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[Music] wonderful i think we have quite a few folks on now so let's get started um i'm prob gill i'm an associate partner based out of vancouver and i'll be moderating today's session um i'll be joined by my colleagues scott and tom who will be leading us through the discussion um and as we go along please feel free to submit questions throughout the presentation um so i i can kick us off and introduce myself um so as i mentioned i'm an associate partner based out of vancouver i do most of my work in mckinsey's retail operations practice and i focus primarily on omni-channel supply chain and tech enablement tom i'll pass it over to you thanks prob and thank you everybody for joining us today my name is tom bartman i am also an associate partner with mackenzie i'm based in our miami office and i do all of my work in our transportation and logistics practice where i serve uh players in the supply chain that support e-commerce from end to end from you know the ocean shipping inbound all the way to parcel and final mile and each step in between we're excited to have you joining us today we have a pretty exciting agenda to go through where we'll start by outlining the growth in e-commerce and the opportunity that it provides to logistics companies then we'll share a bit of our perspective on the recent trends and opportunities that we're seeing in the marketplace and then finally we have some time for questions at the end we'd love to hear what's top of mind for you scott would you like to introduce yourself thanks tom thanks rob uh thanks everyone for joining today my name is scott mcconnell i'm a partner with mckinsey based out of chicago i've spent my time at mckinsey virtually entirely serving transportational logistics clients including rail airline trucking companies uh last mile distribution up and down the value chain uh it's been a thrilling last few years in the space to say the least with the growth of e-commerce and as tom said let's jump right in we'd love to share a little bit of our our views of what we're seeing as well as really spend time to to discuss what we're seeing as value drivers in the space and then hear from you so as we've all experienced over the last year kovit has accelerated what was already a very high growth rate for e-commerce volumes across regions in the initial months of covid after wages stabilized consumer spending continued to grow but with a strong mix shift of mix towards spending on goods versus services and that spike created a real new baseline for growth in e-commerce and we've seen that growth continue at the same or higher rate as what we saw pre-coping cumulatively speaking we'd expect volumes to be roughly double what they were pre-covered by 2025. then moving to the next slide a driver of this has been the shift into categories that had previously had very low online penetration so on top of the steep growth of categories that we see on the left like consumer goods household goods that were already e-commerce mainstays categories like grocery furniture have grown exceptionally fast with many consumers signaling that they're going to continue buying uh buying these categories through these channels as their new normal on top of this driving significantly higher volumes in aggregate these categories are also creating a lot more complexity in the supply chain due to their unique requirements whether it be cold chain big and bulky high incidence of returns or white glove delivery service each of these bringing new complexities and nuances to an already difficult supply chain and then lastly layering in consumer expectations around speed and service which continue to climb the average delivery time for an online order dropped over 50 percent from 2014 up to the point of povid and it's going forward expectations our uh consumers are squarely focused on same-day instant delivery uh and that just leaves a massive pressure on logistics providers to deliver quickly and efficiently even more so than they do today and the context here that i've shared in the last few slides it's largely been driven by b2c e-commerce but it would be a miss to not spend a moment talk about b2b e-commerce which in itself is a massive market nearly six times the size of btc globally and showing the same growth trends as b2c consumers what's happening is consumers are bringing their same expectations they have at home to the workplace around speed reliability and experience 94 of b2b buyers do their research online and have a strong preference for suppliers that offer a seamless online experience and so this trend is bearing out in the data where b2b e-commerce has grown at over 12 percent over the last five years leading up to covid compared to just three and a half percent for offline sales and although b2b volumes took a bit more of a hit in covid compared to b2c we're seeing the rates recover and expect e-commerce growth and b2b to continue with the fastest growth coming in durable categories like industrial and automotive goods so against that context in the next slide we want to use this session to explore the impact of this growth in e-commerce uh on a cost-efficient logistics operation we're going to talk about a few things in particular uh fulfillment last mile and returns but before we jump into that just to level set a bit of how we look at the logistics operation ecosystem so when we talk about the ecommerce logistics ecosystem we think about it and talk about it as a string of pearls it's only beautiful if nothing breaks uh it's it's a very tightly knit operation that connects the consumer the seller and oftentimes a variety of physical and digital players that that sit in between and need to do so with a with great efficiency and reliability so on the next slide we lay this string of pearls out a bit and it shows a customer experience that operates really at the intersection of digital and physical flows where a digital shopping experience launches a well-orchestrated set of physical operations to deliver on time as well as to offer increasingly real-time visibility and options for either redirecting shipments or returns succeeding in this space requires a high amount of integration of offerings across both the top half of this chart which more highlights the digital flows as well as the bottom half which covers the physical flows and for the purposes of this discussion we're going to focus more on the trends and opportunities on the bottom half the physical flows of e-commerce and so to frame this discussion it's necessary for us to introduce cost as a constraint so everything we've discussed now growth speed reliability visibility these are all complexity-inducing trends that we've discussed and uh however consumers are becoming less willing to pay for any of those complexity-inducing qualities of the shipment and so this puts logistics providers in a pinch point where they're balancing cost and quality defining quality is speed reliability visibility looking at this illustrative retail p l breakdown logistics cost is about 12 to 20 cents on the dollar for an e-commerce shipment which is compared to about six to eight cents for brick and mortar and this is already a very margin thin business so managing that logistics cost becomes very important and then looking at this over time as it's continued to grow this is the logistics cost has continued to grow even as volumes grow and so what we're seeing is that e-commerce logistics brings a dis-economies of scale due to a few things one being an increase of the products mix meaning that there's more items more complex items that need to be stored and faster speeds means that distribution centers there need to be more of them but also in more populated and expensive locations and also more visibility means that more technology and investment is required to meet those growing customer needs so winners in this space need to find new and innovative ways to meet those needs and do so at lower cost i'd love to to bring my colleague prob in here a bit who spends a lot of time serving shippers and and companies in that space and can bring that voice to the shipping customer thanks scott um so just to add to what scott mentioned from the retailer lens i think with respect to cost trends there's probably two key areas that are top of mind for retailers the first is uh related to last mile um and that's where retailers really see costs rising just given increasing demand and then more limited capacity of some of their gig economy partners in response to that so really looking at diversification within that space for um for example multiple last mile partners um the second key area that we've seen retailers talk about is on the fulfillment side so also seeing cost pressures there wages are increasing and as they're looking towards other solutions so for example um more automated solutions um and other areas uh include for example reducing split shipments and those uh span across both the the last vowel and the fulfillment side so i think key key factor for retailers now is diversification really so um like i mentioned the multiple last mile partners and also having flex capacity um from that standpoint and using a mix of manual mfc cfcs for picking and packing on the poker thanks rob with that let's talk a bit about fulfillment so um this is you know a core activity of the ecommerce supply chain and one that uh contract logistics providers are most intimately familiar with um when we when we look at this you know the first thing that we we like to say is how big is this market and what's driving the growth over time and so what you'll see here on the left side of this page is a projection from 2020 to 2025 of the global contact logistics market size and what we see from this is that even as we include the covit spike that occurred in 2020 into our baseline the online warehousing market is expected to grow at about seven times as fast as the offline market and about three times as fast as the overall so e-commerce and omni-channel related warehousing is a large and increasingly important part of the contract logistics market you know what's what's driving this increase in growth is both the demand that scott described earlier but also just the level of activity required to do this successfully so we know that these orders um are causing more touches per item than traditional bulk delivery if you think about a flow to a brick and mortar retailer that leads to you know about two to three items versus a case or a pallet level flow through warehouses which then requires a lot more activity on a per unit basis both from the picking but also from preparing the item to go out through a parcel channel versus a roll cage i mean increasingly we're seeing contract logistics providers adding value-added services like kidding or slight assembly at the point of fulfillment that allows them to both differentiate their offering relative to their competitors but also increase margins by having that higher uh higher value service provided in service flow interestingly as we look at the landscape of providers of e-commerce fulfillment we're seeing a move to the middle and so the way that we've structured this market traditionally is looking at the core capabilities that a player brings so are they traditionally digital physical or a hybrid of both and then where do they position themselves in the market as both or excuse me as either a logistics backend platform as a market platform that does the front end of the web shop or is someone trying to do it all and what we've seen led particularly by some of the marketplace giants who were the first movers in the space back in the middle of the last decade is an increasing shift to the middle where folks that have traditionally done the front end are adding back end logistics capabilities either through an owned model or more often in partnership with specialist logistics providers and at the same time the folks that have done more the traditional physical flow back end logistics are increasingly moving up the value chain by adding digital components both in the middle layer when you think about order allocation or payment processing and then all the way even to the front where they're actually operating some web shops in some cases and so we expect this trend to continue over time as these players converge in the center to offer one-stop shops particularly for sellers that are less sophisticated and knowing how much of the e-commerce volume is driven by that long tail and that's certainly a growth market for contract logistics when we think about what do folks value when they're looking for a fulfillment provider there are six capabilities that rise above all the others and the the most important that we've seen is really proven capabilities folks that are hiring a logistics provider are truly making in some ways a bet the career decision on on who they choose to hire for that as one missed season at holiday or at peak could really you know prove to be quite costly for an organization and so looking for an organization that has a credible and observable capability that you can walk through you can see in a showcase or a lighthouse it is really a big differentiator that initially surprised me but that makes sense as you start to think about it on those dimensions you know certainly network density and cost enable you to balance the the service level and speed with cost equation and so we see those as quite related with the sense that network density allows you to get closer but it also has its own challenges when it comes to inventory fragmentation that needs to be managed and so as you think about creating an offering that is both dense and gets people close to their market you also need to have a commensurate capability to help them with demand planning and inventory positioning to make sure that it's the right position for the optimal good and it's not just duplicating inventory holding cost which offsets that cheaper last mile expense and then two other areas that were particularly interesting that they rose here is the ability to manage seasonality as we've talked to folks that are procuring contract logistics work um the the need to have an operation that can scale to peak demands is certainly paramount but it's also a function of making sure that you don't lose either the quality or the efficiency associated with that so it's beyond just brute force or you know throwing additional resources at the problem it's about having an operating model that truly can scale to manage that higher volume that you're going to see in those peak periods and then lastly onboarding speed and experience this is an incredibly complex system as scott showed a string of pearls and so for those folks that are selling online having a provider that's able to onboard them quickly at low or no upfront cost is is extremely important particularly as you think about the shift from edi to api feeds with digital native sellers and that's an area that we see logistics providers uh continuing to improve and to add more capability on so when we put all that together there are five approaches you know that we see as really coming to offer distinctive services in e-commerce fulfillment you know the first is is a multi-tenant structure so traditionally contract logistics is a one-off customized solution increasingly we're seeing value and the opportunity for value from adopting more of a multi-tenant structure where you can imagine that inventory and goods are co-mingled particularly if you're using a goods to man type model that enables you to position each good optimally in the flow so that you're not then having inefficiency as people walk to multiple pick faces organized by different customers this allows you to get closer to the consumer for your customers while enabling them to reap the benefits of having only as much space inside of a box as they need related to that is is contract structures so increasingly ecommerce is relying on automation that has payback periods that are uh as long or perhaps even longer than the average length of a contract logistics agreement and so what that requires of the logistics operator is the ability to structure their agreement in such a way that that capex can generate an roi or there's protection for both parties the the shipper and the contract logistics provider for what happens if the contract ends before that equipment has been fully depreciated related that is automation and prop started to talk about this too you know we're seeing more and more folks adopting automation both as wages increase and the pure math of the roi becomes more attractive but also as a way to improve service particularly in the current environment with covid you think about the challenges of operating warehouses where you need social distancing or you have to isolate folks if there's been uh any kind of an exposure or even just higher attrition that i know many of my clients are struggling with right now automation allows you to keep your operation running more smoothly the flexible api based technology this comes back to the speed of onboarding and it really is about both the the traditional kind of connection to the to the warehouse and the erp with the wms but it's also about flexibility in the order management system and what the contract logistics provider chooses to control in the order management system versus what they are taking orders from their customers on and this is going to vary based on the size of the customer that you're working with so for example a small retailer that may have only a few shops and primarily serves ecommerce they want to outsource the order management fully to their logistics provider so that they don't need to think about or worry with where's the order going to route to conversely a well-established large organization that might have numerous retail locations will likely want to retain control over that because they'll need to be able to see whether the order should be routed to a store for a fulfill from store or to the logistics provider who's doing the classic e-commerce fulfillment and then finally you know relationships with the carriers and today's tight trucking capacity and parcel capacity market having more ability to to move things at lower costs is a unique differentiator and for the near-term future that's likely to persist as the shortages of labor are expected to continue from from what we can see today so happy to take questions and i see a few coming in through the q a um as we we get to this at the back but also want to continue our conversation with final mile and i know this is an area that is really top of mind to the shippers the retailers and e-tailers and also to the logistics industry as we've seen increase reliance on the final mile over the past year with people shopping online you know during during covid and the isolation that we've been doing not surprisingly that has translated to quite a bit of growth in the parcel market so this is north america this is number of parcels in billions and you can see the jump that we had in 2020 right about the middle of that chart where we added two and a half billion parcels uh as folks shopped online you know that led to an extreme surge in growth we saw about 14 percent kager from 15 to 20 and the b to c side while b to b was was actually a slight decline not surprising given that folks ordered uh less things through parcel in 2020 but that being said we expect this to continue uh through 2025 as the consumer deliveries continue to outpace the business deliveries and the overall volume strains networks that are already at tight capacity um the big challenge that this poses for these providers of parcel services is that margins on residential deliveries are often a quarter to half those of commercial deliveries so as this mix shifts over time to being increasingly consumer that value equation needs to be offset one of the solutions that we see folks using is price increases in surcharges to to bring that margin more close to the commercial margin for the consumer deliveries increasingly though as we're seeing volumes grow people are also becoming more cognizant of the impact that the final mile has on our society and particularly on our planet and so what you can see here is a vast plurality is looking for increased sustainability in the final mile that includes everything around recycling recyclable packaging to carbon neutral delivery and in fact you know increasing use of alternative methods of home delivery that perhaps don't rely on the specific you know each flow of items that are moved on a carbon intensive platform we expect that over time this is going to continue to become a increasing focal point particularly for younger consumers that shop with their conscience and that look for brands and service providers that are going to fulfill what they believe is a social obligation in addition to a commercial obligation this could have you know pretty significant impacts on parcel operations you know for example carbon neutral delivery the transition to electric fleets requires a pretty substantial change to the way that the final delivery hubs operate uh where everything in their infrastructure has been geared around a uh diesel or a gasoline-based uh fleet having to shift to an electric-based fleet where you may need to do quite extensive modifications to the the power and even up to the power grid and provider delivering into the building you know similarly consolidation of packages on the bottom left uh while that can be very helpful for partial providers because it enables them to increase the density of their consumer packages it also requires in many cases retooling the sortation flow that happens upstream of that final mile so opportunities and challenges that we believe the industry is going to have to grapple with over the coming years what we see folks doing to be successful in this place uh in a space five five strategies the first is you're probably pretty obvious but to the extent that you're able to shift your focus and your capacity allocation to more lucrative segments in a capacity constraint environment that is going to be margin accretive uh to the business and that's going to enable uh a parcel provider to get the most out of their network and out of their physical assets the sustainable technologies we talked a bit about this but really thinking about what sustainability means across many dimensions of the business and it is both the equipment that you have as well as how you operate and you run your processes consolidation of delivery networks you know we see a massive opportunity for advanced analytical tools to continue to drive efficiency in in the parcel space you know while a lot of folks are using them for things like routing in the final mile there's increasing opportunities to deploy advanced analytics further up uh up the chain and using it to do things like for example planning out the labor and staffing levels sortation hubs determining what the optimal mode is for a package to flow on based on probabilistic modeling of how other parts of the network are going to operate all of these are emerging opportunities to drive more efficiency in the business you know moving along the value chain we're seeing a number of players do this um where they're looking to add you know more control particularly upstream and so getting into the fulfillment space where as a parcel player having control over fulfillment allows uh for optimization of more steps in the chain so you can actually choose where to uh pick pack and ship an item from in the fulfillment network such that it complements the delivery network and you avoid for example over stressing one lane while having another lane uh be idle and then finally you know driving down costs or innovative production delivering boats this is the basic blocking and tackling of really taking a clean sheet view to your operation and assessing what could be done if we think about this from a green field solution uh to drive more efficiency in our operation so that's uh what we're seeing happening in the fulfillment in the final mile space i'd now like scott to join us and talk through a bit of the returns logistics space thanks tom so finally today we'll discuss returns and reverse logistics so as we go to the next slide returns are a fact of life in e-commerce not only are returns more likely in e-commerce but the magnitude of that difference continues to grow so what was 25 in e-commerce in this blue chart on the left a few years ago is generally considered well over 30 today with some categories like apparel much higher in terms of a return rate and then similar to speed consumer expectations around fast and easy returns are rising with no turning back as we go to the next page we see what that impact is on retail economics for example we took a retailer with uh illustratively a 14 margin and assumed a 10 return rate which is quite conservative given the figures we discussed on the prior slide and when accounting for the cost of returns and some amounts of residual value from the returned goods the profit margin can quickly drop to two to four percent for this retailer so this what what do they do with this these retailers pursuing opportunities across two axes one is how to make the returns process more efficient and two is about how to maximize the residual value they can get out of the returned goods so the next slide explores the firm former opportunity a bit further now there are multiple drivers of complexity that retailers and 3pls alike wrestle with that are significantly more complex and reverse than forward logistics for starters there's an additional occurrence of the last mile transportation leg and that's to inject the shipment back into the value chain and then once it's received the product needs to be inspected verified potentially tested or even repaired for quality there's a decision that has to be made about disposition and that oftentimes requires someone with uh some level of skill to deliver that to make that subjective decision and then ultimately complete the logistics for resale or disposal so each of these new steps requires some level of talent that's higher than baseline warehouse workers in forward logistics and so it introduces cost however it does create an opportunity for retailers who are ahead of this nascent curve to extract value from reverse logistics on the next slide we have examples of what a few of our clients are doing as they uh they follow three core principles to create value from returns first is to make returns a core offering of their business so what we mean by that is return should be thought of as its own product or a journey similar to the rest of the customer experience where our client is organizing around it putting a team with leaders against it and they are designing the service and the quality of the return experience that customers see and then with that focus team in place they're then building the network to match that design service so that means products are segmented and handled based on the activities required to triage repair and resell that category and then those segments move through a network designed for them in a different way that minimizes touches and ensures that the right talent is centralized to make those subjective decisions about triage and disposition and then finally automating and optimizing the returns process as far forward in the value chain as possible and this is expanding in cases to even mean product redesign is being considered to facilitate fast and effective returns for example adding components or self-testing components to electric goods so that when they're returned they can quickly be triaged to see if they're ready for resale or if they've been excessively used at the end of the day returns have the potential to be a growing and massive cost driver for retailers and it's increasingly being carefully managed but there remains an opportunity for retailers and their logistics partners alike to dramatically change the economics from a couple slides ago to both create value but also a great experience for their customers and that with that we reached the end of our prepared material and again we wanted to save time for q a so we've had a few questions come in i'll let um prob moderate the q a and we'll get the discussion started so feel free to enter any further questions you have using the q a button at the bottom thank you scott um i'll just answer a couple of the more tactical questions up front and then scott i'll pass it back to you um first one was asking about whether or not the slides will be shared after the presentation um and yes we will be sending out a pdf of the document uh second question was around whether or not you will have access to this recording and we will be uploading to youtube it'll take a few days but we will give you access to that as well um first question for you scott uh do you think amazon will start picking up their own returns and potentially picking up other retailers returns yeah thanks rob it's um it's a great question and i mean i'd preface it by saying it's it's impossible to say with any sort of authority or confidence what precisely amazon's going to do next but it can point to a couple trends that we're seeing in the return space and what we're seeing amazon has already done uh one is actively beginning to build returns as an experience right if you've returned something in the last year compared to what it was four or five years ago on amazon it's um self-guided payment received in many cases almost immediately whether it's a credit um or or back to your account which is uh one of the the largest drivers of consumer satisfaction and returns was getting paid back very quickly and also pooling those returns at uh injection points in the network that are easy to get to so to minimize that incidence of a last mile transportation leg so a lot of retail partnerships have sprung up for amazon fedex ups a lot of a lot of players have done this as well so there's there's no doubt there's a move to make returns a more seamless experience i i do think there's an opportunity for i'll use the word an aggregator like an amazon or another large player to pick up other retailers returns as well and that's um you could you could simply point to the economic success of what fulfilled by amazon has been to their business in terms of adding to their profit margin by just delivering their scale to other to smaller customers and retailers that don't have the capacity or for frankly the economics themselves to support a robust and great experience for returns for their customers great thank you scott um tom i'll direct the next question to you um can you speak to trends and optimization in bas kidding and space planning yeah thanks prob i think this is a really interesting space um as you think about how e-commerce is reshaping the way that we consume things so vas would be value-added services um and typically you know what we're seeing in value-added services in the e-commerce space is a increasing bar where previously it had been sufficient to offer um you know some degree of gift receipt for example or light gift wrapping increasingly now we're seeing even even more ability to do packaging particularly around assembly of light items so if you have multiple things that come in into a kit having those stored in the optimal way and then at the last moment the contract logistics provider will actually assemble them into their kit and will package them and ship them out there's also an interesting space here around how folks are consuming you know different categories of things so for example the meal kit space where you're actually doing the sub assembly of the items in a fulfillment center and shipping them out in a continuous flow process we're seeing more and more of that happen as folks shift consumption of things like groceries online um and then increasingly in the value-added services as scott said the reverse logistics and so being able to incorporate the flow of returns back into a fulfillment center where you're doing the triaging the disposition uh putting things into new packaging to go back onto shelves and quickly re-enter the forward supply chain all of these are spaces that you know we would expect to see more and more growth in the e-commerce side and then when you think about the omni-channel side which we've mostly now been talking about digital flows through a partial channel but if you think about digital purchases going into a physical store there could even be you know kidding opportunities around creating things like gift packs or other items that will go onto shelves and are order picked up that way great thank you tom um the next question that came in was how do you see the role of stores in omni-channel distribution going forward i can take that question um so what we've seen from a retailer perspective is actually that now they're thinking more so about their networks more holistically they're not just um fulfilling e-commerce orders from distribution centers or hubs but looking at their holistic footprint across um stores vcs uh fulfillment hubs and then thinking through where it makes most sense to both uh deliver on cost expectations as well as service levels for customers so it's a bit of a balancing act between um getting orders to the end consumer in a very timely fashion and also saving on costs of fulfillment from stores versus vcs and also the last mile um once you incorporate that into your overall cost equation um tom the next question i'll direct to you um do you see innovative players such as shipment ship bob um as credible disrupters of the fulfillment industry thanks rob uh you know i i won't speak to any you know one company directly but but i think as you look at the landscape of emerging providers of contract logistics particularly in e-commerce i i do think there are quite innovative models that are being formed out there you know and the way that this feels like it has the potential to grow into something that could be a bit more disruptive is that a lot of these emerging players are serving very small shippers and these are folks who are operating things like etsy shops and they might even be just one individual with a small business and so they're starting with those folks who typically need uh quite simple solutions that are easy to integrate and have relatively low levels of uh sophistication or demand on what they provide an actual physical flow so it might be slower from click to fulfillment it might be a little more expensive it might not be as fast click to door but it's simple and it's easy for those folks to integrate with now what's interesting to watch over the next few years is going to be will there be companies that start in that small nascent low kind of sophistication that that hit it big and see significant rapid growth and if those folks are able to grow with those companies that uh that you'll find that their solution has really struck a i could imagine that they'll be building their capabilities quite rapidly alongside those few champion e-tailers that they support that could start to create a compelling offering even for you know your more traditional enterprise customers over time great thank you tom scott the next question i'll direct to you um what do you think about quick commerce will consumer expectations of on-demand delivery for groceries and convenience influence the e-commerce fulfillment space yeah thanks problem and actually i'll combine that there was another question that came in around um do you see the uncertainty on gig economy workers regulation as a potential limiting factor for the growth of last mile delivery or so i'll take both in turn um and the answer on its face is absolutely consumer expectations as it relates to instant delivery of grocery convenience and frankly just about any type of good is going to shape uh e-commerce fulfillment and last mile um and there's there's a few unknowns which will drive what direction that moves one of them will be gig economy and gig workers so that the prevalence and the ease with which freelance drivers can can provide that last mile in the moment in the immediate term i think it's going to make it much more prevalent to see instant delivery for just about any type of good over the long term regulation may normalize that but it's more likely to uh it'd be more of a cost and price adjustment like many of us have maybe seen with ubers in the last few months than it would be a wholesale change of the operating so i think i expect it would continue great thank you um tom next question is for you um how are cross-border e-commerce trends reshaping shippers and 3pl fulfillment strategies and economics thanks rob yeah i think this is a really interesting question right so as we're seeing domestic e-commerce rise we are also seeing uh you know substantial growth in cross-border e-commerce and so the way that we define cross-border e-commerce is items that are fulfilled in one country that are shipped through the last mile into another country so the the example that i always use for folks is if if you've bought an iphone recently here in the states you'll likely see that the shipping label that is attached to that iphone comes all the way from the manufacturing facility um you know in china and so that item was stored and held in a different country it was picked and then it was uh shipped via usually a parcel integrator but not always to a different country for final consumption um you know we're seeing quite a bit of growth particularly in the trade where it's over land borders right so you can imagine places like um in in the united states and canada or the us canada and mexico increasingly that occurring similarly in europe uh you know quite a bit of flow where where obviously borders are a bit smaller there and parcel networks are more integrated what we're seeing from this is actually an increasing opportunity to optimize the the total cost across each of the different flows so for items where storage is quite expensive but they're quite value debts so there's a lot of value in each dim weight package you would expect those are going to have an increasing use of cross-border e-commerce as you know they will be stored closer to their manufacture point in larger quantities and fewer locations and then shipped via that last mile much longer than items that are are bigger or less value dense similarly as you think about you know different kind of uh you know mega geographies you can imagine that folks are going to be positioning uh fulfillment in the cheapest locations so our colleagues in europe uh you know are quite familiar with a lot of fulfillment that occurs in poland and then items are shipped into further western europe because the fulfillment operation is so much cheaper to do there and the transportation networks are are so well integrated that they're able to do that at an appropriate and acceptable speed great thank you tom um scott another question for you how big will uh locker structure be in the future do you believe it will increase a lot and are there any big competitors with amazon thanks rob it's a it's an interesting question and lockers have had uh quite a journey over the last frankly five 10 15 years um you know the the challenge lockers originally had i believe at least in the u.s ups and fedex each toyed with this idea about 10 15 years ago and the challenge was high capital cost up front um and still requiring customers to come to a location that was accessible 24 hours but still protected so that the locker was was not at risk for being damaged or risk of vandalism and so where lockers have uh found footing and been successful at scale was um in fixed contained locations like say an amazon has a retail store either manned or unbanned having a locker available or retail captive lockers where large box stores might have a locker for buy online pickup and store at the front entrance that's accessible um i think the the ceiling that would keep blockers from reaching the scale that maybe the larger players thought it could 10 15 years ago is some emerging technology which will come in the future whether it's unmanned vehicles or drones or whatever that future state might be would be the at-scale answer for for not having a shipper absorb the cost of that last mile of delivery thank you scott um tom next question goes to you what are the tactics and strategies related to staff retention acquisition and development of capabilities oh problem that that is uh probably the six million dollar question for many of the folks that i think we're all interacting with um given where the world is today and how um you know how much challenge we're seeing in the logistics space around you know attracting retaining talent um there is no silver bullet to that unfortunately i'd love to say that there's you know one simple trick that if you just do this you're going to see uh you know massive retention and increase in attraction um but what i would say is that this timing of the question is perfect because mckinsey actually just published in our september mckinsey quarterly an article called great attrition or great attraction the choice is yours by aaron desmet bonnie dowling mourinho magai and uh bill sharinger and i would encourage everybody to to quickly google that and give it a read you know has an interesting perspective around the factors that are driving more meaning in people's work leading to more attraction and less attrition so it's not just about dollars and cents it's about creating you know an environment with a sense of belonging with understanding how people's individual work creates value for the customer and for the company overall versus just seeing maybe their you know narrow part of the process and the value chain and it's about creating growth opportunities you know we've seen a number of folks in logistics space adding more uh development programs for folks where for example if you start in a warehouse you can learn how to be a truck driver which has you know benefits for both the individual who is learning a new trade that is often you know better paying and for the client that is seeing increasing access to truck drivers because they're training folks and progressing them up themselves so um no one single bullet would encourage folks to take a look at that article and think holistically then about what's the career that you're offering folks not just what's the job today great thank you tom um scott next question is for you what would your reaction be to a retailer agnostic drive-thru experience to alleviate pressure on the need for home delivery yeah another uh the the core of that question is another six million dollar question is tom alluded to and it's it's the idea of how do you get pull from consumers to come to the package and eliminate that need for home delivery in a world where that would have to be a sub-scale driver doing that today and i mean there's a few examples of companies that are beginning to do this and uh exploring these opportunities that the aggregators at fedex and ups have relationships now with um pharmacies walmart these companies that have a very distributed footprint and uh we're seeing that it's quite successful in a alleviating the need for some home deliveries but it's not to the point where um there's a meaningful shift or it's reducing the number of routes or stops significantly but it is adding scale and it is adding value so i'd imagine a an enhanced experience of a retailer agnostic drive-thru would um would perform incrementally better but it wouldn't it wouldn't have the step change need on that results from consumers expecting something delivered to their doorstep at a higher and higher rate of speed that that need is the consumers are moving in that direction towards i want it closer to where i want it exactly when i want it not further from that point great thank you scott um tom next one is for you do you think that traditional 3pl players are adapting to the new e-fulfillment reality fast enough or are they losing ground especially against large e-retailers like amazon and potentially against emerging startups yeah that's a great question prob uh look i think that it's it's tough because the cycle time is accelerating so fast and you know when you when you include uh some of the big you know marketplaces and e-tailers i i think the challenge that traditional 3pls have with that is the uncertain nature of the contract structure with the the retailer that folks that have insourced this and vertically integrated don't have so for example if you are a uh omni channel retailer who is selling online and has you know massive fulfillment centers it is much easier to make investments and and capital commitments over time because you are the captive provider to you know a an inter-company uh relationship versus the three pl having to make the decision around geez should i open a mega facility with only 10 of the capacity fulfilled today and then try to sell into that over the next year or should i do something much smaller and have 60 or 70 percent of the capacity already filled but then less growth runway that's a much harder trade-off or much harder excuse me financial equation that i think makes it difficult for 3pls to move as quickly as as those integrated players in the space we think with the solutions that or the steps that we recommended earlier today folks can work to accelerate that cycle time and and see more ability to invest on pace with the the folks that they're trying to serve and frankly in some cases are are competing against when they think about the potential to in source relative to hiring a contract logistics provider and then on on the startups you know i go back to the point earlier around to me the real question there is can they develop the maturity of their core logistics functions uh quicker than the traditional 3pls can develop the simple easy to onboard online solutions um that the startups are better known for great thank you scott and tom and thank you to the audience for all of the questions you've submitted um we've received a few more questions that are quite specific in nature so we'll be happy to follow up on those offline um but we really appreciate all of the questions that you've sent our way thanks everyone i hope you've enjoyed this session and uh our emails are here feel free to reach out anytime enjoy the rest of your day