Logistics Challenges for Ecommerce Businesses
6 Key Logistics Challenges for Ecommerce Businesses in the GCC
The GCC region, in line with the rest of the pandemic-affected world, has seen an explosion in demand for online shopping.
Kearney predicts that the Middle East ecommerce market, which grew from $5bn (USD) in 2015 to $24bn (USD) in 2020, will balloon to around $50bn by 2025.
While the figures may make for exciting reading, there are significant fault lines in the GCC region that need to be addressed for this prediction to become reality.
This article examines six of the most exigent logistics challenges for ecommerce businesses in the GCC to overcome, and proffers some ideas for circumvention, which, if you’re engaged in online retail here, you might want to consider.
In a nutshell, the Gulf region does not have sufficient modern warehousing infrastructure to cope with the massive demand for facilities by online retailers. This is true for dry goods storage as well as cold storage.
3PL and logistics operators in the Middle East ecommerce market are leading the demand for digitized fulfillment centers but are hampered by inefficient warehouse management and underutilization of logistics assets, according to a study by Frost & Sullivan. For example, available warehousing space is often used inefficiently. Many warehouses in the region, especially those in rural areas, lack the technology and resources to service the same-day delivery demands of ecommerce businesses, economists say.
Other factors hampering the development of the GCC warehousing sector include the following:
Lack of Skilled Labor
Most workers in the GCC are immigrants from neighboring countries and South Asia who often lack logistics experience and skills. Ecommerce companies who manage to find skilled workers abroad must go through the arduous process of sponsoring them and registering them as full-time employees—a time-consuming and bureaucratic exercise.
Warehouses are Concentrated in Urban Centers
With a dearth of fulfillment centers in smaller towns and villages, the challenge for etailers is to transport goods along the supply chain for long distances over rough terrain in searing heat.
Lack of Coordination Within the Warehouse
Due to the surge in online orders, warehouses that have not introduced digital management systems are battling to manage operational workflows, from picking, packing, and delivery to updating inventory in real-time. This results in delivery delays and frustrated customers and could ultimately batter the etailer’s bottom line profits.
Not Enough Quality Checks
With the increased pressure on warehouse staff to process orders rapidly, managers tend to compromise on quality checks. This would be a mistake. Damaged or inferior goods could end up being delivered to customers, denting the image of the business, and leading to a high rate of returns.
Solutions to the Middle East’s Warehousing Challenges
If the region is serious about exploiting the full potential of the ecommerce wave, logistics companies and governments need to invest in infrastructure as well as digital management systems to help optimize and manage the day-to-day operational flow of a warehouse. Unless warehouses can receive, process, and ship products efficiently, accurately, and quickly, the ecommerce boom may soon begin to lose momentum.
2. First-mile Pickup Issues
Many online retailers complain that it is difficult to pick up products from small to medium-sized businesses because the GCC market is structured around shopping malls and SMEs prefer to sell their goods in-store rather than online.
A Kearney study showed that just 36 percent of SMEs in the UAE have invested in an online channel to supplement their brick-and-mortar operations. Just four percent have plans to sell online in the future.
This means that product pickup is mainly from large companies and big brands, limiting the range of products available online.
Solutions to the Middle East’s Pickup Challenges
One of the reasons that SMEs are hesitant to establish an online sales channel is that pickup-center locations tend to be some distance from their stores. To overcome this obstacle and speed up collection and processing times, ecommerce ventures should site their pickup centers as close as possible to clusters of SMEs and other suppliers—in other words, in the vicinity of shopping malls.
A better solution, of course, is for etailers to establish fulfillment centers stocked with products that will be readily available as soon as an order arrives.
To cut down on pickup costs, some economists recommend integrated pickup and delivery on the same transport route. The logistics of such an arrangement, though, are likely to be very complicated to organise without a digital transport management system in place.
3. Last-mile Delivery Complexities
While several oil-rich Middle Eastern countries have advanced infrastructures, the region has a long way to go before it can claim to compete with more developed economies. Local and regional logistics are surprisingly inconsistent. Last-mile delivery companies face a host of ecommerce logistics challenges, among them the following:
Vague Delivery Addresses
The absence of a universal address system affects delivery speed and increases the risk of delivery failure. Often there are no street addresses for homes and businesses, leaving couriers having to navigate by GPS or by using landmarks to guide them. According to Dubai-based venture capitalist firm Mavericks, last-mile delivery failure rates are around 15% in the UAE and 40% in KSA, due mainly to the inability of logistics companies to find customers’ addresses.
Cash Payment Culture
Although gradually changing, COD and CCOD remain the favorite payment methods in the GCC. While this culture is to the advantage of the customer, it carries the following risks for the vendor: - Delivery rejections by disgruntled customers - Refusal to accept the package due to buyer’s remorse - Inability of the customer to pay the agreed price - Delivery agents carrying large sums of cash can become targets for robbers.
Solutions to the Last-mile Delivery Complexities
An effective way to meet the ecommerce logistics challenges of last-mile delivery in the Middle East is to work with a technology-driven delivery company, such as Shipa Delivery.
Such companies offer the following perks: - Technology that allows two-to-three-day lead times as well as on-demand deliveries - Apps that can be downloaded onto a customer’s mobile device - Customers can place a pin on a map so that delivery drivers can more easily find them - Economical rates for local and regional deliveries - Rapid processing and transfer of COD and CCOD payments
4. Returns Management
According to researchers, online shoppers are three times more likely to return their orders than customers who buy their goods in-store.
With ecommerce businesses making it part of their marketing strategy to simplify the returns process, the global reverse logistics sector is burgeoning. In 2020 it was valued at $635.6 billion (USD) and it is expected to mushroom to $958.3 billion by 2028.
The cost of returns can be significant for retailers. Aside from the loss of a sale, they typically incur the following losses: - Operational costs of returning the item - Loss of revenue if the product must be sold as a second-hand item - The costs of reselling the item.
Shoppers’ reasons for returning items are myriad, but it is observable that online buyers hold increased expectations and are therefore more demanding than in-store consumers. For instance, some online shoppers will purposely order several variants of an item, especially clothing, and only keep the one that suits or fits them best.
Solutions to the High Returns Rate Problem
If your returns policy is conservative and rigid, you will quickly lose customers. Buying online can never be the same as buying in-store, where the consumer can pick up an item and examine it in detail. That’s why some enterprises promote a liberal returns policy as a way of attracting customers.
Somewhere between rigid and liberal lies a middle-path returns policy that starts with cutting back on the reasons goods are rejected in the first place.
This can be done in the following ways: - By creating detailed descriptions with plenty of high-quality images that give customers as much information as possible about the product. - By providing tools to aid consumers in evaluating their planned purchases. These could include size guides for shoes or clothing and room planners for furniture. - By eliminating mistakes in order capture and product picking. - By wrapping items in protective packaging to reduce the likelihood of damage in transit.
5. Order Quantity Barriers
Order quantities are often low in the GCC region, which creates the challenge of sometimes delivering just four or five packages at a high last-mile delivery cost. Traditional supply chain order quantities are much larger. One way ecommerce businesses can get around this problem is to use well-located multi-fulfillment centers that cater to many clients.
6. Payment Systems
The region traditionally has had low credit card penetration due to distrust of online payment systems and Internet fraud.
Did you know that more than 33% of customers in the GCC flinch at placing orders online? They typically cite malware, mobile payment issues, and data breaches as reasons for their reticence.
As a result, buyers still make most of their ecommerce payments in cash at the point of delivery. However, the introduction of more secure payment gateways, government initiatives to encourage digital payments, and the rapid growth of the ecommerce market has spurred the development of the GCC financial Cards and payments market.
Observers expect this momentum to continue, with BlueWeave Consulting forecasting a CAGR of 14.8% between 2022 and 2028. Already credit-card-on-delivery is becoming more popular, especially among millennials. Meanwhile an array of alternative payment gateways that can be integrated with an ecommerce site have sprung up in the GCC, as the table below illustrates:
COD as an Ecommerce Logistics Challenge
It’s perhaps inevitable that the ‘cash is king’ culture in the GCC will eventually give way to contactless payments, digital banking services, and the payment gateways listed above. Until then, though, ecommerce businesses must strive to win the trust of customers by emphasizing the security measures that protect them when they pay online at their site’s check-out.
At the same time, their logistics partners must continue to practice the collection of cash from customers when required. That also means continuing to shoulder the risks associated with the manual handling of money and the carriage of hard currency between the points of delivery and handover to distribution-center cashiers.
The Future Looks Bright…
Despite the logistics challenges for ecommerce businesses we’ve outlined above, the future of the online retail market in the GCC is looking very rosy, as the figures cited in the first section of this article show.
According to the Kearney report, the growth in the sector has been spurred by changes in consumer behavior and habits brought about by the Covid-19 pandemic.
Millennials, in particular, have adapted to the changes, with 60 percent of them shopping online using multiple types of payment gateways to buy electronics, clothing, and pay for travel. Significantly, they are motivated by discounts, cashbacks, rewards, and promotions.
The report warns, however, that the intensity of competition in the Middle East retail market and the need for continuous investment by etailers will, in time, thin out the crowded ecommerce landscape.
… But Beware of Pitfalls
The Kearney report also lists the following pitfalls that players in the field need to consider: - Supply chain inefficiencies that can affect sourcing, deliveries, and returns. - Over-generous discounts, promotions, and sales that can drag businesses into the red. - Changes in consumer behavior that could result in smaller businesses haemorrhaging customers to larger, better-funded ecommerce concerns.
Perhaps your online retail business is already impacted by the challenges listed above, or maybe you’d like help to grow your share of the rapidly expanding GCC ecommerce market. If so, Shipa Ecommerce has teams of professionals ready to help with your shipping and ecommerce integration challenges.
We offer a range of solutions to all ecommerce supply chain and logistics challenges, so why not have a chat with one of our experts today?