SMC3: E-commerce magnifies reverse logistics, but other verticals are growing

( Photo: FedEx )

FreightWaves is at SMC3’s Connections18 conference at The Greenbrier in West Virginia, covering industry panelists on a range of topics, from regulation to technology and market trends. For the first thought leader presentation of the morning, Satish Jindel from S&J Consulting introduced Brad Parrish, VP at FedEx Supply Chain, who spoke on the topic “Reverse logistics in the fast-changing retail world.”

Parrish explained that he had an industrial engineering background and liked to use numbers to bring business problems to life for his audiences. The first numbers he threw out were big ones: the United States retail market is worth $4.7T annually with $340.4B in e-commerce sales. Reverse logistics, Parrish pointed out, dwarfs e-commerce, representing a $642.6B segment of the industry. 

“That’s why it warrants our time and why it’s such a relevant topic,” Parrish said. “The rub is that only 48% of returned items can be resold at full cost. Think about the cost pressures that puts on the supply chain and transportation. The forward supply chain has been optimized in every way, but now reverse logistics can be seen in the same way.”

Customers want returns to be ‘convenient,’ and what they mean by that is that they want to get unwanted items out of their possession as easily as possible and receive refunds in their account as soon as possible. Parrish said that 9% of all retail brick-and-mortar purchases become returns, while in e-commerce, the percentage of returns rises to 30%. 

To Parrish, nowadays ‘consolidation’ is the name of the game in reverse logistics. First, Parrish said that the most advanced retailers have been able to consolidate their brick-and-mortar and e-commerce reverse logistics operations. The goal is for customers to be able to buy something online, easily locate a nearby brick-and-mortar location to return the item, get their account credited instantly, and then verify on the merchant’s e-commerce portal that indeed the merchandise has been accepted. Parrish said that it normally takes a close partnership with a 3PL to integrate the brick-and-mortar network with the e-commerce distribution centers in order to realize the greatest cost savings.

“Return parcel consolidation by providing an in-store return option to address consumer expectations creates a sizable opportunity for LTL and truckload carriers,” said Parrish.

The second way that consolidation is important to reverse logistics, Parrish said, was that instead of simply moving single parcels back through their supply chains, retailers are beginning to build pallets and truckloads of inventory to move in a backward direction. Parrish gave the example of moving unsold fleece jackets from Florida after its short winter was over, by truckload, to markets in the upper midwest or northeast where they could still be resold. 

“We’re moving in the direction of being able to move full pallets in reverse logistics,” Parrish said.

“One of the challenges,” Parrish said, “of reverse logistics is that it’s very unpredictable. We can predict a post-Christmas surge in returns on retail items, but what about returns of healthcare equipment, for example?”

Parrish said that new verticals like electronics and healthcare would be major sources of growth for reverse logistics. He pointed out that Internet of Things devices are predicted to outnumber people by the year 2020, and that many consumers replace their devices before their useful life is really over. The question becomes how do logistics professionals design their reverse supply chains to effectively evaluate, repair or refurbish, and then re-monetize older electronic devices, of which there are billions? 

Healthcare equipment, from hearing aids to oxygen tanks, wheelchairs, and walkers, are also often replaced or returned before the end of the device’s useful life, and they pose their own set of unique challenges. Parrish said that his division, FedEx Same Day City, was started with the idea of getting into high end retail fashion, so that a woman who bought a dress in the morning at Saks 5th Avenue could have it shipped to her apartment the same day instead of carrying it around to the other stores on her itinerary. FedEx quickly learned, though, that there was a huge opportunity in healthcare—especially with the rapid delivery of surgical kits to hospitals, because they’re often stored off-site. FedEx delivers the kit to the hospital where it’s broken down and sterilized, the procedure is performed, then the instruments are cleaned again, and FedEx returns them to offsite storage.

During the Q&A, Satish Jindel provided some additional insight into how e-commerce merchants are dealing with reverse logistics costs. Jindel said that Amazon tracks their customers’ return behavior, and labels them “good, bad, or ugly,” and adjusts the prices it presents to those customers accordingly. By doing that, Amazon avoids the problem of widespread price inflation to support a minority of frequent returners; their customers effectively pay for the services they demand. 

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John Paul Hampstead

John Paul conducts research on multimodal freight markets and holds a Ph.D. in English literature from the University of Michigan. Prior to building a research team at FreightWaves, JP spent two years on the editorial side covering trucking markets, freight brokerage, and M&A.