Last link of ecommerce accounts for half of total supply chain costs – 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 €1million 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 eCommerce 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% to as low as 32%.
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