Preview: Global e-commerce logistics outlook

In a few weeks, we will be publishing our latest e-commerce logistics outlook, where we look into what the continued growth of business-to-consumer (B2C) e-commerce means for air logistics. In this analysis, we would like to give you a preview of the findings that have emerged from this year's research. Once published, the report and associated interactive tools will be available here . The big three continue to dominate global e-commerce but there is change is afoot Unsurprisingly, 2020 saw a huge pandemic-induced surge in online sales, and 2021 saw a continuation of this trend. In 2020, gross merchandise value (GMV) grew by 26% to $2.5 trillion from $2 trillion across the world's top 12 platforms and sellers. (See Fig. 1) However, there were big differences across platforms and geographical markets, and there are changes ahead. For the first time, Amazon is now the No. 2 platform behind Alibaba, having surpassed China-based JD.com. Figure 1 - Top E-Commerce Platforms GMV and Growth in 2020

But some of the greatest growth achieved has been by platforms other than Alibaba, Amazon and JD.com. Shopify, a hosting platform for online stores, almost doubled the value of merchandise transacted via its system. The venerable Walmart now generates 12% of its U.S. revenue and 14% of its international revenue from online sales, up from 7% and 10%, respectively, in 2019 and 2020. Mercado Libre, the primarily Latin American platform saw its GMV increase by 50% in 2020. Other platforms, such as eBay, have achieved growth, but it appears they are being left behind due to the increasing level of competition between platforms. Others, such as Flipkart, underperformed due to lack of capacity and prolonged shutdowns. Walmart, which paid $16 billion for 77% of India-based Flipkart in 2018, injected another $1.3 billion into the company in 2020, following a smaller injection of $140 million in 2019. Jumia, the primary African platform, saw its GMV drop by 16%, primarily due to a lack of available capacity into Africa during 2020, which is continuing into 2021. Alibaba achieved solid growth off a high base in China, but may lose out as JD.com and Pinduoduo expand due to tightening regulatory environment. In April 2021, Alibaba was fined the equivalent of $2.8 billion dollars for a breach of antitrust laws due to exclusivity arrangements with merchants. Pinduoduo has surpassed Alibaba in terms of its number of users, which grew 25% to 850 million. Profitability varies across platforms Our research has found that the global and regional e-commerce platforms fall into three categories: Consistently profitable : This includes Alibaba, eBay, Walmart, Target and Otto Group. Rakuten used to sit in this category but has been losing money recently. Becoming profitable recently or in the last years: This includes JD.com, Shopify and, more recently Mercado Libre. Amazon has been making money overall since 2015, but profitability varies greatly across business segments and geography. Its North American business tends to generate margins of about 4% to 5% of net revenue, which is not great. Consistently unprofitable: Most of Amazon's international business falls into this category. Even though the international business overall turned a corner in 2020, Europe and India, for example, continue to lose significant amounts of money. Other platforms that fall into the unprofitable category include Flipkart, Jumia and Wish. The reasons for the differences are complex, but one key factor is how fulfillment and shipping costs have developed relative to revenues. Building out scale and service capabilities requires substantial investments. The interesting lessons come from those platforms that have turned a corner. Our report will delve deeper into this topic. Air is a defect? Amazon says air is a defect, but by the end of this year it will operate a dedicated fleet of 100 aircraft in the US, Canada and Europe, and further growth is on the horizon. So far, Amazon has been unique in its use of dedicated air capacity, and in many ways its inventory-carrying network has created a new segment for the cargo business, much like what low-cost airline pioneers did in the passenger business. Mercado Libre is the other platform that now has four aircraft — two in Mexico and two in Brazil — flying in its colors. These operations commenced in 2020, and look like they may well outlast the pandemic. So far, getting into dedicated airlift capacity is not a trend that has gone viral in the e-commerce business. Other platform usage of air cargo is more indirect; Spicejet carries domestic e-commerce in India, and Alibaba/Cainiao and JD.com partner with a handful of Chinese carriers, in some cases where there is also a small equity investment. JD.com has been in the process of setting up its own airline, but so far nothing substantial has risen out of the planning room. Intercontinentally, air is less of a defect in inventory management, but a necessity to meet basic service commitments. Alibaba's $5 for 10-day delivery service and $10 for five-day delivery service required air consolidations on long-haul routes. The same is true for JD's strategy of 48 hours to the destination country. This has led to long-term charter opportunities for airlines, particularly from China to Europe and China to North America. Contrary to normal forwarder gateway operations, the requirement to fly into the big hubs is not a huge factor, in terms of choice of location. Given that most cross-border e-commerce moves in the form of airfreight consolidations, this is creating additional cargo growth for airlines. In a normal year, more than half of express traffic is B2C traffic, although the share was much higher in 2020 at around 65%. Additional online shopping has generated more traffic, particularly through domestic air networks. The chart below provides an overview of the B2C traffic share for the major global and regional express companies, as well as our estimates of how much of each company's traffic is moved through their air networks. Figure 2 - B2C vs Air Share of Shipments, Major Global and Regional Express Carriers

The bigger the ground network, the higher the B2C share; while we have seen significant B2C-driven growth of air shipments, lower-cost ground networks are the main means of e-commerce fulfillment. For example, U.S. domestic express yields average between $13 and $20 per shipment, and international yields are around $50 to $60 a shipment, which does not lend itself to a market where customers expect to receive free shipping. UPS, in particular, is very reliant on Amazon. In 2020, 18% of Amazon's shipping spend was with UPS, and the express company generated 13% of its revenue through Amazon. That kind of exposure is problematic, but for more air-focused companies like FedEx or DHL, that would be a bigger problem. The good news is that more competition and less concentration in the e-commerce platform space will be good for the major express companies.

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Preview: Global e-commerce logistics outlook

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