning into logistics

According to Mr Geoff, e-commerce business turning into logistics has yet to be seen how it will unfold. “Of course, we have all heard about how Amazon is looking to having their fleet of aircraft to deliver their products across the world. However, I think there is more to logistics than having your planes. It’s the processes, products, cross-border intelligence and solutions that you can offer rather than have standardized approach and this something that takes decades to perfect and acquire in order to deliver world-class logistics solutions similar to DHL.”

Mr Varghese affirmed that e-commerce business is moving towards countries where logistics industry has developed or is advancing. Logistics is one of the key factors that drive e-commerce business, without which e-commerce business does not survive. The logistics industry is a critical component of an economy, and it is highly integrated into the system to ensure a country’s economy is consistently growing. Lack of logistics in an economy has always deprived the growth of a country and this business in it.

Future of e-commerce

The future of e-commerce in the Middle East is bright. Successful stories of local and international brands are paving way for others to follow. More importantly, they are encouraging and building trust in online shopping in the Middle East and converting Internet users to online shoppers.

Mr Varghese concluded, “Currently; the market is volatile, logistics activities has been affected. However, it would be a good time for investments in logistics. Reasons being by the end of 2016, market will start to move in the upward trend. Although it will not be steep growth, it would gradually grow in 2017. The right investment today will reap good ROI in the coming years.”