shipping news: the implications of electronic commerce for logistics and freight transport

Shipping news: the implications of electroniccommerce for logistics and freight transport

Markus Hesse *

Department of Earth Sciences, Geographic Sciences and Urban Research, Free University of Berlin,

Malteserstr. 74-100, 12249 Berlin, Germany

Accepted 24 June 2002

Abstract

The paper considers the significance of electronic commerce (e-commerce) for freight

transport, logistics and physical distribution, regarding both business to business and business

to consumer commerce. The possible implications of e-commerce are analysed in the broader

context of structural change, going beyond narrow assessments that overstate the significance

of e-commerce and its potential to make freight traffic more efficient. The main argument of

the paper is threefold: first, most recent analyses of freight transport and logistics implications

of e-commerce are overstating the current relevance of e-commerce applications on the one

hand, and neglecting the influence of the underlying structural change in the entire logistics

system on the other. Second, conventional analyses of certain efficiency benefits of e-

commerce are probably too optimistic, whereas its negative effects are underestimated at the

same time. E-commerce is likely to support longer transport distances and often higher

delivery frequencies, increasing demand for land, due to the establishment of new

transhipment points (distribution centres) and, to a certain extent, a shift towards truck

and air freight transport modes. Third, e-commerce and IT are interrelated components of the

structural change in distribution. They affect the environment in terms of vehicle miles, related

emissions and energy consumption, by speeding up the time and increasing the geographic

area of transport operations. Whether e-commerce contributes to a more efficient distribution

system or not very much depends on particular regional circumstances, such as consumer

habits, delivery modes and population density. Overall, there is some evidence that e-

commerce is likely to reinforce longstanding trends of transport growth, rather than breaking

them. Future research should investigate e-commerce more comprehensively, in relation to the

entire distribution system and to its application in firms and households. This would also be

* Tel.: �/49-30-838-70209; fax: �/49-30-838-70749; http://www.geog.fu-berlin.de/�/teas/

E-mail address: [email protected] (M. Hesse).

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Keywords: E-commerce; Logistics; Physical distribution; Freight transport; Warehousing; On-line retail;

Home delivery; Environment; Land use; Traffic generation; Structural change; Corporate re-organisation;

User behaviour

1. Introduction

This paper addresses the implications of electronic commerce (e-commerce) for

logistics and freight transport operations. Whereas major transport-related analyses

in the context of e-commerce are focussing on passenger transport, this paper

investigates the physical distribution (PD) sector. PD comprises the entire system of

goods handling and goods movement. The question is to what extent this sector is

influenced by e-commerce. Similar to recent discussions on passenger transport, a

popular perception of the potential effect of e-commerce on logistics and distribution

is driven by conventional wisdom: It suggests that the electronic transfer of

information through an optimised logistics system would lead to more efficient

transport operations*/by cutting out ‘unnecessary’ transactions, by avoiding

redundant traffic flows and by eliminating under-utilised infrastructure (Meyer,

2001). Electronic exchange would make the logistics market transparent and allow

for optimal organisation and allocation of transport services (Song and Regan,

2001).The situation is much more complicated than conventional wisdom would

indicate. E-commerce is an outcome of the interplay of technological innovations

and their adoption by certain users (firms, households), leading to particular spatial

consequences (goods flow, transport operations, facilities, infrastructure). This needs

careful consideration. With regard to the spatial implications of new information

and communication technologies, (Graham and Marvin, 1996) distinguished several

approaches to investigate the broader relationship between technology and society

(Graham and Marvin, 1996, 79). One approach was characterised as ‘technologically

deterministic’, highlighting simple impact- assessments that may result from new

technologies. In this respect, common assessments of e-commerce within freight

operations are based upon modelling exemplary logistics chains and measuring the

concrete transport and environmental impact caused by average vehicle operations.

In a prototypical case, the traditional way of book merchandising at a neighbour-

hood store was compared with on-line purchase and related delivery operations

(Matthews et al., 2001, 2002). The comparison concluded that the Internet-driven

supply mode appeared less transport-, energy- and emission-intensive than the

traditional way had been. This kind of investigation leaves many questions

unanswered: impact assessment as shown above appears to be too narrow in focus,

because it ignores many conditions responsible for the current systems’ performance.

The goods distribution system in most of the industrialised countries has been

undergoing profound changes over the last two decades. The introduction of supply

M. Hesse / Resources, Conservation and Recycling 36 (2002) 211�/240212

chain management and its integrated*/instead of selective*/approach to corporate

re-organisation has fundamentally changed the entire system of goods processing

(Bowersox et al., 2000). E-commerce appears as an extension of that trend, and has

effects relevant for information exchange and, probably, for goods movement as

well. But, at least recently, it represents nothing new for how goods are being

handled and moved in economy and society. And the future prospects for some e-

commerce applications are now regarded far less optimistically by most observersthan they were 2 years ago, since a remarkable number of on-line retailers (‘e-tailers’)

have gone out of business.

With respect to both the complexity and volatility of the subject, this paper follows

another approach named by Graham and Marvin for covering the relationship

between technology and society. It is associated with the idea of technology as

socially and politically ‘constructed’ (Graham and Marvin, 1996, 79). This is due to

the very specific adoption of new technologies by individuals and within society. The

possible effects of technology are regarded as multifaceted and basically open, to alarge extent depending on cultural and social practices and political regulation.

Consequently, this paper considers logistics and freight transport implications of e-

commerce in a broader context, taking into account the structural change and

corporate strategies of re-organisation and re-engineering, within the generic

framework of logistics development. Beyond that, it sheds light not only on vehicle

miles and emission assessments but also on land use requirements, social costs and

the way they are subject to cumulative causation. The paper should help readers to

better understand the distribution system and the way it is being operated bysuppliers and customers, and certainly encourage them to evaluate the entire

transport and environmental implications more carefully. In doing this, the paper

reflects the observation that e-commerce is more than just a tool for optimising

goods flows: It is a basic element of a newly emerging ‘sphere of circulation’, the

system of information, finance and goods flows that is both a fundament and an

outcome of the network economy (Castells, 1985, 1996)1. As a consequence, the

question whether e-commerce is good, bad or neutral for our freight transport

system and the environment cannot be answered without keeping this framework inmind.

2. The development of modern distribution systems

By definition, the system of PD is the collective term for the range of activitiesinvolved in the movement of goods from point of production to final point of sale

(McKinnon, 1988). It comprises all functions of movement and handling of goods,

particularly transportation services (trucking, freight rail, air freight, inland water-

1 Whereas the term ‘circulation’ is grounded in Marxian theory, the current performance of

information and commodity flows very much refers to the notion of the ‘space of flows’, which was

first introduced by Manuel Castells in 1985 (14) and applied in his concept of the ‘network society’.

M. Hesse / Resources, Conservation and Recycling 36 (2002) 211�/240 213

ways, marine shipping, and pipelines), logistics and warehousing service (e.g.

consignment, storage, inventory management, packaging), wholesale and, in

principle, retail as well. ‘It is the job of PD to get the right assortment of raw

materials and finished products to the right location in an efficient manner timely to

marketing and manufacturing requirements (Bowersox et al., 1968).

Corporate logistics used to be divided into three functions: supply, production and

distribution. Many firms are now following a more integrated approach, which

emerged as a result of the upcoming demand for flexibility. Earlier applications of

this organisation principle were developed within the concept of lean management,

primarily in manufacturing (Womack et al., 1990; Harrison, 1994). The flexibility

and integration perspective is now directed towards the whole supply chain. Time

has become critical in value creation. Recent developments of logistics and PD are

an outcome of economic structural changes, and in turn, logistics is going to

influence structural changes as well. These changes comprise as follows:

Sectoral changes, i.e. the rise of service economies, the increasing share of goods

with high value and low weight, the upcoming high tech and knowledge based

sectors.

Globalisation, which means (i) the spatial expansion of the economy, (ii) more

complex global economic integration, (iii) the upcoming network of global flows

and hubs.

A power shift in market relations from a supplier-dominated to a buyer-oriented

market, associated with completely new landscapes of interfirm competition.The politics of deregulation and liberalisation (effective for the US in the late 70s

and early 80s, for Europe since the introduction of the Single European Market in

1992).

The introduction of new information and communication technologies that allow

for the integrated management and control of information, finance and goods

flows.

The flow-oriented mode of corporate management and organisation affects almost

every single activity within the entire process of creation of value (Bovet and Martha,

2000). The backbone of this highly segmented structure is the supply chain, the time-

and space-related arrangement of the whole goods flow between supply, manufac-

turing, distribution and consumption. Its main components also represent the major

actors in this interplay, the supplier, the producer, the distributor (e.g. a wholesaler,

a freight forwarder, a carrier), the retailer, and the end consumer. Prototypically, one

of the primary changes associated with electronic commerce in terms of logistics is

the process of disintermediation, leading to a reduced number of members in the

distribution channel, compared with traditional supply chains (see Fig. 1). What

used to be processed from the manufacturer through wholesale and retail to the

customer (either a firm or the private consumer), is now going a different way,

probably by eliminating one or more of the costly operations in the traditional

supply chain organisation (Abbey et al., 2001). Delivery modes are thus changing as

well.


The intermediate character of logistics is not new. It has already been stated more

than 30 years ago: ‘If the physical distribution mission is aborted, little happens of a

profitable nature. Thus, physical distribution is concerned with a vital area of

corporate activity. The totality of the physical distribution process constitutes one of

the main operational efforts of the firm’ (Bowersox et al., 1968). A major

requirement of the implementation of PD was the invention of modern information

and communication technologies. Features like electronic data interchange (EDI),

the automatisation of product flow in dedicated warehouses and distribution centres

(DCs), or the recent computerbased tracking-and-tracing systems (which offer on-

line insight into the status of your shipment via the web) are primary sources of

enormous productivity gains over the last two decades. The standardised container,

which industrialised trade and transport, also improved productivity enormously.

An important requirement for the successful implementation of these innovations

was the expansion of traditional infrastructure such as highways, terminals and

airports. Thus, the material foundation for the contemporary ‘network economy’ is

based both on modern logistics and on traditional asphalt and concrete.

In order to identify the really ‘new’ contribution of electronic commerce to

business management it is useful to look back at previous applications of

information technology (IT). Corporate strategies in PD were primarily associated

with two technological innovations. They were developed in the late 1970s/early

1980s and almost revolutionised logistics: the bar-code and EDI. Both allowed for a

completely new operation of inventory management, adjusting the entire material

management according to customer’s demand and thus reducing inventory costs

substantially (Abernathy et al., 2000). The main disadvantage of bar-code-based

Fig. 1. Conventional and Internet driven supply chain.


inventory management and particularly EDI-appliances was their high price and

non-standardisation. Both reasons led to a limited degree of implementation, since

only large firms could afford to invest in these systems. With the emergence of the

Internet, the situation changed dramatically: prices went down and acceptance

increased accordingly, while the http-protocol functioned as the main common

standard for all web-suppliers and users. Now the web has become a major

rationalisation tool, not only for individual firms and their subsidiaries, but also formanaging the entire producer-customer relationship. The accelerated pace of

technological innovation contributed to further changes, for instance by introducing

Global Positioning Systems (GPS) that allow for identification and both efficient

and flexible routing of vehicles in a way that was not known before.

3. E-commerce applications and performances in logistics

The term ‘electronic commerce’ primarily refers to the exchange of informationand to transactions between different commercial agents, such as firms (also called

business-to-business electronic commerce or ‘B2B’), which is different from the

relationship between firms and consumers (business-to-customer electronic com-

merce or ‘B2C’). Transactions between governments and other agents are omitted in

this paper. Among the firms practising e-commerce are both general manufacturers,

retailers or wholesalers (who are now developing additional distribution ‘channels’

and thus trying to optimise their market performance) and completely new, IT-based

firms, who are concentrating on webdesign, IT applications, or pure on-line retail.Among bookstores for instance, ‘Barnes & Noble’ is an example of the former, and

the largest Internet retailer Amazon.com represents the latter. Regarding the

organisation of e-commerce transactions and PD, it is extremely important to

distinguish between customer-related activities, such as order receiving, sales and

marketing (the so-called ‘front end’ of e-commerce), and the processing and

shipment of the ordered goods (the so-called ‘back end’). The latter also includes

PD*/the management and movement of goods to fulfil the customers’ needs.

Most innovations by e-commerce refer to the ‘front end’: the way goods or servicesare being ordered by customers, and how they are successfully marketed in a highly

competitive environment. The Internet functions as a main platform for information

exchanges, transforming them into market transactions. Particularly in B2B

relationships, this procedure offers certain advantages to both sides: The supplier

receives orders with a substantially higher degree of reliability and often predict-

ability. Business customers can accelerate the entire ordering process, receive

delivery faster, and are able to follow the status of their order on-line. Changes

can easily be processed within a fraction of the time required before. Large firmsexperience greater market transparency (offers, prices) and are able to increase their

purchasing power, in order to achieve overall cost reduction. For the B2C

relationship, the degree of change appears more limited: what once was ordered

by phone or fax is now being transmitted through the computer and processed via

the Internet.


Totally different from these ‘front end’-operations is the way electronic commerce

affects the ‘back end’ of the supply chain and of the PD process. It appears that this

field of transaction has undergone only minor changes so far. Even the most

prominent web-retailers often did not spend much attention on PD, which often

raised costs and caused severe logistical problems. The ‘back end’ practices of

delivery are in many cases not much different from the way goods were being

shipped 5 years ago. Since B2B and B2C operations differ significantly in terms ofstructure, operations and potential outcome, some key features are discussed

separately as follows.

3.1. B2B electronic commerce

According to recent OECD research, about 70�/85% of all electronic commerce

transactions refer to business-related exchanges (OECD, 2000). The ordering and

supply system within interfirm relationships comprises the bulk of e-commerce. The

advantage of B2B e-commerce for companies is that it offers almost perfect market

information and the opportunity to re-allocate the vast purchasing power of firms.

The cost reduction potential of this kind of e-commerce is estimated to be

tremendous. A widely recognised study by Goldman Sachs established that B2B e-

commerce is likely to contribute to cost reductions of up to 40% of corporateexpenses in selected US industries (Brooks and Wahhaj, 2001). The Goldman Sachs

study estimated that the freight transport industry would be able to mobilise cost

reductions amounting to 15�/20% of current expenses (see Table 1). This rate is only

exceeded by the savings available to the electronic components (29�/39%) and forest

products (15�/25%) industries.

Table 1

Potential cost savings from B2B e-commerce in the US, by sector

Branches Cost savings (%)

Electronic components 29�/39

Machining (metals) 22

Forest products 15�/25

Freight Transport 15�/20

Life sciences 12�/19

Computing 11�/20

Media and advertising 10�/15

Aerospace and related parts 11

Steel 11

Chemicals 10

Oil and gas 5�/15

Paper 10

Health care 5

Food ingredients 3�/5

Coal 2

Source: Martin Brookes and Zaki Wahhaj, ‘The Shocking Economic Effect of B2B’, Goldman Sachs

Global Economics Paper: 37, 3 (February 2000).


The immense economic potential of B2B e-commerce to lower production costs

is*/among other factors*/primarily based upon the opportunity of a complete

breakdown and cost efficient re-organisation of the supply chain (Reynolds, 2000).

Most common e-commerce applications in distribution, either in the logistics

industry or in manufacturing and retail, relate to:

�/ order processing and fulfilment,

�/ warehouse and inventory management,

�/ fleet management, vehicle routing,

�/ freight brokering (e-marketplaces),�/ electronic payment.

In this respect, e-commerce is likely to reinforce the cost saving potential of

integrated logistics concepts. This is exemplified by Drager Sicherheitstechnik in

Lubeck/Germany, the winner of the German Logistics Award in 1999. The medium-

sized company (about 2600 employees worldwide) specialises in manufacturing

safety devices such as respiration protection technologies, mobile measurement

technologies, gas detection instruments and sensors. By introducing the Safety

Technology Integration Logistics (STIL) system, the company has managed to

reduce its stocks by 24%, to raise its delivery punctuality to 90%, to streamline the

number of sales items (from 25 000 to 8000) and to standardise many of its parts (the

number of types and parts has been reduced from 22 000 to 10 000). The impact of

the new logistics system on profits was remarkable: The firm’s earnings (before

interest and tax) rose from DM 17.4 million in 1997 to DM 32.3 million in 1998,

directly related to supply chain improvements (Drager, 2000). The potentials of B2B

e-commerce for cost reduction are considered so attractive that even competitors

make joint use of e-commerce. Some of the largest automobile manufacturers

founded the ‘Covisint’ platform, in order to streamline their supply chain, to reduce

complexity (redundancy) and to lower purchase cost. A basic promise of ‘Covisint’ is

to reduce automotive development cycles from currently 4�/6 years to 1�/1.5 years

(Cassinfo/ProLogis, 2000). In the distribution business, information exchange by e-

commerce helps to improve inventory management and order fulfilment. Thus

facilities and vehicles are used more efficiently and many processes are at least

partially more predictable. At the same time, these technologies allow for a more

demand-side, short-term oriented and thus unpredictable order behaviour. This can

cause severe impacts on the reliability of business services as well, and may therefore

hamper the firm’s performance in an increasingly competitive, time-sensitive

environment.How far B2B e-commerce applications are in fact implemented in freight and

distribution businesses is not yet precisely known. Information management and

integrated processing of the entire supply chain are supposedly used to a large extent,

particularly by medium sized and large firms. Inventory management is increasingly

enforced with the assistance of handheld devices (as is routing or scheduling), even if

that may not be regarded as a direct outcome of e-commerce (OECD, 2001a). Other

innovations, such as ordering via on-line freight brokers, seem to be accepted less


extensively. There is no evidence that all shippers and carriers would join auctions

and other electronic marketplaces to lower production cost and to boost delivery

efficiency, as many expected. Surveys show that a large number of firms in the US

(nearly 70%) and in Europe (about 86%) still operate on the basis of contracts,

mostly signed for annual or longer periods (Morgan et al., 2000). The ‘spot market’

for short-term demand for transport services may offer cost advantages. But this is

normally balanced against other factors, such as reliability and predictability. Manyof the electronic marketplaces (freight platforms) that were being established in the

late 90s no longer existed 2 years later. It is unlikely that this mode of operation will

gain significant importance, except in market niches. From this perspective, the

specific potential of e-commerce to re-organise and improve freight operations

appears to be limited.

Examples such as Covisint also demonstrate the limits of e-commerce purchase

platforms, since it is reported that one major advantage of the platform*/cost

transparency*/can also be regarded as a disadvantage. Platform participants,notably the subcontractors and suppliers, are reported to have distinct reservations

against publishing cost structures, due to the high pressure on subcontractors exerted

by customers, and because they are concerned about revealing proprietary

information (Bretzke, 2001). Retailers may have good reasons for carefully watching

co-operating participants in electronic supply chains, since they are potentially

challenged by the attempt of manufacturers to introduce direct distribution through

disintermediation. By ‘pirating the value chain’, manufacturers could keep a larger

share of the profit for themselves, particularly once they have good access tocustomers (e.g. via the web). This risk seems to be an important barrier to broader

implementation of B2B e-commerce (OECD, 2001b). Another limitation for the

extension of e-commerce is logistics*/regarding the basic fact that overcoming time

and space constraints still remains a costly but necessary activity for almost any

business, regardless of the question whether the front end is working properly or not.

In general, it is more likely that those e-commerce applications that explicitly fit into

the predominant mode of re-organisation and improving competitiveness will

become widely implemented. Others, particularly those with an unclear cost-benefitratio, may not gain that importance. Thus the use of B2B-technologies will be

limited. Where it is mostly practised (in the field of information transfer), it does not

necessarily shape PD and material goods flow. As a consequence, the direct

implications of B2B e-commerce on logistics and freight transport might still be hard

to assess. However, in the long term, the indirect outcome of predominant logistics

practices may increase, although they are currently difficult to predict.

3.2. B2C electronic commerce

B2C-related electronic commerce has gained more public attention than have

interfirm exchanges, although B2C is significantly less important in terms of number

and value of operations. Many people became familiar with the idea of consumer

goods home delivery from the very beginning. Among e-commerce products, those

that were predominant were either well suited for mail-order and delivery (such as


books and CDs, computers, airline tickets or hotel reservations), or were ordered

both frequently and in bulk (such as groceries). It is no coincidence that among the

most important B2C on-line retailers were, for example, the book-and-more-store

Amazon.com, the personal computer and devices manufacturer and retailer Dell,

and*/up to July 2001*/the on-line grocer Webvan.com.

The extent to which B2C e-commerce contributes to major changes in logistics,

wholesale or retail distribution processes (and in doing so, how it may affect

transport and the environment) is controversial. Both questions should hence be

subject to careful consideration. Certainly, it first of all depends on the rate of e-

commerce adoption by users and market participants, which still seems to be limited.

On-line retailing was expected to experience dramatic increases according to early

estimates. More recently, expectations have been more modest. For the fourth

quarter of 1999, the market share of on-line retail in the US was estimated to total

0.64%. It rose to a peak of almost 1.1% exactly 1 year later, falling to 0.9% in the

second quarter of 2001 (US Department of Commerce, 2000). Recent observers

estimate the market potential of on-line grocery retail to a share of no more than 2%

in 2005 (OECD, 2001c). It is notable that Webvan.com, the second largest on-line

retailer, went out of business in July 2001, due to rising costs and limited number of

customers. The firm reportedly lost a total US$ 830 m, without ever having achieved

the desired market share. Amazon.com, still the largest ‘e-tailer’, has received the

first net earnings from its operations no earlier than in the fourth quarter of 2001,

after 6 years in business (Amazon.com, 2002).

Second, estimates how far information exchange by e-commerce leads to

corresponding changes in the patterns of PD*/and hence how it influences transport

and the environment*/are hampered by the lack of precise data, particularly those

that can be generalised. Freight implications of e-commerce are certainly dependent

on the characteristics of the finished product. On-line retail is mostly practised for

specific commodities (see Table 2). In some rare cases physical transport is

eliminated, for example, once documents or music files can be downloaded from

webpages, instead of being packaged and mailed to a shop or directly to the

Table 2

Categories of goods purchased by on-line shoppers

Product categories Bought by percent of on-line shoppers (%)

Books 66

CDs, recorded music 58

Computers, related products 38

Air travel reservations 26

Videos, filmed entertainment 19

Flowers 18

Event tickets (sport, enterainment) 17

Food, drink 13

Men’s clothing 12

Women’s clothing 12

Source: Ernst and Young, 2000. Global on-line retailing, January (cited in Browne 2001, p. 5).


customer. Electronic ticketing by airlines may spare the delivery of the tickets to the

travel agent or customer. However, as far as it is possible to make a judgement on

this issue, those transactions constitute a minority of on-line retail. If they are just

replacing the transfer of information or documents, the net effect may only be minor

savings. In most cases, the innovation by on-line retail is limited to a new ‘front end’

for sales and marketing purposes. In this respect, on-line retail is comparable with

the traditional catalogue business; what used to be the mail-order catalogue is nowbecoming the Internet. The degree of change seems to be limited, though it is still an

open question how far catalogue retail will be affected by the Internet at all.

The back end of B2C is probably far less sophisticated and more ubiquitous. PD is

still required for delivering most products or services. In many cases of e-commerce,

this task is fulfilled by logistics service providers (so-called third party logistics or

3PL), and to a certain extent by couriers, express and parcel services, due to the large

quantity of small parcels and packages in e-commerce related merchandise. In taking

this approach, on-line retail makes use of highly efficient distribution systems,though it is associated with certain environmental effects. In other cases, on-line

retailers such as Webvan.com were operating their own DCs and delivery fleet,

which was clearly too expensive, keeping in mind the small profit margins in grocery

retail. Recent attempts to implement home-delivery highlight severe deficiencies both

from the supply and demand sides of this distribution channel (see below). In most

cases, this approach is too expensive and is not yet accepted by a majority of

consumers.

A major impact on the back-end of on-line supply chains is the elimination of oneof the members of the distribution channel through disintermediation, compared

with the usual marketing process operated by manufacturer, wholesaler, freight

forwarder, retailer and customer (see Fig. 1). There is indeed empirical evidence that

this can happen. The computer manufacturer and marketer Dell has successfully

established a system of direct merchandising, combined with the integration of

customer demands into the configuration of the final product (‘built to order’). The

opposite can also be true: Middlemen such as wholesalers usually fulfil an important

cost-minimising function in the entire delivery chain (Robeson and Kollat, 1985),and in practice they have not lost real influence and significance (see Fig. 2).

‘The Internet story highlights a little understood trend: Wholesale distribution

intermediaries are growing, not shrinking. Sales through distribution of non-durable

goods, which include everything from books to industrial supplies, have been

expanding at about 1.4 times GDP growth. Many pundits have predicted

disintermediation, but the data show the complete opposite trend. In other words,

reports of the death of the middleman have been greatly exaggerated (The Lehman-

Brothers, 1999)One of the recent outcomes of the cost-crisis in pure on-line retail is the rising

competitiveness of the so-called click-and-mortar companies. They combine on-line

sales and ordering systems with distribution out of their stores. One well known

example is ‘Fnac’, the largest book and music retailer in France who bought the

‘Societe Francaise du Livre’, an established book wholesaler and distributor

specialised in logistics and warehousing, capable of delivering 60 000 titles in 48 h,


in order to expand the Fnac on-line branch. The new distribution channel does not

replace the traditional logistics system, responsible for 99% of the firm’s orders, but

adds to it (OECD, 2001d). Similarly, Safeway, one of the largest US grocery

retailers, in conjunction with Tesco plc. (UK), is trying to develop home-deliveryservices in Portland/OR and Vancouver/WA out of regular neighbourhood stores,

not out of specialised but costly DCs.

Overall, the entire logistics chain often remains complex and lacking in

transparency. Even if on-line retail means that a product is being delivered directly

either from the manufacturer (although that is rare) or, more likely, distributed out

of a dedicated DC to the final consumer, it is unclear how many agents are

financially involved in the transactions, nor how many operate within the physical

transfer (Reynolds, 2000, 430). This questions needs more empirical evidence to beanswered. Until such data are available, we must be careful with general statements

and judgements.

4. Freight transport and environmental implications

Electronic commerce is certainly not only a matter of virtual information flows

but also has a material goods movement dimension. With more anecdotal reference,

this fact became widely known in public by a special event in the year 2000. At theend of July 2000, the fourth book in the Harry Potter series*/Harry Potter and the

Goblet of Fire*/was released in the US, rapidly becoming one of the most popular

children‘s books in the country. In order to guarantee same-day delivery, 2 50 000

copies had been reserved for Amazon.com for express shipping. This was a record-

breaking number in the on-line retail of a single e-commerce company. In

Fig. 2. The intermediate role of wholesale in distribution channels.


cooperation with the freight integrator Federal Express (FedEx), free delivery on

publication day was offered to all preordering customers of Amazon.com. The

delivery schedule was extremely time-sensitive and associated with particular

transport consequences, since it required the separate operation of 100 air freight

planes and 9000 trucks (Matthews et al., 2000).

At first sight, the freight transport related impacts of e-commerce in this particular

case (both in terms of traffic volume and logistics quality) seem to be quite clear.

Competition drives service level and time requirements, and in order to fulfil these

needs, a certain transport and environmental expense is generated. However, the

whole issue is more complicated and far from being easily answered. Both in B2B

and B2C e-commerce, information transfer is associated with distinct patterns of

freight transport. The possible net effects in this relationship can occur at least in

three ways: substituting for physical transport (‘e-limination’ of goods movement,

taking into account certain interdependencies with passenger transport), being more

or less neutral for freight transport, or generating additional demand for both

information and goods transfer (‘e-combustion’)2.

Recent papers addressing the freight transport-related impact of e-commerce end

up with contradictory findings, based on conceptual and empirical findings in

France, Germany, the Netherlands, the UK, the US or Sweden. This is due to the

different subjects and the varying practices that have been investigated. Some make

general statements on substitution or reduction of freight transport due to electronic

commerce and home-delivery, even if the calculated examples represent very specific

cases (Matthews et al., 2001). Others are more cautious, tending to optimistic

scenarios, yet without neglecting that there is indeed the option for increasing freight

transport as well (Orremo et al., 1999). A third group is making more critical

statements on the freight transport generation impact of e-commerce, e.g. in

conjunction with the generic structural change (Browne, 2001; Colin, 2001;

Bundesministerium, 2001; Flamig, 2001). Following Dutch estimations, freight

transport is expected to increase until the year 2005 by 38% of all vehicles trips

(Transport en Logistiek Nederland, 2000). Seventeen percent of this growth belongs

to ‘new economy’-related freight movements, 21% to ‘old economy’ sectors (see

Table 3). This estimation indicates that it makes sense not to separate the discussion

of e-commerce from other, more general developments in the field of structural

change and logistics.

Some studies highlight the generic property of e-commerce to compress delivery

times and to increase the geographic areas of supply and distribution (Bahrami,

2001; Hultkrantz et al., 2000; Janz, 2001). Since this is just a small selection of a

probably large number of different cases to be studied, a detailed investigation would

exceed the scope of this paper. In order to provide some basic knowledge, some of

2 See for the basic relationship between communication and passenger transport and relevant

expriences the overview by Mokhtarian, P., 2000. Telecommunications and travel. Millennium paper of

the Committee on Telecommunications and Travel Behavior of the Transportation Research Board: 1.

Washington DC.


the most important and typical features of e-commerce-related freight transport

consequences are summarised below.Environmental impacts such as energy consumption, air pollution and noise

disturbances are caused by all freight vehicle operations. The only exceptions are

bike couriers who can achieve a certain market share of the shipment of documents

and small parcels. This is primarily happening in core, dense urban areas, where

many new economy and e-commerce firms are located. Regarding all fossil-fuel

based transport vehicles, it is widely recognised that the greatest environmental

burden stems from truck and air freight operations, with railway and waterway

freight being less intensive in energy consumptions and emissions (OECD, 1999;INFRAS/IWW, 2000). The environmental impact particularly of road freight

transport relative to passenger transport has become much more important over

the past two decades due to higher growth rates and to still limited efforts in

introducing clean technologies. Several recent studies have investigated energy

consumption patterns and emission impacts of the different freight transport modes

(Schipper et al., 1997a; Forkenbrock, 2001).

4.1. Truck transport efficiency and frequency

Some have claimed that, due to integrated data transfer and information

management, flexible distribution and e-commerce would allow the processing and

shipping only of those materials that have been ordered, nothing more. In doing this,

the system would work more efficiently than it did previously, when transport and

storage were operated for an unknown demand. Once distribution could be

customised more properly, returns could be avoided to a far greater extent than

before. All this is supposed to happen as efficiently as possible, since firms are

committed to reduce cost and not to waste time, workforce or transport capacity(Komor, 1995; Pflaum et al., 2000).

The breakdown of loads can lead to different consequences. On the one hand, it

may generate no direct additional demand for transport services, if on-line ordered

products are shipped via full truckload or parcel services. On the other, the share of

bundled freight flows (and thus of more efficient portions of freight transport) can

Table 3

Freight transport growth by 2005 in the Netherlands

Transport segments Changes by 2005 (number of vehicle trips) (%)

Freight transport ‘old economy’ �/21

Freight transport B2C �/8

Freight transport B2B �/9

Total freight traffic �/38

Passenger traffic �/10

Source: Transport en Logistiek Nederland, 2000. Assumptions: Online orders in B2C increase by 10�/

15% until 2005; the market share of online merchandise achieves about 15% in non-food, about 10% in the

food sector.


decrease as well, following more demand-side oriented logistics. This was also the

case once new concepts in lean management were introduced, contributing to lower

weight at the expense of higher trip frequencies (Ten Hompel and Siebel, 2001). Also

influenced by rising carrier competition, increasing order flexibility supports on-time

delivery, often with less than a full truck load, at higher frequencies and with smaller

vehicles than before. This is particularly true for urban distribution patterns that are

less efficient than long-haul operations (McKinnon, 1998). Increasing distances and

vehicle miles are due to market integration at a larger geographical scale.

Particularly, the hub-and-spoke systems that most logistics companies and parcel

services operate today contribute to the extension of transport distances. In some

instances, the option of a more efficient freight transport is likely, once shipments are

processed through large logistics networks, thus mobilising the advantage of

economics of scale. In many others, it is likely that vehicle miles may increase

simply due to rising distances between the transhipment hubs (Bahrami, 2001).

4.2. Bulk freight carriers

The breakdown of smaller loads according to the splintering of the order- and

delivery-cycles supports a certain ‘atomisation’ of freight flows, which once were

more bulky in volume and more buffered (less time-critical) in logistics than today.

Rail freight and inland waterway systems, to many extents the losers of structural

changes in logistics, may again be driven out of business, since they cannot cope with

the demand for flexibility as well as with the decreasing size of the truckloads.‘A significant and possibly alarming outcome of the increased market penetration

of IT and EC [e-commerce] is the likely acceleration in the shift in domestic freight

mode share away from rail and waterways, towards all-highway movements.’ [. . .]‘By all indicators, the widening gap between truck and non-highway modes in

domestic freight service will continue to increase with the growth in EC. The April

2000 shipper survey conducted by Morgan Stanley Dean Witter indicated that 70%

of the respondents expected their freight transportation needs to change as a result of

EC. Of these, 65% said they would use more parcel/express envelope service, 57%

expected to use more regional or national less-than-truckload (LTL) carriers, and

53% expected to use more local trucking or courier service. Twenty one percent of

the respondents expected to use less rail as EC becomes more prevalent (O’Kelly,

1998).

It is not clear whether the bulk oriented freight carriers can become competitive in

those goods sections that are likely to be processed via e-commerce (Bahrami, 2001).

Rail and waterway freight carriers are probably still concentrated on the old

industrial, less splintered and less time-critical freight markets*/exactly the opposite

of the nature of e-commerce generated transactions. Container trains and inland

ships were supposed to cover a certain portion of domestic and particularly

international freight transport growth (e.g. by specialised parcel-express trains).

Until now, they have not developed as hoped.


4.3. Air freight

Judging from recent surveys and insights, PD in general and e-commerce in

particular are extremely time sensitive. This characteristic implies a particular role of

air freight, which is both the fastest growing and least environmentally acceptable

mode of air freight. Since almost half of the air freight is shipped via dedicated

freight planes (different from the so-called belly freight in passenger planes), e-commerce is likely to generate a certain amount of direct air freight, by lean

inventory strategies and shortened delivery times to the customer (Broens et al.,

2000). It is no coincidence that two major US parcel services, UPS and FedEx, both

have established their own front and back end systems for the e-commerce market,

with associated air freight operations and newly constructed dedicated facilities for

parcel consolidation and distribution.

The environmental impact of air freight transport is characterised by significant

levels of energy use, air pollution and noise disturbances (Clancy and Hoppin, 2000).Beyond this quantitative share of certain emission sectors, air freight contributes to

an explicit burden in a more qualitative manner. First, aircraft emissions are the only

manmade damage of the ecosystem in certain parts of the atmosphere. The

relationship between climate change and high-level aircraft emissions seems to be

evident (Penner et al., 1999). Second, aircraft-related noise disturbances happen very

often at night. Many transport services in industrialised countries are operating

overnight, and air carriers, postal services and couriers often rely on night-time

starting and landing privileges (whereas regular air services are often prohibitedbetween 22:00 and 6:00 h). Then, air traffic noise emission can cause major

disturbances and may be perceived negatively by the public.

As discussed earlier, e-commerce is not exclusively responsible for these damages

and disturbances. However, due to the undoubted preference of many e-commerce

shipments for express and parcel services, it is likely that this particular component

of air freight further contributes to generic air transport growth (Jindel, 2001;

Burnson, 2001; Sobie, 2000). Thus, air transport is critical for the sustainability of

the entire transport system. In the longer term, e-commerce as a major customer ofair freight is also likely to increase (even indirectly) the pressure on airports for

further growth and further expansion. As long as major airports worldwide continue

working at limits and plan to expand infrastructure and facilities (even if we have to

consider recent slowdowns as a result of Sep 11, 2001), e-commerce by air freight will

be associated with future air traffic growth and related problems.

4.4. Customer (shopping) travel

As a consequence of home-delivery, consumers presumably do not need to walkor, more important, drive to the shop to pick up their orders, so on-line-purchase

may spare passenger trips*/at least in theory (Matthews et al., 2001). Most

comparisons on the logistics impact of e-commerce highlight this ‘last mile’ topic,

hoping for reduced passenger miles as an outcome of delivery convenience. This

suggestion is being made without reflecting both the complex design of local freight


distribution patterns and the multifaceted nature of shopping as a cultural and social

activity. First, speaking logistically, an environmentally acceptable and efficient e-

commerce delivery primarily depends on the specific local framework of distribution.

The literature on this topic is still scarce, though calculations support the suggestion

that cost-efficient home-delivery systems depend on strong requirements (Orremo et

al., 1999; Hultkrantz and Lumsden, 2000; Cairns, 1996). Major factors responsible

for distribution performance are the distances between DC and market areas, the

density of population (customers), and finally optimised load factors and routing of

delivery vehicles3. Swedish calculations (Orremo et al., 1999) are based on certain

assumptions for conventional food retail: average distance to the next food store is

7.81 km; modal share of shopping trips is 60% car, 4% public transit, 36% walking/

biking (see Table 4). The assumptions for on-line merchandise are as follows: a

market share of online food retail of 10, 25 or 50%, the required population density

is 20 people per m2 (�/10% market share), 8 people/sqm (�/25%) or 4 people per m2

(�/50%); the value of an average online purchase is supposed to be four times higher

than in conventional retail, the distribution area comprises a radius of 30 km, and

each delivery van holds 25 orders per route. The findings are summarised in Table 4.

As a consequence, a cost-efficient home-delivery service that is environmentally

favourable can be logistically organised in different ways. On the basis of the above

assumptions, Fig. 3 presents four distinct distribution models. Models 1 and 4 are

reported to be favourable for higher density urban areas, model 3 is likely to support

efficient distribution in more dispersed areas. The most common idea of delivery out

3 For comparisons between different physical environments of urban retail see also: Aoyama, Y., 2001.

Structural foundations for e-commerce adoption: a comparative organization of retail trade between

Japan and the United States, Urban Geography 2001;22,2:130�/153.

Table 4

Change in energy consumption by home shopping (B2C) in the food sector of Sweden

Market share of home

shopping (%)

Change in energy consumption (50 km

delivery route) (%)

Change in energy consumption (90 km

delivery route) (%)

10 �/7 �/5

25 �/18 �/13

50 �/36 �/26

Source: Orremo et al., 1999. Assumptions: conventional food retail: The average distance to the next

food store is 781 km. The modal share of shopping trips is 60% car, 4% public transit, 36% walking/biking.

Online-merchandise: The market share of online food retail achieves 10, 25 or 50%. The corresponding

population density is 20 people/sqm (�/10% market share), eight people/sqm (�/25%), four people/sqm

(�/50%). The value of an average online purchase is four times higher than in conventional retail. The

distribution area comprises a radius of 30 km. The delivery van holds 25 orders per route. Energy

consumption is calculated with current data for passenger car, delivery van and truck (1999).


of a DC to customers’ homes, as featured in model 1 of Fig. 3, requires high

population density and consumer participation, full van or truck loads (average

number of shipments per load: 25) and home runs about less than 180 km (with

average ten shipments and 75 km each tour).

Population density and optimised logistics, both an expression of high degree of

consumer participation and high load factors, seem to be essential. Regarding the

organisational and spatial concentration of transhipment facilities, particularly of

modern DCs or warehouses (see the section below), and the deconcentration of

population as a result of sub- und exurbanisation processes, providing for efficient

home-delivery services is at least difficult, if not unlikely. Against this background,

and taking into account the extremely low profit margins in retail (i.e. grocery), it is

no surprise that even such advanced delivery models like those offered by

Webvan.com, kozmo.com or peapod.com failed in the past. As already suggested

above, it is more likely that the combination of Internet platforms on the ‘front end’

(customer order) with neighbourhood stores for optimised distribution on the ‘back

end’ will be more effective. Even in more e-commerce-favourable product categories

such as book or CD distribution, and in the case of technologically highly advanced

Fig. 3. Local distribution models.


firms such as Amazon.com, distribution efficiency as a function of density has been

described as critical4.

Second, it is questionable under what circumstances a higher degree of efficiency

in goods delivery may really correspond with changing customer behaviour

regarding shopping trips. If additional home-delivery trips are generated, a positive

net effect may only be achieved once a certain number of passenger car shopping

trips are eliminated. Consequently, people would have to stay at home and receivetheir delivery (or do something else), instead of driving. Recent experience shows

that there is not as much substitution as expected, due to customer habits and

routines, and also because shopping is often seen as a social event, increasingly being

mixed with leisure or other activities (Casas et al., 1999; Gould et al., 1998). This

example underpins that new technologies are deeply embedded in culture and in

social practices, in daily routines and habits that are far from being rapidly changed

by new order-and-delivery services.

Finally: as a consequence of Internet shopping experiences, customers arebecoming accustomed to short-term order processing*/even without any real

necessity, just because consumers have the choice to do so. Changing order habits

may support the desire for the fastest possible receipt of delivery. In many ways, this

relates to the truck or the airplane: ‘Web shoppers, by placing a premium on next-

day delivery of the goods and on direct control and tracking of the delivery process,

are relying increasingly on the expedited highway and air modes (Bahrami, 2001).

4.5. The social costs of freight transport

Data collections on social costs have been established in order to investigate

comprehensive environmental and social impacts associated with a given technology.

Whereas certain impact assessments of e-commerce related to transport and the

environment primarily focused on energy consumption and air pollution, it is evident

that freight transport is also the source of other impacts that are not paid for by

users. These so-called externalities are worth citing here, since they also include the

cost of congestion, the cost of infrastructure construction and maintenance. Road

and air freight also contributes to severe traffic noise disturbances, which are knownto increase dramatically, at least in urban areas. As far as e-commerce supports

general structural changes associated with more truck and air freight transport, it

may contribute to certain externalities as well.

4 According to a press interview in the British Guardian on Feb 9, 2002, Amazon.com-CEO Jeff Bezos

explained the more profitable nature of its businesses in Europe with higher customer densities, related

lower distribution cost and higher real estate prices, compared with the US. The cost of overcoming time

and space constraints on the back-end of the supply chain made Amazon.com also strengthen their

warehousing operations, particularly by closing down one out of then seven US fulfillment centres in

Georgia, January 2001.


The different transport modes are distinct in terms of their fatalities, infrastructure

overuse, energy use and environmental degradation. The reported externalities turn

out to be different, according to the specific transport mode’s characteristics.

Recently, the ‘external costs’ of all transport modes in Western Europe were

estimated at 658 bn Euros (a) in 1995, one third coming from freight transportation.

This sum is supposed to have reached 700 bn a in 2000 (in 1995 prices). Air freight

transport contributes to this with the highest external costs per unit (205 a/1000 t km,mostly related to climate change and noise disturbances), compared with 88 a/1000 t

km of road, 19 a/1000 t km of rail and 17 a/1000 t km of waterways5. Regarding the

specific contribution of truck and air freight traffic to noise emissions, infrastructure

overuse (truck) and global warming (air), it is likely that a widespread practice of e-

commerce might support a further increase in these particular social costs of

transport.

5. Freight and land use (warehouses and distribution centres)

One of the most obvious issues in the freight context of e-commerce is the

increasing need for transhipment points, such as warehouses and DCs (and,

eventually, pick-up points for customers as well). DCs are operated in order to

control the more complex, mass-customised freight flows without increased logistics

costs. The rising demand for DCs and warehouses is currently a major feature of the

ongoing structural change in logistics and freight distribution. It is by no means

exclusively related to e-commerce, but may become accelerated by its contribution to

the re-organisation of distribution. In terms of facility development, it is importantto know that the new patterns of demand and supply are shaping the old warehouses

into new DCs, or ‘High Throughput Centres’ (Abbey et al., 2001). The facility is no

longer needed for storage (at least not primarily) but for the efficient consolidation

and processing of materials flow. ‘A DC is the antithesis of a warehouse.

Warehouses serve as the physical expression of the need to store large inventories

of goods, the main artifact of traditional retailing. DCs, in contrast, form the nexus

between retailers and their suppliers. [. . .] Rather than being a place for storage, a

DC consists of bays for in-bound and outgoing trucks, an automated, fast-movingconveyor network connecting them, and a sophisticated information system to

control movement from receiving to shipping docks as well as to process the

transactions relating to the shipments’ (Abernathy et al., 2000, 10).

5 All external cost data is based on the research studies ‘Internalisierung der externen Kosten:

Instrumente’, INFRAS Consulting Group, Zurich, February 1999; ‘Externe Kosten des Verkehrs-, Unfall-

, Umwelt- und Staukosten in Westeuropa’, by INFRAS, Consulting Group, Zurich, IWW, University of

Karlsruhe, March 2000, both in summary published by: UIC-Union Internationale de Chemins de fer/

International Union of Railways (ed), 2000. Der Weg zur Nachhaltigen Mobilitat. Die externen Kosten

des Verkehrs reduzieren. Paris.


Warehousing in terms of keeping certain commodities ready for quick shipment is

becoming increasingly important, as the economy is increasingly demand-side

oriented. The ability to deliver is becoming a major issue of competition. The

more diversified and fluctuating the demand is becoming, the more difficult is the

task to provide for appropriate, fast and cost-efficient response.

‘The act of warehousing exists because companies are unable to predict demand

and prefer to provide a buffer for themselves that accommodates spikes and lulls inthe sales process. E-commerce tools, which enable the instant sharing of data among

trading partners, dramatically improve the ability to predict demand. Aggregate

demand for traditional warehousing space should decline over time, as the enabling

technology is widely adopted and implemented. Today’s state-of-the-art warehouses

feature high-cube space with clear heights of at least 30 feet. However, as the new

technology enables continual movements of products in the supply chain, the need to

stack inventory begins to diminish. Traditional storage space must start housing

activities that involve more horizontal movement rather than vertical stacking (. . .).’(Kirschbraun and Bomba, 2000).

Owing to the competition between the primary distribution locations, all major

freight hubs (large ports, freight airports, inland hubs) are currently committed to

plans for expanding related infrastructure. This is, among other factors, a

consequence of the high pressure on supply chains, caused by accelerated

information transfer and changing consumer habits.

‘As the delivery of products moves toward greater degrees of customisation, real

estate requirements will include additional power sources, docks (supporting greaterthroughput) and people to manage the process. Although existing high-cube facilities

are not necessarily obsolete, most likely they will require more land for employee

parking and queue trucks. Effectively, then, the world of industrial real estate will

encompass more distribution and less warehousing space. The value of speed is so

high in the New Economy that modernised production and distribution facilities

increasingly will cluster around major airfreight hubs. Depending on the cost

structure of various classes of product, additional clustering around truck and rail

logistics hubs will occur. Logistics models will drive distribution facilities to strategiclocations, often closer to customers’ (Kirschbraun and Bomba, 2000).

The new DCs, designed for rapid material flow, are increasingly being established

at strategic, time- and space-sensitive locations. These have traditionally been the

large gateways of goods flow, particularly large ports and major airports, the centres

of manufacturing, and, more recently, highway interchanges with access to a large

number of customers. Regarding the large-scale national and international distribu-

tion, favourite locations for the future establishment of DCs are those gateways and

transportation corridors with access both to traditional logistics interfaces and tolarge agglomerations and thus consumer markets. Beside some competitive container

ports and air freight hubs, two features are interesting in this context. First, major

logistics and integrator companies represent such a large freight volume that they

can afford to own DCs: FedEx established its major air hub in Memphis/Tennessee,

UPS did similarly in Louisville/Kentucky. Second: so-called Inland Hubs are

becoming more and more important, where primarily road freight is consolidated,


e.g. in the New York/New Jersey suburbs, in Columbus/Ohio or in Indianapolis/

Indiana. Those locations are ideally suited to serve major markets both at the East

Coast and in the Midwest (US Congress, 1995).

Within urban regions, a second trend toward decentralisation is prevalent. New

warehouses, DCs and logistics facilities are moving at the edge of the agglomeration.

Given the respective locational behaviour of early logistics companies, this ‘Outward

Drift of Freight-Handling’ has already been described in the New York region 40

years ago: ‘Wholesale establishments, warehouses, and terminals for both water and

land transport*/all of which are characterised by continual in-and-out freight

movements*/have been increasing their employment fastest in places outside the

congested heart of the Region. And in this respect they closely resemble

manufacturing itself’ (Chinitz, 1960). More recently, this might become a significant

trend for a majority of the urbanised industrial countries (Hesse, 2002a).

Due to decentralisation, the demand for developed land for distribution purposes

is likely to increase (Hesse, 2002b). In many cases, new DCs are being established on

former greenfields*/at places out of the congested urban cores with excellent

highway access. In some cases, distribution companies went into existing buildings

and brought in their new high-technology equipment, like Webvan.com did in

Oakland, CA. The establishment of a new warehouse on a brownfield site, subject to

redevelopment in New Jersey, seems to be a rare example (Strauss-Wieder, 2001).

However, most existing buildings do not fit into the advanced technological

requirements of automated warehouse operations. This means that the apparently

positive effect of concentrated distribution in e-commerce (�/reduced number of

DCs) is challenged by the fact that new e-commerce buildings, as well as most

modern DCs, contribute to further land consumption. In the case that new pick-up

points have to be established, where customers can receive their e-commerce parcels

(instead of staying present at home all day), the respective infrastructure and demand

for space has to be taken into account as well.

In order to define the particular contribution of e-commerce to this issue, we

would need to know how far the current construction activity for warehouses and

DCs is related to on-line order and fulfilment. This question is hard to answer,

because much of the e-commerce-related delivery is operated by third party logistics

providers (3PL). In most cases, 3PL do not exclusively serve e-commerce order

fulfilment but offer distribution and warehousing services for a number of

customers. Currently, the total number of DCs and large warehouses in the US is

estimated to be about 2 50 000 (Dixon, 1999). Compared with that total, the number

of facilities specifically devoted to e-commerce retailers or to their service providers

is small. E-fulfilment centres were established by UPS and FedEx, being used in

addition to the firm’s existing hubs and terminals. Large on-line retailers such as

Amazon.com operate six DCs in the US (and three in Europe), and Barnes and

Noble.com is distributing out of two new e-commerce DCs (Annual Reports, 2000).

These examples show that the physical impact of e-commerce is still limited and its

implications are hardly predictable. They also show that e-commerce is far from

being virtual or weightless.


6. Straight assessments in a complex world�/a commentary

The purpose of this paper was to explore the implications of e-commerce for

freight transport and to comment on how best to assess them. A crucial point is, at

least momentarily, that a general statement on the net effect of e-commerce on

freight transport and the environment is almost impossible to make. This is due to

three factors: the broad variety of distribution practices (supply side), theunpredictable behaviour of the users (demand side), and the weak empirical data

both in terms of selected case studies and of the broader context of interrelationships

and spatial outcome. We also know almost nothing about cumulative causation:

how new technologies, after becoming embedded into significant practices, are

related to their social and economic environment and what their long term, so-called

second order effects are.

Some early judgements about the environmental benefits of electronic commerce

in logistics and freight transport are oversimplifications. This is true for theassumption that the delivery of on-line-ordered products to the household eliminates

customers’ shopping trips. In most cases, a certain environmental benefit calculated

in this incremental approach primarily relies on the elimination of passenger

transport, it does not refer to a more efficient freight delivery pattern. First it has to

be acknowledged that the logistics system is complex and*/regarding functionality

and impacts*/generates interdependencies. Second, consumers’ habits usually tend

to inertia and unpredicted behaviour rather than calculable action and effects. The

discourse on telecommunication and travel has already shown that large substitu-tional effects as an outcome of new technologies have not materialised yet to the

desired extent, and that the opposite is also possible (Mokhtarian, 2000). In turn,

this means that the general assertion that ordering books via the Internet benefits the

environment still has a weak basis.

It is suggested that under real life conditions*/not in the quasi-experimental

comparison*/people behave differently from theory. Predicting individual passen-

ger’s behaviour, which was already called the ‘wild card’ in the context of

transportation issues, is known to be difficult (Skinner, 2000). This is also true forcorporate strategies. Companies do not necessarily act always on the basis of perfect

market information and rational decision making. Competition often drives firms to

a certain market presence that may ‘rationally’ not be justified. The notion of the

firm as a cold, rational machinery that consists of nothing but the optimal

combination of production factors is widely criticised in economic and social science

research (Schoenberger, 1997; Hollingsworth et al., 1997). The expectation that e-

commerce would, first, be overwhelmingly used by firms and, second, would

dramatically increase the efficiency of PD, and third, would thus reduce theenvironmental burden of freight transport, is constructed and exaggerated. It refers

more to conventional wisdom than to real life experience.

There are also further doubts about too positivistic judgements. Is it really good

for the environment if traffic emissions are likely to grow more slowly than GDP*/

as long as they are still growing, and as long as there are no signs of a different trend?

By the way, data already show a decoupling of freight transport energy use and GDP


growth in most OECD countries since 1973 (Schipper et al., 1997b). Is it a real

environmental benefit if Amazon.com constructs a 2 million square feet warehouse

that allows for a certain increase in average space efficiency per book*/if the DC’s

building base is simply added to the existing grey- and brownfields? Most of the

infrastructure for the new economy does, at least for now, not replace any of the

existing infrastructures and land uses, just as once the telephone did not supersede

material travel.There is much evidence for a predominant trend in freight transport to continue:

toward smaller delivery units, faster services, increasing distance, higher market

shares of truck, van and air services. This is an outcome of interrelated forces that

are heading in the same direction. It also means that the overall trends toward higher

energy consumption, increased emissions, further land use and additional social cost

of transport are likely to continue. Of course, this is an individual judgement, not a

statistical finding. It is hard to prove this hypothesis, even if it is plausible. As long as

precise data are scant (and models are models, often different from real life), weshould at least be careful with general statements.

7. Conclusions

This paper considered the significance of electronic commerce for freight transport

and PD. Hence, it was trying to go beyond narrow analytical approaches, by

reflecting the generic structural change. The main argument of the paper was

threefold: first, most recent analyses of freight transport and logistics implications ofe-commerce are overstating the current relevance of e-commerce applications on the

one hand, and neglecting the influence of the underlying structural change in the

entire logistics system on the other. Second, early assessments of the possible

contribution of e-commerce to making the distribution system more efficient are

probably too optimistic, and underestimate its negative effects. Third, electronic

commerce and IT is interrelated components of structural change in distribution.

They generically affect the environment by speeding up the time and increasing the

geographical area of freight transport operations.E-commerce as a part of the entire distribution system can contribute to certain

interrelated impacts: to longer transport distances and often to higher delivery

frequencies, to increasing demand for land, due to new transhipment points, and to

more frequent air transport. It also has the potential for the opposite, though this is

being questioned under current circumstances. This is particularly due to unrealistic

assumptions about both distribution efficiency and consumer acceptance that are

given in respective e-commerce models. In general, the business related promises of

e-commerce stand in remarkable contrast to its plausible negative effects ontransport and logistics (see Tables 5 and 6).

Possible contributions of e-commerce to a more efficient and sustainable

distribution system very much depend on particular regional circumstances, such

as consumer habits, certain delivery modes and the important question of population

density. In order to be effective, local innovations may also rely on political support


Table 5

E-commerce and logistics�/an ambiguous relationship: the promise of e-commerce: business effects

Product/service development Supply manage-

ment

Manufacturing/assem-

bly

Marketing Distribution Customer Service

Improve product development Reduce sourcing

costs

Lower transaction costs Strengthen customer re-

lationship

Reduce sales and distri-

bution costs

Improve customer ser-

vice

Enable collaborative develop-

ment across firms

Reduce inventory

costs

Lower work in progress

costs

Research new user seg-

ments

Promote new products

and services

Lower customer inter-

action costs

Source: McKinsey and Company, 2001 (cited in OECD, 2001a Science and Technology Industry/STI, 2001. Fifth Business and Industry Policy Forum: The

Internet and Business Performance, p. 39. Paris).

Table 6

The dark side of e-commerce: logistics and transportation

Supply chain management Long distance transport Warehousing Local distribution The last mile: home de-

livery to customers

Introduce and strengthen flexible

sourcing and distribution strategies

(e.g. ‘Just-in-time’ concepts)

Increase the market share of

trucking and air freight

transportation

Create demand for new high-

technology, ‘big box’ ware-

houses (DCs)

Decrease local distribution ef-

ficiency through ‘atomisation’

of consignments

Increase the volume of

local distribution (trips

or mileage)

Introduce and strengthen large-scale

(e.g. global) sourcing and distribu-

tion strategies

Lower the market share of

mass freight transportation

modes

Abandon existing storage

facilities, due to special ICT-

requirements

Inspire short-term order

behaviour by customers

Source: own.

M.

Hesse

/R

esou

rces,C

on

servatio

na

nd

Recy

cling

36

(2

00

2)

21

1�

/24

02

35

at state, federal and international levels6. Until now, the economic success and

logistics efficiency of e-commerce are challenged by the costly frictions of physical

space, way beyond the splendour of sophisticated webpages. Distance, density and

topography have by no means vanished. Since the material and the virtual world are

inextricably intertwined, goods movement is unlikely to ‘de-materialise’ through the

establishment of electronic distribution channels*/as telecommuting did not free a

majority of people from the daily drive to work, shopping and leisure. In contrast to

the notion of the ‘End of Geography’, recent research supports the argument that the

apparently ‘weightless’ new economy performs distinct ‘spatialities’, by linking

virtual and real spaces in specific ways, and even by following common patterns of

regional and urban development (Graham and Marvin, 1996; Pratt, 2000; Zook,

2000).In this context, a final evaluation of the net-effect of transport generating and

substituting forces is not possible yet, due to the lack of precise data, case studies and

knowledge that allow for general statements on the relationship between this

particular technology, society and the environment. However, there is some evidence

that e-commerce is likely to reinforce longstanding trends of transport growth,

rather than breaking them. Speaking in more general terms, passenger and freight

transport have a fundamental societal dimension that has to be considered: They

play a major role in the process of ‘mobilising’ modern societies, as far as they allow

for extended individual activities, accelerated spatial division of labour, and global

trade and exchange. E-commerce is a small constituent in more complex arrange-

ments. Distribution, logistics and transport are major requirements of structural

change, and they are shaping the physical and social environment related to those

changes. Deterministic assessments do not reflect these broader foundations of

technological change. Some of the related developments have already been

investigated, primarily with reference to mobility and passenger transport (Gillespie

et al., 1998; Rondinelli, 2001). However, we still do not know very much about the

role of logistics and freight transport in this context (Hu, 2001). As a consequence,

future research should be directed towards the various implications of logistics

technologies, organisation and infrastructure (in terms of supply and demand,

customer behaviour, environmental outcome, spatial dynamics). This research

should also cover the full range of feedbacks and cumulative causations between

technology, users and their environment.

6 Sustainable Distribution, 1999. Political regulation, incentives and action plans seem to be essential

for incorporating any local and regional activity into a broader policy context. Good examples are given

e.g. by the UK strategy ‘Sustainable Distribution’, within the 10 Year Integrated Transport Plan of the

British Government of 1999, or the ‘Freight Sustainability Development Program’, recently submitted by

‘Transport Canada’.


Acknowledgements

‘‘I am indebted to Heike Flamig, Technical University of Hamburg-Harburg,

Germany, for critical discussion and many insights into the world of e-commerce

and its implications for transport and the environment.’’

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