E-commerce and urban freight distribution in Spain post-COVID-19June 2020

El e-commerce y la distribución urbana de mercancías en España después del COVID-19

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Growth and impacts of e-commerce 4Need for new models 5Cooperation as a starting point 6

Contents

This Point of View newsletter was prepared by the following Deloitte professionals:

• Vicente Segura (Partner)• Fernando Antolín (Director)• Carlos Casellas (Senior Manager) • Alberto Grandío (Manager) • Albert Cagigós (Manager)

Cintillos NIVEL 1 | Cintillos NIVEL 2E-commerce and urban freight distribution in Spain post-COVID-19

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The lockdown increased e-sales by over +100%, a significant proportion of which will remain structural, which will lead to an estimated three-year jump in demand with respect to the growth that had been observed in the channel in recent years.The resulting increase in parcel transport, in addition to greater environmental sensitivity and the new consumption and mobility trends, gives rise to an urgent need to encourage improvements in the current urban freight distribution and transport models through public-private cooperation, raising e-commerce customer awareness and implementing regulations.

E-commerce and urban freight distribution in Spain post-COVID-19

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Growth and impact of e-commerce

COVID-19 has greatly accelerated the digitalisation of people and companies, causing e-sales in certain categories to increase by over +100% with respect to the same period of last year1; a significant portion of this growth will remain structural and will lead to an estimated three-year jump in e-commerce demand in comparison with the strong +23% growth that the channel had been experiencing.2

Also, reduced mobility during lockdown cleared any doubts (if there were any at all) regarding the environmental impact to which we subject urban areas in particular, where freight trans-port generates approximately 15% of environmental pollution.3 By way of example, pollution levels decreased by -60% in the city of Madrid and by -50% in the city of Barcelona during lockdown.4

Also during lockdown, parcel delivery companies managed to take on high delivery volumes due to the unusual lack of urban congestion, due mainly to improved efficiency in their journeys and loading and unloading stops (and also because there was always someone at home to receive the packages).

However, the current gradual return to normality in mobility and economic activity is once again causing serious environmental and congestion problems, partly exacerbated by new trends such as the significant switch from public to private transport5 (55% of people surveyed stated that their use of public trans-port would be "greatly reduced" or that they "will stop using it"). In China, for example, the pollution levels of 2019 have already been exceeded following the return to activity6.

The freight distribution and transport companies, which are key players in all the above areas, are also suffering from constant increases in operating costs (even jeopardising their profitability in certain industries) due to the greater difficulty involved in cir-culating and parking in urban areas.

Due to the aforementioned growing problems (involving the environment, urban congestion and companies' profitability), there is an urgent need to promote improvements in freight dis-tribution and transportation models.

COVID-19 has brought forward by three years the urgent need to encourage changes in freight distribution and transportation models.

1 Source: Nielsen and GfK database2 Source: BBVA Research. e-Commerce billings3 Source: Deloitte Research4 Source: Barcelona and Madrid City Councils5 Source: Deloitte Research6 Source: Centre for Research on Energy and Clean Air

118%

Electronicgoods

Homeware

Consumer goods

147%

150%

Growth in online sales1

From 15 to 17 May

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In this regard, in March 2020 Deloitte published the "Last Mile Logistics: challenges and solutions" study which, as well as ad-dressing the main last mile challenges for the main industries, details potential solutions for

urban freight distribution and transport. Below we provide an illustrative example detailing three solutions of particular impor-tance in the current situation.

Delivery by foot or by non-motorised vehicle (and urban warehouses)

In recent years, vehicle access restrictions have increased in the centre of certain major cities. Delivery by foot or non-motorised vehicle is the most environmentally sustainable alternative, rel-ying on urban warehouses to support the logistics operations.

7 Source: Deloitte Research

Loading and unloading management platformIn city centres, and at certain time periods, demand for loading and unloading spaces can exceed the available fixed supply by 70%, causing a significant impact on urban congestion and a loss of efficiency for freight distribution and transport compa-nies (search for alternative spaces and/or double parking, lon-ger journeys on foot to point of delivery, etc.). The loading and unloading management platform enables parking spaces to be reserved in advance, encourages the use of more sustainable vehicles and discourages delivery at peak times.

Pick-up and drop-off point network (PUDO)In Spain less than 10% of e-commerce deliveries are made at drop-off and pick-up points, while home delivery is the most used option and entails higher costs in comparison with the other alternatives, due mainly to the geographical spread of de-liveries and because 10% to 15% of deliveries fail (and require a second attempt).7

Need for new models

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Cooperation as a starting point

The problems and solutions in urban freight transport are un-doubtedly complex, due mainly to the number of players and industries involved, not just e-commerce, but also retail, hospi-tality, pharma, etc; consequently, cooperation (particularly of a public-private nature) is fundamental to the development of po-tential solutions.

Also, e-commerce customers are a key element due to the impact of their decisions on the location and level of urgency of delive-ries. In this respect, raising customer awareness of the impacts in terms of the various delivery options is fundamental in order to minimise the current problems.

In any case, government regulations are a key element as they act as a catalyst for the development of solutions, but they must certainly be proactive and benefit from the participation of the various players and industries involved.

Regulations are key, as they act as a catalyst for the development of solutions, but they must certainly be proactive and benefit from the participation of the various players and industries involved

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Other publications of interest

Last mile logistics - Challenges and solutions in Spainhttps://www2.deloitte.com/content/dam/Deloitte/es/Documents/operaciones/Deloitte-es-operaciones-last-mile.pdf

The Consumer industry's road to recoveryhttps://www2.deloitte.com/es/es/pages/consumer-business/articles/camino-recuperacion-consumo-covid-19.html

Energy sustainable cities - Urban energy transition 2030https://www2.deloitte.com/es/es/pages/strategy/articles/ciudades-energeticamente-sostenibles.html

A decarbonised transport model for Spain in 2050 - Recommendations for the transitionhttps://www2.deloitte.com/es/es/pages/strategy/articles/medidas-descarbonizacion-transporte.html

The future of freight - How new technology and new thinking can transform how goods are movedhttps://www2.deloitte.com/us/en/insights/focus/future-of-mobility/future-of-freight-simplifying-last-mile-logistics.html

COVID-19: Orchestrating the recovery of organizations and supply chains https://www2.deloitte.com/global/en/pages/about-deloitte/articles/covid-19/covid-19--the-recovery-of-organizations-and-supply- chains.html

COVID-19: Managing supply chain risk and disruption https://www2.deloitte.com/global/en/pages/risk/articles/covid-19-managing-supply-chain-risk-and-disruption.html

COVID-19: Managing cash flow during a period of crisishttps://www2.deloitte.com/global/en/pages/about-deloitte/articles/managing-cash-flow-during-period-of-crisis.html

COVID-19: Maintaining customer loyalty and trust during times of uncertaintyhttps://www2.deloitte.com/global/en/pages/about-deloitte/articles/maintaining-customer-loyalty-during-uncertainty.html

COVID-19: People, technology, and the path to organizational resilience https://www2.deloitte.com/global/en/pages/about-deloitte/articles/people--technology--and-the-path-to-organizational- resilience.html

E-commerce and urban freight distribution in Spain post-COVID-19

Contact persons

Vicente SeguraStrategy and Operations Consulting Partner, Head of Supply Chain practice and expert in the Transport and Logistics industry vsegura@deloitte.es

Fernando AntolínStrategy and Operations Consulting Director, expert in Logistics and Last Mile Distribution for the Consumer industry fantonlin@deloitte.es

Fernando PasamónMonitor Deloitte PartnerGlobal leader of the Retail Consulting industry and of the Consumer industry in Spain fpasamon@deloitte.es

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