Last link of eCommerce accounts for half of total supply chain costs

Simon Lloyd, Partner, Logistics & Industrial Agency, Cushman & Wakefield in Birmingham

New research from global real estate services firm Cushman & Wakefield, reveals the last link of the eCommerce supply chain can account for 50% or more of total supply chain spend.

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.

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.

Simon Lloyd, Partner in Logistics & Industrial at Cushman & Wakefield’s Birmingham office, said: “Whilst the East and West Midlands region continues to witness a 3.9% annual average rent growth in prime industrial stock, our latest research demonstrates that cost in the logistics supply chain is in fact dominated by transportation, which accounts for over half of the total logistics cost.

“Accordingly, the importance of well-located last link distribution warehousing is placed into greater focus, as a means of helping occupiers reduce such costs and optimise their supply chain efficiencies. The importance of proximity to the customers and new infrastructure projects, highlight the benefit this will provide in reducing STEM distance (time between the depot and first delivery point) into the nearest urban catchment it primarily serves and particularly using various transport types and alternative fuels cannot be understated.”

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%.