E-commerce and the consequences for freight transport

E-commerce and the consequences for freight transport J.G.S.N. Visser 1 & T. Nemoto 2 1 OTB Research Institute for Housing, Urban and Mobility Studies, Delft University of Technology, the Netherlands. 2 Graduate School of Commerce and Management, Hitotsubashi, University, Tokyo, Japan. Abstract E-commerce currently appears to be one of the fastest growing marketing channels for different kinds of products and services for consumers. E-commerce belongs to the group of applications of Information and Communication Technologies (ICT) with far-reaching consequences on freight transport. Applying ICT in e-commerce will definitely change the demand for transport of goods, in particular the distribution of consumer goods. However, e-commerce will also in some way influence the diffusion of ICT-applications in logistics (elogistics) and transport operations (e-fleet management). In this section, we will discuss the nature of e-commerce and how it might affect the distribution of goods in urban areas. We specify three important aspects: First, e-commerce changes the demand for goods. Second, different distribution concepts are used and, third, traditional distribution of goods to retail businesses will be affected. The expectations are that e-commerce will lead to more home deliveries, but this does not necessarily mean that it will generate more freight traffic or that it will lead to a worsening of transport services. The advances in innovative logistic schemes (e-logistics and e-fleet management) can be used to consolidate transport flows both to and within urban areas. This could potentially lead to better services in terms of fast and reliable delivery. Outsourcing of logistics, cooperative delivery services, optimised routing lead to consolidation and is expected to reduce traffic. 1 Introduction E-commerce currently appears to be one of the fastest growing marketing channels for different kinds of products and services for consumers. E-commerce offers entrepreneurs new possibilities for selling their products and services without establishing a physical point of sale close to the customer. E-commerce makes it easy for the customer to purchase products from his favourite chair at home and then have the products delivered right to his door. E-commerce and home delivery are, therefore, closely related. According to logistic experts, home delivery is expected to be one of the key issues in freight transportation in the near future [Scheurkogel, 2000]. They cite two reasons: the consequences of the expected growth of e-commerce use for freight traffic, and the ever-growing congestion problems in urban areas. A Dutch 1

Freight Transport Organisation [Transport en Logistiek Nederland, 2000] expects a total growth of 38 percent in traffic volume of freight trucks and vans between the years 2000 and 2005 in the Netherlands, solely because of the further growth of e-commerce. This growth will increase congestion and environmental problems in urban areas and will make it more difficult for carriers to fulfil customer demands. E-commerce requires fast and on-time delivery, which, with the current developments, will be increasingly difficult in the future. Current distribution concepts are not suited for such small deliveries and home delivery. However, the same information and communication technology (ICT) on which e- commerce is based, can also have positive effects on transportation. Monitoring of consumer demand through Internet marketing makes it possible to produce goods only on demand, while simultaneously reducing dead stock and transportation demand. Furthermore, the private sector will try to find solutions to quickly respond to consumer needs, with the help of the Internet and ITS (Intelligent Transport System); that is, real-time procurement of transportation services via Third Party Logistics (3PL) sites. This implies that the Internet and ITS can offer opportunities for innovative city logistics schemes. The impact of e-commerce, or teleshopping (as it has long been known), has now been studied for more than twenty years. As soon as it became clear that new media based on computer technologies and data exchange could lead to new ways of marketing, the impacts were studied. For instance, in 1996 TNO-STB and CURDS [1996] studied the possibilities of teleshopping. Indeed, teleshopping was already referred to in much earlier publications on the possible influence of the new information technology on transport and the spatial structure; see for example Goddard [1980], Salomon [1986], Türke [1983] and Verschuure [1985]. These authors all deal with the question if e-commerce is going to substitute or generate traffic. OECD and CEMT organised on the 5 th and 6 th of June 2001 a special international seminar on the topic of: The impact of E-commerce on Transport. In this section, we will discuss the nature of e-commerce and how it might affect the distribution of goods in urban areas. The expectations are that e-commerce will lead to more home deliveries, but this does not necessarily mean that it will generate more freight traffic nor that it will lead to a worsening of transport services. The advances in innovative logistic schemes can be used to consolidate transport flows both to and within urban areas. This could potentially lead to better services in terms of fast and reliable delivery. To get an insight, a desk research is carried out. We collected information from scientific and business literature. This section does not provide final answers. Since 1999 the world of e-commerce is changing fast, while logistic service providers are still investigating and experimenting with new services. In chapter 2, we define e-commerce and consider e-commerce concepts. E- commerce will affect each marketing channel differently. Therefore we analyse which marketing channels will be affected, and to what extent. We look at the expectations of the growth of the use of e-commerce. In chapter 3, we describe the influence of e-commerce, in terms of B2C e- commerce, influence the demand for transport. We discuss the influence of e- commerce on the demand for goods, the way goods are distributed as well as the impact on physical retail-activities. In chapter 4, we discuss how the same ICT-technology is used in terms of e- logistics and e-fleet management to optimise transport. In chapter 5, we will draw conclusions on the consequences for the distribution of goods within urban areas. 2 General framework: E-commerce 2

2.1 E-commerce as an application of ICT E-commerce belongs to the large group of applications of Information and Communication Technologies (ICT). E-commerce could cover any commercial transaction between organisations and people in society and is expected to change the supply chain of many products. As Nemoto et al [2001] point out, many transactions between stakeholders take place by applying ICT in the area of logistics (see Figure 1). Four types of stakeholders are identified, namely shippers, consumers, governments and logistic service providers (including carriers). The transactions between these stakeholders have generally a commercial dimension, a financial/administrative dimension and/or a logistic or operational dimension. Business S2S Shippers (S) B2C C2B C2C Consumers (C) S2L L2S C2G G2C Logistics service providers (L) L2L B2G G2B Governments (G) G2G Figure 1. Stakeholders in logistics systems [Nemoto et al, 2001] Related to logistics, applications of ICT are provided by Internet and Intelligent Transport Systems (ITS). Both lead to applications of ICT, for instance on the level of: 1. Commerce: in the area of business transactions (e-commerce); 2. Logistics (e-logistics); 3. Transport operations (e-fleet management). Applying ICT in e-commerce will definitely change the demand for transport of goods, in particular the distribution of consumer goods. However, e-commerce will also in some way influence the diffusion of ICT-applications in logistics (elogistics) and transport (e-fleet management). This is shown in Figure 2. B2B, B2C transaction (e-commerce) KEY: ICT application Internet (mobile) S2L, L2L transaction (e-logistics) ITS logistics operations (e-fleet management) 3

Figure 2 ICT applications related to logistics [Nemoto et al, 2001] In order to present the whole picture, it is essential to explain these three concepts more clearly. 2.1.1 E-commerce E-commerce is expected to change the supply chain. Suppliers, manufactures, wholesalers, retailers, and consumers can choose their trade partners directly. As a result, logistics operations are affected immensely. Even small and medium-sized firms in local areas can demonstrate their products to overseas customers, investigating the detailed needs. Parcel delivery firms can efficiently manage goods transport, and the accounts can be settled with credit cards or other services. Not only the market for consumer goods would be affected. In the United States, for instance the automobile industry established a web site involving several firms (suppliers, car dealers, and logistics service providers) where trade information are exchanged and shared, such as part order, inventory information, and even information on new designs. The Internet is used as a tool to cooperate with a small number of partners, as well as to procure mass-produced parts at a low price from all over the globe. The Internet can be the catalyst to accelerate the standardisation of EDI (Electronic Data Interchange) between firms, which progressed slowly before. 2.1.2 E-logistics Competition is certainly promoted by the development of e-commerce, as firms and consumers can easily contact with more potential purchasers and suppliers. When competition is intensified, the organisation and activities that do not strengthen the competitive power (core competence) of the concerned firm should be restructured. In particular, logistics operations such as transportation, storage, packing, etc. are not necessarily profit-making activities. In many cases, it is more likely that outsourcing the logistics services generates more profit. Shippers (consignors and consignees) face difficulties if they themselves transport the goods ordered by Internet. E-commerce changes the supply chain from a large-lot thick stream (factory - wholesaler - retail store) to many small-lot narrow streams (factory - consumer). That is why shippers, pressed for efficient employment of resources, tend to outsource logistics services to Third Party Logistics (3PL), which is neither the consignor nor the consignee. 2.1.3 E-fleet management Logistics service providers should meet the shipper s requirements for qualified services, while preventing additional cost increase at the same time. ITS could help them reduce the daily fleet operation costs. Important applications of ITS include tracking vehicles with GPS, tracking freight containers or palettes with Automatic Equipment Identification (AEI) and DSRC, route planning to avoid congested roads based on digital maps and real-time traffic information, electronic road pricing or toll collection, and reserving unloading spaces in advance. Mobile phones have influenced the fleet management in the Japanese trucking business. According to a survey conducted by the Japanese Trucking Association (JTA), mobile phones are diffused to 73 percent of drivers of both TL (truckload) and LTL (less than truckload) carriers in 2000, which is a significant increase from the 57 percent rate in 1996. 2.2 Definition, concepts and scope According to the OECD, e-commerce refers generally to all forms of transaction relating to commercial activities, involving both organisations and individuals, which are based upon the processing and transmission of digitised data, including text, sound and visual images. It also refers to the consequences that the electronic 4

exchange of commercial information may have on the institutions and processes that support and govern commercial activities. The OECD definition covers different kinds of applications of electronic transactions. E-commerce can also be defined in a more limited way. The most limited definition is: selling products via the Internet. This is what is also called tele-shopping and e-tailing. When the exchange of product information and payments and different electronic media are also included, the definition might look like: The exchange of information, services, products and payments by an electronic medium (Internet, digital telephone network or cable television network). The national department of Economic Affairs in the Netherlands uses the following definition: All commercial actions, carried out by electronic means, to improve the efficiency and effectiveness of market processes and business processes. When a distinction has to be made between e-commerce and e-business, then e- commerce is defined by these two definitions, and e-business is defined by the broader definition of the OECD. The electronic medium used is relevant, but hardly makes a difference to the definitions. Currently, the Internet is the most relevant electronic medium for e- commerce. The Internet is therefore the first cited medium for e-commerce. Other media are also starting to play a role. These new electronic media for e-commerce include digital television (idtv) and mobile telephones, such as the Wireless Application Protocol (WAP) phones in Europe and the Japanese internet mobile phones (IMPs). E-commerce with mobile phones is often called m-commerce. M- commerce is defined as: The delivery of transaction services by mobile terminals for the purpose of exchanging goods and services between consumers, businesses and financial institutions, regardless of place and time by making wireless networks [Nijhuis, 2001]. For instance, in Japan mobile phones have diffused dramatically. At the end of 1999, their number (56 million) first exceeded the fixed phones one (55 million), being 65 million as of Feb 2001. This increase was triggered by the introduction of IMPs which can access to the web sites and enjoy information and mail services with and without additional charge beyond communication charge. Though the introduction of IMPs started in February 1999, their number has reached to 31 million as of February 2001, which accounts for almost half of the mobile phones. With respect to e-commerce, different categories of commercial transactions can be distinguished, see Figure 1. We will describe them shortly: Business-to-business (B2B): transactions and exchange of information between companies. Important aspects include: Electronic Data Interchange (EDI) and virtual marketplaces. Transactions, such as S2L, L2S, L2L and S2S as shown in Figure 1 belong to this group. Consumer-to-consumer (C2C): for example, advertisements from consumers on Internet sites. Business-to-consumer (B2C): presentation and delivery of goods and services by companies to consumers. This refers to teleshopping and electronic payment. Consumer-to-government (C2G) or government to consumer (G2C): for example, online administration of tax returns. 5

Government-to-government (G2G): for example, downloading of documents or forms on the Internet. The distinction between B2B and B2C is very important because B2C e- commerce relates more to the distribution of consumer goods than do other forms of e-commerce. Therefore, our main focus will be on business-to-consumer e- commerce. Because often no distinction is made between business-to-consumer and business-to-business in relation to e-commerce, we will also discuss B2B in a few contexts. 2.3 E-commerce and marketing channels E-commerce (B2C) plays different roles within marketing channels (note: a marketing channel represents the succession of actors who are involved in traderelations and deal with the sales process of products). First of all, e-commerce is considered a strategic instrument for competition between different players. Retailers are key market players, but other players are also trying to gain market share. E-commerce can be used as a strategic tool in the following forms: Upgrading traditional mail-order businesses. These organisations have a long history in sales by telephone or by mail. They can use the Internet as an alternative or an addition to their traditional sales methods. Virtual retailing or e-tailing by new e-businesses. New companies that have started their businesses on the Internet, such as Amazon.com, are trying to compete with traditional retailers by using e-commerce. In a strict sense, they are still retailers. However, their display windows are virtual, and their sales occur without physical contact with the client. Innovative retailing. Traditional retailers, in particular retail chains, are also using e-commerce as an extra marketing channel. When these organisations exploit an Internet site, they become hybrids, and are referred to in the industry as clicks-and-mortar or clicks-and-bricks shops. Direct sales from producer to consumer. For producers, like Dell Computers e-commerce is an excellent marketing channel for directly reaching the consumer. Therefore, the retailer will lose some of the market in favour of the producer [Eras, 2000] The last example shows that e-commerce is more than an important marketing tool. E-commerce makes it possible to bypass certain leading actors in the marketing channel, such as import companies, wholesalers, and retail organisations. Some marketing channels are expected to lose market share. In general, e-commerce is used as a promotion tool and as an on-line sales tool. In the latter case, the web site offers options for ordering products or services online. As a promotion tool, e-commerce uses the web site as a digital showroom to attract customers to physical shops or marketplaces ( generating in-store traffic ). The physical sites are then used as a showroom, service point or pickup point. E-commerce as a promotion tool will not really affect the distribution of goods as much as it will affect on-line sales. The distribution of goods will vary, depending on the type of business. Traditionally, a relatively large share of the distribution of goods occurs through wholesalers and distribution centres, owned by producers, importers, branch organisations and logistics service providers. The retailer s point of sale acts as the end of the professional distribution chain. The retailers play an important role in traditional marketing channels. Their retail outlets are important from a marketing and distribution point of view. These points of sale have both a promotional and sales relevance in the marketing channel. From a distribution point of view, these points of sale also have a storage and transhipment function. Until the moment of purchase, the goods are kept in stock. From that point on, consumers take care of the transportation of the goods to their home or, in certain cases, the goods may be delivered to the customer s home. In contrast, in the case of e-commerce, the consumer does not collect the goods at a physical point of sale and the goods are delivered at home in almost all cases. 6

In the past, traditional store-based retailers have been rather sceptical about the prospects of e-commerce and how they can benefit from it, because of (based on [TNO-STB & CURDS, 1996]): their considerable investments in land and property; lack of experience with this new technology; the required investments in software, hardware and personnel; their monopoly on the sales to the customer; customers pay a significant proportion of the transport costs by picking up the goods at stores. E-commerce will make these costs visible. In general, a respectable share of commercial transactions with e-commerce go wrong because of fraud (customers do not pay or return the delivery but without contents). This is a major problem for the whole e-commerce business. On the other hand, some retailers have embraced e-commerce because of: increased competition; technological developments which improve the facilities for e-commerce; retailers can now see success stories in e-commerce; the fact that e-commerce is an inevitable next step in marketing. TNO-STB & CURDS [1996] concluded that e-commerce might not be widely adopted as a feasible substitute for shopping. Although the study was based on indepth case-studies of retailers and producers, they could not foresee in the development of businesses, whose main capital consisted of computers, an Internet connection and a website. E-commerce is also an important step towards demand-driven supply chains; e- commerce fits within the concept of demand-driven supply chains [Eras, 2000]. E-commerce makes it possible to cut down on supplies and to cut down on all kinds of costs. In particular, e-commerce (B2B) has become an important element in the automation of the supply chain. 2.4 E-commerce potentials With respect to B2C e-commerce, there are three important factors in the use of e- commerce service: The number of potential e-commerce customers and their characteristics, for instance their appreciation of time saving (value-of-time factor) and convenience. The number of suppliers of e-commerce services and the quality of their services; and The type of products and services that are advertised by the suppliers of e- commerce services. TNO-STB & CURDS [1996] also mention some more exogenous factors that influence the use of e-commerce: advances in distribution systems, which will lower the costs and improve the services of home delivery; increases in road congestion and parking costs, which will make car-based shopping less attractive; changes in urban spatial organisation, which will make conventional shopping journeys longer and more costly. In each of these cases, the adoption of e-commerce could be interpreted as a response to reduced accessibility to conventional retail facilities, whether through time constraints or geographical constraints. In this chapter, we will discuss the first three factors. 2.3.1 Potential e-commerce customers The volume or number of potential e-commerce customers often indicated by the number of Internet users. This does not mean that all Internet users are potential 7

e-commerce customers. Research shows that the level of experience with Internet is an important factor for the use of e-commerce services. The group of potential customers consists most likely of people with a high value-of-time factor, such as double-income households, with or without children, and single households. In particular, working women place an importance on time savings [TNO-STB & CURDS, 1996]. Table 1 Estimate of Internet use in the Netherlands, Europe, the USA and Japan in 1999 [Source: OECD (2000), Van Kooy (2000); Nijhuis (2001); US Department of Commerce (2000)] the Netherlands Europe USA Japan 24 percent of all 12-24 percent of 59-60 percent of 21 percent of all inhabitants all inhabitants all inhabitants inhabitants At the moment, most consumers are concerned about electronic payment as part of the transaction. They feel that transmission of the credit card number through the internet or other means of payment is not safe enough. It means that if a new technology makes the consumers feel easy on the security matter, e-commerce will attract more people. Another barrier concerns the reliability of the assured delivery time of the goods. A number of e-commerce businesses had or still have problems with their logistics. 2.3.2 Suppliers of e-commerce services E-commerce suppliers can be divided into two categories: companies that only have a web site, and companies with a web site and transaction capabilities for online sales. Although most companies have a web site (in the Netherlands in 2000, large companies: 85 percent; medium-size companies: 56 percent; small companies: 16 percent), only 10 percent of all companies offer web-based transactions. The quality of the web site is also an important factor; that is, the access time, ease-of-use, and so on. 2.3.3 The type of products that are presented In theory, e-commerce can be used for all kinds of products and services. Although, services, like banking and insurance, are delivered by the Internet, we will not discuss them, since there is no direct relation with freight transport. In practice, e-commerce is used for a limited, but expanding group of products. TLN [Transport en Logistiek Nederland, 2000] distinguishes three product categories. This categorisation is not based on any characteristics of the goods, but relates to the dominant factors in consumer behaviour, namely Convenience goods; Shopping goods; Speciality goods. We will now discuss and define the characteristics of each group. Convenience goods, such as books, CDs, confection clothing, simple banking services and insurance are relatively cheap or have a standard quality. The risk of a bad purchase is small. These are products for which clients do not wish to spend too much time on purchases, and are willing to order at a distance. This does not necessarily mean that purchasing these products by e-commerce must be economical as well. Products for which delivery costs are relatively high compared to the price of the product, for instance food products, can still be sold by the Internet as long as the customer is willing to pay for the convenience. For some products, the price will be decisive. These are what we call shopping goods; they are goods and services that are not frequently purchased and in which some sort of risk of a bad bargain is involved, or where considerable price differences occur. Customers collect and compare product information before making a purchase. E-commerce plays a role because the Internet makes it 8

possible to collect the required product information, and makes it quite easy to shop around and look for better prices Our third group is what we call speciality goods. These goods and services are expensive or have long-term implications, and therefore the customer plans their purchase very carefully. E-commerce plays a role here because Internet offers an easier access to a wider assortment of goods and services. In this case, e- commerce is only used to acquire product information. The difficulty of this categorisation is that it is not easy to specify which products are convenience goods and which products are shopping goods. For instance, although CDs are, in principle, convenience goods, the prices of certain expensive CDs can vary greatly, and thus, some consumers will wish to shop around. In that case, these CDs are categorised as shopping goods. Information technology available might change the consumers' behaviours. According to Forrester Research [Van Stijn, 2000], 40 percent of car purchasers in the United States utilise the Internet in some way in 1999. The smart American consumers first acquire product information by browsing the Internet and by going to nearby car dealers. After deciding which car they like to buy, they will find out a favourable and convenient dealer via the Internet. What makes it interesting, is the internet search function to seek out the dealer, who offers the car at the lowest price, or who delivers the car immediately from the holding stock. According to a research by Ernst & Young [Browne, 2001] books and cd s are most popular to buy on-line (see ) Table 2 Categories of goods purchased by on-line shoppers {Browne, 2001] Products Purchased by % of on-line shoppers Products Purchased by % of on-line shoppers Books 66 % Flowers 18 % Cd s 58 % Tickets (sports or 17 % entertainment) Computer supplies 38 % Food and beverage 13 % Flight tickets 26 % Fashion, men 12 % Video s and dvd s 19 % Fashion, women 12 % In the Netherlands, the Internet is used mainly for buying computer hardware or software (33 percent), holiday bookings (25 percent) or entertainment (books, CDs). These percentages refer to the share in spending on the Internet. Future developments might affect these market share figures, as new players enter the market. For example, banking and insurance companies are starting to use e- commerce. Even supermarkets have entered the e-commerce business. In the Netherlands, it is estimated that, in the long term, about 10-15 percent of the sales of food products will come from the Internet. Ahold, a large supermarket-chain with a market share of about 40 percent (which is also active in the USA and Asia), has stated that within 5 to 10 years, about 10 percent of their sales in the Netherlands, or about 0.45 billion Euro will be related to e-commerce. By comparison, in 1999, e-commerce in the Netherlands only had an average market share of about 0.3 percent of all sales in the retail business. As discussed earlier in this chapter, other groups of enterprises are trying to compete with retail organisations by using e-commerce. The food sector shows this very clearly. In this sector, parcel delivery service organisations and couriers have entered this market. For instance, FedEx launched Netgrocer in the USA. 9

Netgrocer sells a variety of food-products (not perishables) all over the USA. TNT Post Group (TPG) in the Netherlands has also set up a national home delivery service for food products [www.boodschappenlijn.nl]. Another interesting example concerns the Dutch company Boxatwork.com. This virtual retailer offers fully customised, integrated services to both employers and employees. Employers can integrate services needed for the business process such as room reservations, car rentals, etc. into one intranet-site. This site also offers additional services for employees such as grocery shopping, dry cleaning and whatever other services the employer wants to offer. Goods are delivered and picked up at work. Boxatwork.com provides the necessary facilities, such as refrigerators. In recent years, the virtual retail organisations, also called e-tailers have operated as the driving forces behind e-commerce. They have made a promising start, however, many companies have had difficulty in achieving commercial success. The high costs (both expansion costs and distribution costs) have made these activities commercially unattractive for the time being. In particular, the logistic aspects played an important role. Currently, we are finding that many of these organisations did not survive. In the second half of the year 2000, a large number of these organisations left the market, one by one. It is still not clear if the remaining companies will survive. Traditional retailers and the traditional mail-order businesses, however, have introduced e-commerce more gradually. They have profited from their physical distribution experience and critical mass of market share. It is now clear that they have learned from their mistakes in the past, so that the potential for making their e-commerce activities a business success is much greater now. 2.3.4 E-commerce: business-to-business segment This segment is organised via electronic marketplaces. An electronic marketplace is a web site where buyers and sellers meet to do business, though the extent of this transparency is different. In almost any business, one can find a number of these virtual marketplaces (e.g., TruckersB2B.com, Transplace.com); the transport sector also makes use of them. A distinction should be made between vertical and horizontal marketplaces. In a vertical marketplace, products and services are offered that are part of one production chain (for example: TruckersB2B.com to buy fuel, tyres or vehicles). In a horizontal marketplace, different buyers and sellers meet (for example: Transplace.com). The products on offer can be part of different production chains. National Transportation Exchange [www.nte.net] in the United States is a well-known non-asset thirdparty logistics service provider (3PL). It provides a marketplace where qualified 350 shippers and 200 carriers can meet, and exchange information on transportation demand and supply. Recent studies by the research agency Forrester Research [Van Stijn, 2000] predict that by the year 2004, e-commerce in the B2B segment will be a market of about US$ 2.7 trillion world-wide; according to AMR, the market will be worth about US$ 5.7 trillion. This segment is now worth US$ 0.7 trillion. 2.5 Market share of e-commerce Financial figures shows that B2C e-commerce is a relatively small market compared to B2B e-commerce. This can be illustrated with financial figures from Japan. In Japan in the year 2000, the total business returns for all e-commerce activities was about 22,424 billion Yen (or 460 billion Euro). B2C e-commerce generated only 824 billion Yen (17 billion Euro), or only four percent of the total e- commerce activities (B2B + B2C). This is partly because intermediate goods markets include B2B transactions, not only in open market places, but also in the closed trade network using Internet EDI (Electronic Data Interchange). Figure 3 shows that in Japan, mobile phones are to some extent used for e-commerce 10

purposes (mobile commerce). However, we should not underestimate the magnitude of mobile commerce, as it has increased by 1,300 percent since 1999 - the first year of the IMPs. In Europe, mobile commerce is just starting. B2C (824 billion yen, 135 % up) internet contents contents exclusive for IMPs internet (including extra-net) internet mobile phone (IMP) net B2B (21,600 billion 50 % up) desk-top personal computers mobile phones note-book personal computers IMPs with micro-browsers e-commerce (22,424 billion yen, 52 % ) mobile commerce (59 billion yen, 1300 % up) Figure 3 E-commerce in Japan in the year 2000 [Nemoto et al., 2001] In the Netherlands, the Dutch Research Agency IDC [N.N. 2000] observed a yearly growth in business returns of 143 percent in 1999. The total business returns for all e-commerce activities was about 1.1 billion Euro. Between 147 and 209 million Euro was related to B2C. Maltha [2000] estimated the total value of E-commerce in the Netherlands in 2000 at about 2,1 billion Euro. This was about 0,53 percent of the gross national product in 2000. This time, the consumption of Dutch households was 395 million Euro. Almost as double as the year before. Table 3 shows the share of B2B and B2C in the Internet business in Europe, USA and world-wide. In the US, B2C represents 40 percent of the Internet business activity. It is noted that the definition and coverage of Internet business might be different among countries, which calls for detailed investigation. Table 3 Market share of B2B and B2C in the e-commerce business in Europe, the USA, Japan and world-wide [Sources: N.N, 2000; Van Stijn, 2000; Van Leewen, 2000; Nemoto, 2001] Europe USA Japan World-wide B2B 69 percent 60 percent 96 percent 90 percent B2C 31 percent 40 percent 4 percent 10 percent Total 100 percent 100 percent 100 percent 100 percent In 1999, the volume of trade by e-commerce was worldwide 58 billion US dollars. While in the year 2000, it was 132 billion US dollars. 2.6 Expectations Some studies in the years 1999 and 2000 showed huge growth figures for e- commerce business. For instance, in the Netherlands, for the next years (the year 2000 and on), a yearly growth of about 200 percent was expected. The estimate was based on the past average growth and expectations regarding technological improvements and the expected increase of services. However, the year 2000 did not turn out to be so successful for most Internet businesses, in particular for the new e-businesses that specialised in B2C. It is obvious that it is difficult to forecast even just one month ahead. One year ahead or even 10 years ahead is even more difficult. Nevertheless, the OECD has predicted that world-wide sales by e-commerce will grow from US$ 25 billion in 11

1995 to US$ 1,000 billion in the year 2005 [TLN, 2000]. Well-known advisors and consultants, such as Andersen Consulting, Forrester Research, Harris Interactive, Gartner Groups Dataquest and Ernst & Young all present very different figures. It is clear, therefore, that these predictions have to be used very carefully, particularly because we cannot even estimate what the current volume of sales by e-commerce is. For example, in the Netherlands estimates for the year 1999 lead to a range between 147 million Euro and 1.3 billion Euro (1 Euro is currently about 0.90 US$). The estimate for the average yearly growth lies somewhere between 150 and 250 percent, depending on the source. The Dutch Governmental organisation NOVEM [Braimaister, 2001] expects that in the distant future at minimum 15 percent of the commercial transactions by consumers will take place by e-commerce. Other sources say 9,2 percent in 2004 or 11,5 percent in 2005 [Braimaister, 2001]. In order to be able to monitor developments in the use of e-commerce, monitors are set up by organisations such as the OECD. These monitors make it possible to make more reliable predictions. Another aspect to consider is the expected market share of e-commerce. It is relevant to make a distinction between the type of products and the suppliers of these products. However, little information is available on the expected market share of e-commerce in the different consumer markets. Table 4 shows the expected market shares in the food sector in the year 2010 for the Netherlands. Table 4 Expected market shares in percentage of different types of shops for food products in the year 2010, in The Netherlands [source: Koster & Neuteboom, 2000] Type of shop Actual market share Expected market share in 2010 Large supermarkets (> 1,000 square 21 30 meters) Supermarkets 22.5 15-20 Neighbourhood supermarkets (<400 9.5 10 square meters) Discount shops 15 15 Specialist shop 23 10 Other channels (street trading, gas 9 8 stations, mail-order firms) e-commerce - 10-15 3 E-commerce and the demand for transport In this chapter, we will discuss how e-commerce will influence the demand for transport in relation to delivery of goods in urban areas. We will focus on the final link in the distribution chain, namely the delivery of goods to consumers. Delivery to the retail sector (related to B2C) will also be discussed. In the discussion about the influence of e-commerce on the demand for transport, three aspects play a role: E-commerce changes the demands for goods in terms of volume and in terms of the type of goods. E-commerce suppliers make use of different distribution concepts than traditional retailing. This means that e-commerce generates a different need for the transportation of goods. E-commerce could affect the number, size and location of physical points of sale, such as shops. In the competition with e-commerce, traditional retail outlets can be reduced or even increased in number or size and location can be influenced. Such changes could affect the traditional distribution of goods to retail businesses in shopping areas. 12

In this section we will discuss these three aspects. 3.1 Change in the demand for goods First, we will discuss whether e-commerce changes the demand for goods. An important question is if e-commerce substitutes existing demands for goods and services or if it generates additional new demands. There is clearly a specific level of substitution. However, this does not mean that the traditional retail sector will notice a decrease in sales. It is only when the increase in e-commerce use rises faster than the total consumers spending that one can speak of a shift towards e- commerce. In certain markets, such a shift is already taking place. Possible changes in the demand for transport TLN [2000] describes three possible options for how the demand for transport can be affected by e-commerce: E-commerce generates an extra demand for goods. It is conceivable that e- commerce could lead to purchases that would not have taken place in a situation without e-commerce facilities, for instance: Impulse purchases, when one comes across products on offer, while surfing on the Internet; Purchases of specific products at a distance, which otherwise would not have been bought, for instance, exquisite French wines. Discrete purchases, such as sexy lingerie. Products that are normally hard to find. Search engines on the Internet make it possible to find goods that are normally very difficult to trace. Products that can only be bought on the Internet, for instance software, developed by small companies. E-commerce reduces the demand for goods. This is the case when products can be transferred by the Internet, for instance by downloading. Consider publications, such as newspapers, ebooks, documents or brochures, music or software releases; when these products can be downloaded, there is no need for physical transportation. E-commerce changes the demand for goods. This is the case when other products are purchased by e-commerce then by traditional shopping. In particular young people in Japan, spend more on high end products, like mobile phones and less on more traditional goods, like cd s or books. E- commerce and m-commerce play here an important role. E-commerce will increase spending on consumer goods. According to the information provided earlier, convenience goods in particular will be sold more frequently by e-commerce. Theoretically, the reduction in transaction cost would bring a reduction in prices, which may encourage an increase in the amount of purchase. Another question is if e-commerce generates additional new demands. It is notable that in the B2C business, more customised products or more value added products can be ordered, manufactured, and transported to the consumers, who are more than willing to pay more prices for these products. From existing data, we could not judge whether the net amount of purchase has increased. This trend is hardly recognisable in statistics of consumer spending. For instance, statistics in the Netherlands show that consumer spending on consumer goods is more or less constant. This implies that some sort of substitution is taking place there. The phenomenon observed in Japan ironically indicates that the amount of purchase of ordinary consumer goods has decreased in order to cover payment of frequently changed models of mobile phones and communication charges. More observations for the different situations are required. 13

3.2 Use of different distribution concepts E- fulfillment The organisation of the actual delivery of the goods bought by e-commerce is referred to as fulfillment or e-fulfillment. E-fulfillment is of growing importance to e-commerce. Consumers buy within minutes goods by e-commerce but have to wait for days before they actual get the bought goods, at least when nothing goes wrong. At the start of e-commerce, the logistics part has been neglected or underestimated. Christmas season of the year 1999 made this very clear in the USA. The logistics part of e-commerce becomes more and more important because it appears to be the weakest link in the e-commerce chain and because it has become an important competitive factor. A high-quality and efficient delivery system for e-commerce goods is essential. E-fulfillment is different from traditional delivery of goods at retail stores. In this way, a shift to e-commerce changes freight transport in urban areas. E-fulfillment is based on: Home delivery; In small shipment sizes; With less consolidated transport; While goods come from a longer distance. E-commerce is a driving force for direct home delivery. The most important consequence of e-commerce, related to distribution concepts, is the fact that e-commerce is based on home-delivery in stead of delivery at a retail store. To some extent, the delivery at the peoples working place can be considered as a home delivery as well. E-commerce is a different marketing channel with different players, and makes use of different distribution concepts than the traditional retailing marketing channel. The distribution of goods to traditional retail shops is very different from the delivery of goods at homes. This indicates that e-commerce generates a different need for transportation of goods. The distribution of goods to retail shops consists mostly of the frequent delivery of packaging units, consisting of one or more boxes, crates, pallets, racks, roll cages or containers, filled with a number of homogenous goods. This is not the case with home delivery. Home delivery is usually only one (relatively small) item for each address. When there is some level of bundling, it consists of the bundling of very different goods for one neighbourhood, but the goods are not packed together. Table 5 shows the differences between the delivery of goods at retail outlets and e-commerce deliveries. Table 5 Differences between traditional deliveries and e-commerce deliveries Traditional E-commerce Delivery at retail stores Consumers shopping Direct home-delivery trips large quantities small quantities one piece delivery boxes, crates, roll plastic bags parcels cages, etc. homogeneous loads heterogeneous loads heterogeneous loads large trucks (vans) passenger cars small vans (trucks) one stop one or more stops many stops transport companies & own transport own transport mostly use of couriers and parcel 14

vehicle movements to and within shopping areas vehicle movements between shopping and residential areas services vehicle movements to and within residential areas no delivery failures no delivery failures many delivery failures If we look at the nature of e-commerce, one might conclude that e-commerce is very much like traditional mail-order services. Instead of ordering by mail or phone, Internet services are used. In fact, in both cases, the goods have to be delivered directly at home. However, there can be differences in the way these goods are delivered to the homes. Traditional mail-order services use their own facilities for administration, storage, order-picking and even delivery. Many traditional mail-order businesses also make use of courier services. New e- commerce businesses tend to outsource almost all administrative and logistic activities. In the case of e-commerce for supermarket goods, the situation is not so different. Before, the customer picked up these goods at supermarkets. With e-commerce, the goods will probably be delivered at homes as well. The difference can be found in the way of distribution. At first, the home delivery will occur from the local supermarkets. At a specific scale, the delivery will occur from dedicated distribution centres, directly to the customer. For home deliveries, Ahold, the largest supermarket chain in the Netherlands, first used like Streamline in the USA [N.N., 2000a] a dedicated distribution centre for home delivery, but in the past two years goods have been distributed to homes from the nearest large supermarket. The dedicated distribution centre collects the orders via Internet and then sends them to these supermarkets. The goods are delivered with the supermarket chain s own vehicles, which have different compartments for different goods. An alternative to home delivery is delivery at a pickup point. Ahold uses a pickup service and a home delivery service. In specific areas, customers pick up their goods at a Shell gas station that serves as pick-up point. About 11 percent of the e-tailers in the USA deliver the goods directly from the production locations. These e-tailers are in fact producers who bypass other intermediaries in the supply chain. Home deliveries are transported in small shipment sizes and just in time. This requires different logistic concepts. Home delivery is the core business for parcel delivery services and couriers. According to UPS [Groeneveld, 2000], about four to six percent of all their transport movement is already generated by e-commerce. A Dutch parcel service company, Van Gend en Loos [N.N., 2000b] expects that e-commerce will increase their number of customers by 50 percent within 5 years time (that is to say, E-tailers that will make use of their services). This implies that their number of collection points will increase from 6,000 addresses to 9,000 addresses per day. For Van Gend en Loos, this means that the number of delivery addresses, mostly home addresses, will be five times higher. The number of addresses will increase from 60,000 to 300,000 per day. Home delivery leads to less consolidated deliveries and thus to more freight traffic TLN [2000] proved that about 8 percent more trips are generated than in a situation without e-commerce activity. This could mean that the transport costs per delivery are higher in the situation with home delivery. The environmental costs could be higher (for instance, in terms of noise and air pollution) as well. In order to avoid this, it is relevant to 15

consider alternatives. In particular, ways to consolidation are very interesting from a commercial and environmental point of view. E-commerce increases the transport distance E-commerce makes it possible to order goods from any location the customer wants. In most cases, this hardly makes sense. However, for certain reasons, it can be beneficial to shop around. For instance, people in the Netherlands often buy products, like books and cd s in the USA because of the lower prices (due to lower taxes), or because products are introduced to the market sooner. The current practice shows that e-commerce customers often buy a product from farther away than when they bought it in the traditional way. E-commerce increases the transport distance of goods. E-commerce reduces passenger traffic For instance in the Netherlands, the behaviour of people in terms of number or type of physical movements, using car, bicycle or walking is not yet influenced by e-commerce. NOVEM, a Dutch governmental organisation for energy saving expects a reduction of car traffic or use of public transport due to the fact that consumers are going to use e-commerce [Braimaister, 2001]. In order to monitor the impact of ICT, including E-commerce, in the Dutch region of Eindhoven, a multiyear investigation started in the year 2000 (Ministerie van Verkeer en Waterstaat, 2000). 3.3 E-commerce affects the number, size and location of physical points of sale, such as shops In the competition with the traditional retail sector, e-commerce could affect the number and location of physical points of sale, such as shops. E-commerce business will not completely replace the traditional retail business, however, some influence can be expected on the number, size and location of physical points of sale. This implies that e-commerce might affect the traditional distribution of goods to retail businesses in shopping areas. E-commerce will not necessarily decrease the need for retail floor space. Real estate managers expect that e-commerce will probably not lead to an absolute reduction of the total floor space for shop-keeping but it will lead to changes in the retail sector. E-commerce will probably reduce the need for floor space in some types of convenience goods (music stores, bookstores, travel agencies and banks). A second type of influence on the need for points of sale concerns shopping goods, products for which potential customers are going to look for information and compare prices on the Internet. Less space will be needed to display the products. A third type of product has to do with daily housekeeping. Supermarkets have very efficient logistics systems. In the short term, home delivery of these products at a large scale is not very attractive because of the high costs. But for certain types of customers with high value-of-time factors, or physically disabled people, it is certainly attractive. Supermarkets will use e-commerce in order not to lose market share to their competitors. The use of e-commerce will not grow at the expense of supermarket floor space. The market share of e-commerce is expected to be, according to some earlier mentioned sources, at maximum 10 to 15 percent. The substitution of traditional retail will be limited. This means that there will be some, but hardly noticeable, influence. The expectation is that e-commerce businesses with a certain level of scale simply need traditional shops. Thus, at the same time more shops will be needed. Retail organisations, such as Wal-Mart, The Gap and 1-800-flowers (all with a considerable market share in on-line activities) are expanding the number of 16

stores rapidly. The advantage of a physical shop close to the customer, combined with e-commerce, is that the customer who finds the product on the Internet is able to pick up the product right away, without having to wait for days. Table 6 Expected influence on number and size of points of sale Product type/ Shopping behaviour convenience daily (grocery) shopping comparative shopping speciality goods Current marketing and distribution via: music store, book store, supermarkets Computer store, Fashion store Audio/video store jeweller, specialist shops E-commerce marketing channel WWW for orientation and ordering WWW for ordering goods (shop for orientation) WWW for ordering goods WWW for orientation, shop for ordering E-commerce distribution channels home delivery via distribution centre home delivery via shop home delivery via distribution centre or shop pickup via shop or home delivery via shop Impact on number of locations points of sale and space decrease stable less but larger stable, but smaller TNO-STB & CURDS [1996] expect that e-commerce will have its effects, not on high street quality retail, but first, on urban retail discount centres and retail in massive goods, and second, on small towns and rural areas where local outlets might disappear or convert into distribution outlets for the e-commerce services of external retailers, possibly with some conventional shopping on the side. E-commerce will not affect the (inner city) shopping centre Investors in commercial real estate in the Netherlands expect that city shopping centres will not lose business because of e-commerce developments [IVBN, 2000]. These locations combine leisure with shopping and are therefore very attractive for leisure shopping, which will become increasingly important. Neighbourhood shopping centres become increasingly more attractive because they are close to the customer and can serve as pickup points for e-commerce businesses. The larger district shopping areas will have to fear competition from e-commerce, according to these investors. In these shopping areas, the share of retail businesses selling convenience products is high. In addition, they are not very attractive for leisure shopping. The impact on the demand for transport of goods is, because of the reduction or relocation of physical points of sale, like shops very unclear. First of all the consequences of e-commerce on the type, size and location of physical points of sale seem hard to determine and second it is not certain how it affects the distribution of goods in urban areas. 4 Logistics response: e-logistics and e-fleet management The home delivery of goods requires a different service than traditional freight transport. The quantities of the goods are smaller and comprise specific types of goods, unlike traditional freight transport, which is more business-to-business oriented (larger volumes and all types of goods). The e-commerce businesses are trying to compete on price in certain markets with traditional businesses. At the same time, they have to deliver the goods fast and in time (and in good order). Therefore, the logistics costs and the quality of services are of great concern. Automation of the entire administrative process is one of the key elements for reducing costs and improving quality. Some terms include: 17

Enterprise Resource Planning (ERP), automation of the supply chain, and eprocurement (tendering by Internet). In addition, customers, who order their goods on-line expect that the goods will be delivered almost immediately. The home delivery service must match with the easiness to buy goods on-line. In-time and reliable transport services are required. Home delivery services will be based on differentiation of on-time delivery A differentiation in home delivery services will most likely be based on the type of products that are delivered to peoples homes. Obviously, a refrigerator has to be transported differently than vegetables. However, for most products, which do not require special facilities, a differentiation of the service will be based on the time-span between ordering and delivery. Already, in some countries, customers can choose between a 24-hour delivery, a 48-hour delivery or a 72-hour delivery. 4.1.1 Role of couriers, postal services and parcel services E-tailers (the B2C e-commerce businesses) have three options for their distribution problem: 1. Storage and distribution by themselves; 2. Outsourcing of storage and distribution; 3. Distribution direct from the production locations. Options one and three, in most cases do not provide a solution in terms of costs efficiency and reliable transport services. Outsourcing storage and distribution is therefore a common business practice for e-tailers. Couriers, postal services and parcel services will have a growing share in the distribution of the goods, generated by e-commerce Research in the USA shows that many e-tailers do not have the capacity, the capital or the knowledge to do the distribution themselves. The distribution activities are sourced out to specialised couriers, such as UPS, Federal Express or US Postal Service. The current transport market for e-commerce business is to a large extent ruled by world-wide operating logistics service providers and couriers, such as UPS, FedEx and DHL [Eras, 2000]. They have built a long tradition of home delivery. Couriers such as UPS have developed a whole range of administrative and logistics services for an optimal organisation of the logistic channel (e-logistics). The integration of tracking and tracing in the logistic process is part of the concept. For e-commerce, they provide integrated distribution services, in terms of the distribution of the goods, including all administrative services, tracking and tracing, invoices, repairs and the return of goods. UPS, FedEx and DHL want to control the global market for logistics services related to e-commerce. Postal services, such as Swiss Post in Switzerland, also welcome e-commerce, and provide administrative and logistics services for e-commerce businesses. If these couriers and postal services are able to combine the activities of different businesses, some level of consolidation and thus a reduction of costs, is possible. For instance, Swiss Post [N.N., 2000] was able to reduce logistic costs by 25 percent by combining services for seven e-commerce businesses. 4.1.2 Digital market places Logistics service providers can make better use of truck capacity by consolidating cargoes than the shippers. There is still a need to reduce empty mileages and to raise the loading rate. The cargo and truck matching business is not a new but a traditional practice between freight carriers. For example, in the case of a freight carrier requested to transport a cargo to an inconvenient destination and another carrier having no scheduled cargoes on his way back to the destination, they have economic incentives to trade. Matching systems using fixed phones or pagers exist and work to some extent in the local areas. 18

Market places of logistics services via the Internet will be economically feasible under certain conditions. The Internet made the situation more open and transparent. Therefore carriers have more chances to trade the logistics services. Due to Internet more freight carriers with different profiles are invited, who otherwise abandon the trade. Not only the carriers but also the shippers can join the market. Furthermore, when the prices of logistics services become a stable market price and a common knowledge, more and more carriers and shippers are confident to trade the logistics services. One of the well-known marketplaces is run by the NTE in the United States [http://www.nte.net/]. They do not provide any transportation or warehousing services by themselves (then called non-asset 3PL), but manage a market place where pre-qualified shippers and freight carriers identify their available shipment or capacity with business requirements via the Internet. They automatically filter their requirements to identify the compatible trading partners within a couple of hours, which is called real-time transportation procurement services. These sorts of businesses have started in many countries. Dozens of cargo and truck matching system were established since 1999 in Japan. Unfortunately, however, most of them do not make profits. The exceptionally successful sites are managed by the dominant freight carriers who can benefit from further adjustment of fleet operations based on offers from small and medium-sized carriers. In the Netherlands, a digital market place for the delivery of goods in urban areas was initiated in June, 2000. This market place, called Urbizz-engine is an initiative of the national Platform for Urban Distribution. An important warning is made on the market place of logistics services [http://www.eyefortransport.com/archive/newslettered29.shtml]. Auction models were of value to shippers only in cost savings, and this was often associated with extra risk which comes about from using untested/unknown transportation providers, the cost savings did not outweigh the risks involved...plus the fact that contract transportation makes up 90% of the market resulted in a shipper receiving better rates only on a small proportion of it's logistics requirements for an increased risk. At least it can be said that any market place could not survive without a mechanism to reduce the associated risks. 4.1.3 Cooperative delivery systems Visser et al [1999] explains that by consolidating the goods flows, an improvement can take place in terms of cost reduction (fewer vehicle kilometres) and/or quality improvement (transport services with higher frequency). By consolidating transport flows through joint distribution, it becomes possible to optimise freight transport to a higher extent than when optimising a single logistic channel. A traditional effort for consolidation is called cooperative delivery system to deliver and pick up cargoes with different destinations jointly in the urban area. Usually a common terminal is introduced for consolidation and deconsolidation purpose, and a carrier is commissioned to transport cargoes on behalf of all the participating carriers. Two major driving forces play a role for the development of cooperative delivery systems within urban areas: transport optimisation and customer service. 19

The first driving force, transport optimisation, leads to consolidation on a local level. Until recently, city logistics was considered a way to optimise transport by means of consolidation of the urban goods flows. The transport service is mainly focused on the re-bundling of goods flows to destinations such as retail shops ('bulk' delivery, or on time delivery). The fast implementation of e-commerce makes it desirable to facilitate its transport flows in a consolidated fashion. cooperative delivery systems are capable of consolidating these transport flows by providing the right service ('on time delivery'). From a transport optimisation point of view, city logistics also makes it possible to offer storage services at a central location (outside urban areas) as well as an on-demand delivery service to the shop or to the customer's home. Thus, a transport move can be avoided or the transport move can occur in a consolidated fashion. In summary, from a transport optimisation point of view, the following three types of transport services within urban areas could be offered: final distribution of consumer goods to retail shops direct delivery of consumer goods at homes (related to e-commerce) on-demand delivery in combination with storage services The second driving force, customer service, could also lead to transport services to provide. Some services have been discussed or recently implemented to make it easier for the customer to shop by offering a sort of delivery service for goods that are bought in a shop. However, e-commerce can benefit from this as well. The retailer (or e-tailer) delivers the goods at a pick-up point or at home. This kind of customer service requires one or more of the following transport services: On-demand collection of goods at a retail shop or a central storage location On-demand delivery of these goods at home On-demand delivery of goods at a pick-up point These services can be offered in a consolidated way by a combined collection and distribution of the goods, and by using a central transfer point at a central location. Cooperative delivery systems are theoretically attractive, but difficult to implement. It is not easy to monitor costs and benefits of the systems, and to make their distribution fair among the participating carriers with different cost and revenue structure. Though carriers having a small number of cargoes benefit a lot from the system, carriers having enough cargo do not benefit nor have any incentive for cooperation. This is why most of the efforts had failed in the past [Nemoto, 1997]. Cooperative delivery systems will be realised with the help of the Internet and ITS The Internet and Intelligent Transport Systems (ITS) might make it easy to share shipment information, vehicle location, delivery status information and so on, so as to provide more opportunities for the cooperative delivery system. The promising tool is the Internet Mobile Phone (IMP) that has ability to transmit both images and text. Already, the dispatchers in some carriers communicate collection and delivery instructions with visual data directly to the drivers. An innovative pilot project conducted in 2000 by the Japanese Ministry of Land, Infrastructure and Transport (MLIT), was about a delivery information sharing system for cooperative system consisting of small and medium-sized carriers. In this project, the drivers are requested to report the delivery status of cargoes via the IMPs with a user-friendly interface. The status information is stored in the Web site and shared among the carriers, so that the cooperative system could coordinate the delivery order of the carriers concerned, if necessary. ITS will provide more opportunities to improve the efficiency of fleet management The application of ITS provides carriers a competitive edge in delivery efficiency and customer satisfaction. In Japan, couriers handling small parcel deliveries provide tracking information services via the IMPs. At present, time-sensitive 20

shippers and consumers can check the position of 98 percent of 6.4 million parcels transported by 10 major couriers a day. Actually, the position is not realtime based on GPS data, but estimated based on bar-code records scanned at pickup/delivery points and consolidation/de-consolidation terminals. Real time traffic information is available to the drivers via the IMPs, as well as the dispatchers. In principle, it is desirable that the dispatchers control all the delivery orders and the routing. However, the drivers are expected to respond properly to the unscheduled events such as additional shipment order, diversion of the destination, and so on. The traffic information makes it possible for the drivers to estimate the travel time and to respond to the customer in a timely manner. Still, they need to consult with the dispatchers in order to confirm the change by phone or by e-mail. Cooperative delivery systems in urban areas, generally referred to as city logistics, lead to some level of consolidation. The consolidation within urban areas by city logistics can be expanded by combining this process with consolidation at the origin of the transport flows by combining different logistic networks. This is called network logistics and is defined by Van Binsbergen and Visser, 2001. City logistics and network logistics make use of special transport services provided within urban areas from a central location. In an optimal situation, a regional freight centre or logistic park is the home base for these transport services, transhipment and storage activities. Digital market places or portals, are able to play an important role in concepts, such as city logistics and network logistics. These market places match supply and demand of transport in a transparent and most flexible way. Some level of optimisation of transport will take place. It can lead to costs optimisation and a higher level of service. 4.1.4 Need for new facilities As mentioned above, the increase of home deliveries in combination with the poor traffic situation in most dense urban areas makes it necessary to seek out possibilities for consolidation. To promote consolidation or cooperative delivery system, new facilities for temporary storage are expected to play a role. The introduction of forward storage is one such option which is frequently mentioned. This means that buffer stocks will be situated as close to the customer as possible, to enable fast delivery and high reliability of shipments. Meanwhile, close to or within urban areas, facilities for storage will be required for delivery as well as for buffer stocks. Although the concept is very old, it is likely that it will be needed now more than ever with these new developments. For example, storage facilities can be created within shopping centres for buffer stocks, or at pickup points. Storage facilities near or inside urban areas Another aspect of home delivery that can be solved with these storage facilities is the fact that the receiver will not be at his home. In that case, four scenarios are conceivable: The delivery goes back to the shipper - this scenario is unattractive for all actors involved and will be avoided as much as possible. The carrier tries again at a different moment - this generates extra costs for the carrier but is considered as a service. The receiver picks it up at a specific pick-up point - traditional postal and parcel services make use of pick-up points such as post offices and small outlets. The carrier leaves his delivery behind in a specific facility at the receiver s home in a locker. Ideas about such facilities at homes exist, but are very limited in practice. 21

Lockers at shops, homes or public places and pick-up points for delivery and pick-up at any time can therefore be one of the new facilities. Lockers Distribution of goods to shops, and home deliveries have become more difficult, because deliveries occur more and more at different times (for instance nightdistribution ) when the shopkeeper is not present, or at moments when consumers are not at home. Lockers at shops or at homes (the so-called Unattended Delivery Unit or UDU) can be answer to this. In Japan, there are two kinds of lockers, for pick-up and delivery purposes. The former ones are located in major JR (Japan Railway) stations, while the latter ones are equipped in some of the large scale condominiums. Pick-up points Within urban areas, facilities will be needed to act as a pick-up and delivery points (or Collection and Delivery point [Browne, 2001]) for retailers and customers when goods do not have to be or cannot be delivered at the door. Temporary storage facilities will be required. The concept of local pick-up points is described in Brouwer et al. [1997] These facilities can be located near shopping areas or shopping centres, in particular near parking facilities [see also Van Binsbergen and Visser, 2001]. The pick-up and delivery services can be combined with other services, for example, like the post office services in the Netherlands. In Japan and in small towns in North America, it is common for small retail outlets also to offer this service both for extra revenue and in the hope of generating more in-store traffic. For instance, local bookstores serve as pick-up and drop-off points for UPS. In countries like Japan, convenience stores are believed to be promising delivery points for goods ordered via e-commerce, because they are densely located in urban areas within walking distance, they are open for a long time of day (e.g 24 hours), and they can settle accounts with the consumers on behalf of the e-retailer. 5 Conclusions Based on the literature review, we can now formulate our conclusions on how e- commerce affects the distribution of goods in urban areas and on the role of e- logistics and e-fleet management. In general, the literature is very positive on the adaptation of e-commerce. The presented figures show a growth of more than 150 percent yearly. However, at the moment, a large share of e-commerce deals with business-to-business transactions. The share of business-to-consumer transactions is still small, not only compared to business-to-business transactions but also compared to traditional retailing. E-commerce continues to play a more important role in business-to-business transactions than in the consumer market. M-commerce, that is, e-commerce by mobile phones, has been a relatively recent introduction to the market. Some expect that m-commerce will gain, within the next two or three years, a larger market share than e-commerce in the business-to-consumer market. E-commerce is used as a promotion tool and as an on-line sales tool. When e- commerce is used as a promotion tool, the distribution of goods will still occur in the usual way. However, as an online sales tool, the marketing channel changes and thus the distribution channel will also change. First of all, e-commerce is strongly associated with home delivery. Home delivery is very different from traditional delivery to retail businesses in shopping areas. Another aspect is that besides traditional retailers, also other businesses are active in the e-commerce business, for instance mail order businesses, new e-businesses ( e-tailing ), and producers. These companies use different distribution concepts than retail businesses. The literature review provided no clear insight in how the distribution of goods will be affected but we were able to specify three important aspects: 22

E-commerce could change the demand for goods in terms of volume and in terms of the type of goods. E-commerce suppliers make use of different distribution concepts than traditional retailing. E-commerce could affect the number, size and location of physical points of sale, such as shops. This implies that e-commerce might affect the traditional distribution of goods to retail businesses in shopping areas. E-commerce could lead to changes in consumer behaviour. It could mean that not only consumers are stimulated to buy more, but also that they shift their mode of purchase from traditional shopping to e-commerce. Such a shift could lead to a change in the number, size and location of shops. Literature suggests that such a shift is taking place and that it will have some implications for the retail sector. The most important aspect of e-commerce is that it stimulates home delivery. Home delivery is based on totally different distribution concepts than traditional deliveries at retail businesses. We found one reference [TLN, 2000], in which the influence of home delivery on freight traffic is estimated. One important issue to consider is that home delivery leads to less consolidated deliveries and thus to more freight traffic. More freight traffic is, from an environmental and commercial point of view, a less attractive option. Figure 4 The consequences of ICT for freight transport in urban areas [Nemoto et al, 2001] internet (e-commerce) more efficient interneted I cybermall(b2c) more customized products inform ation sharing (B2B) one-to-one m arketing (B2C) more value added products substituting shopping trips global procurem ent + + + + freight ton + & ITS (e-logistics) (e-fleetm anagem ent) new business model reverse auction (C2B) auction (C2C) more efficienttransaction courier,3pl,4pl (L2S) delivery & collection points (L2L) advanced logistics market m atching cargoes and trucks (S2L,L2L) cooperative delivery system (L2L) more efficientlogistics route planning ti (L2L) cargo tracking (L2S) direct/jit delivery pick-up points & lockers outsourcing logistics urban consolidation optimized routing - + - - - - - ton-km + vehicle-km + vehiclein urban areas + : increasing -: decreasing As an answer, different ICT-applications in terms of e-logistics and e-fleet management will be adopted by the transport sector and provide a sufficient level of consolidation. We discussed the role of couriers, postal services and parcel delivery services, digital market places, cooperative delivery systems and supporting facilities, such as public storage facilities near urban areas, pick-up points and lockers. But also ITS could have a positive effect on transport efficiency and customer service. As Figure 4 shows the three ICT-applications (e-commerce, e-logistics and e- fleetmanagement) influence the distribution of goods within urban areas on different levels. E-commerce, in general, is expected to generate extra freight transport volumes (in terms of tons), at longer distances (in terms of ton-kms), more traffic (in terms of vehicle kilometres). On the other hand, outsourcing of logistics, cooperative delivery services, optimised routing lead to consolidation and is expected to reduce traffic (in terms of vehicle kilometres). According to Broens, Demkes & Verduyn [2000] two extreme scenario s are possible: E-combustion scenario. The logistics of e-fulfillment focuses entirely on service. Hardly any consolidation takes place. 23

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