American Association of
State Highway and Transportation Officials
Special Committee on
Research and Innovation
FY2023 NCHRP PROBLEM
STATEMENT TEMPLATE
Problem Number:
2023-B-29
Problem Title
Reverse logistics
– New freight flows create different challenges for land use and freight
planning practitioners
|
Background Information
and Need For Research |
|
The trend of accelerated e-commerce adoption by
consumers since the onset of COVID-19 is well documented; a July 2020 survey
of 5,000 North American and European consumers found that 36% of respondents
shopped online weekly, up from 28% pre-COVID-19.[1] According to the National Retail Federation,
U.S. e-commerce sales accounted for $565 billion (14%) of the total retail
sales in the U.S. in 2020, of which $102 billion was returned by the
customer…overall, online returns more than doubled in 2020 from 2019 and are
a major driver of the overall growth in returns.[2] The rate of returns for e-commerce purchases
are well above those from the brick-and-mortar
stores’ average of an 8.89% return rate[3];
in 2020, online purchases were returned at rate at up to three times those
made at brick-and-mortar establishments[4]. E-commerce
average return rates are close to 20% and the holiday season e-commerce
average return rates hit around 30%.[5] This has presented a financial challenge
for business; the cost of
handling returns is typically several times larger than the original dispatch
costs. Part of this is driven by the relatively discrete quantities that are
constantly entering the returns process for handling.[6] Retail returns are a significant part of what
commonly referred to as ‘reverse logistics’ supply chain, that contrasts with
‘forward logistics’ supply chain which describes steps associated with the
production and ultimate delivery of goods to consumers. An overview of the reverse logistics supply chain is shown
below: [7]
With
the rapid expansion of online business-to-business (B2B) flows, the volume of
returns is also increasing for this segment of e-commerce and creating new business
opportunities. Some forecasts suggest that U.S. B2B sales will be USD 1.8
trillion in 2023. Another
significant aspect of reverse logistics is what has been referred to as “the
circular economy” which can be associated with recycling.[8] The graphic below reflects it as well as
others considered in the “five R” components of the reverse logistics
ecosystem[9]:
Seasonality is an important facet of reverse
logistics; for the 2021 holiday shopping season, e-commerce is projected to
account for a record 18.9% of total retail sales.[10]
The increase in e-commerce utilization for consumer shopping results in a
subsequent increase in return volume and rates; in fact, the 2019 holiday
shopping season experienced a return rate 26% higher than the prior year.[11] As shown in the following figure, much is experienced
around the holiday months with most e-commerce returns occurring in December,
January and February[12]. Proximity to major consumption centers
helps retailers manage the transportation portion of revers logistics and
recirculates inventories faster.[13] It should be researched and documented
which transportation modes are most affected as well as what geographies
(regions and/or areas of metropolitan regions and tangential rural areas) can
expect to experience these freight flows on their corridors.
The COVID outbreak has caused a rise in
e-commerce and in turn, product returns.[14] In addition to that industry sector, automotive industry product recalls and the pharmaceutical
industry have been cited as contributing
drivers of growth of the reverse logistics market[15];
as an
example, between February 14 and March 11, 2013 (less than one month) the
U.S. Food and Drug Administration mandated more than 40 recalls[16]. In
response, businesses must consider adding workers and establishing separate
internal departments to handle reverse logistics as well as increasing
warehouse space[17]. Building on past consideration of
consolidation centers[18],
industry experts consider this a growth opportunity for the industrial real
estate market in the U.S., as the two most likely solutions to the reverse
logistics problem both involve warehouse and distribution centers and will
ultimately drive demand[19];
this is an important issue that should be investigated to the benefit of both
land use planners and freight planning practitioners. Specifically, the surge in digital orders has
created a heightened demand for warehouse space in the U.S. so that retailers
and delivery providers can handle all packages coming in and going out. As much as 400 M ft2 of
additional warehouse space could be needed in the next five years just to
process returns.[20] Most of the
square footage to handle returns come from older distribution centers which third-party
logistics (3PL) providers and large retailers vacate for newer facilities to
support forward logistics operations; this is significant because a reverse
logistics supply chain requires an average of up to 20% more space and labor
capacity than forward logistics.[21] In addition, it is not uncommon for
retailers to contract with 3PL’s such as FedEx, UPS and many others for their
returns management in order to free-up premium space for their forward
logistics activities[22]. The anticipated land use change aspect is unique to this
topic and should be investigated to the benefit of both land use planners and
freight planning practitioners. Return
rates vary by product type (i.e. clothes/shoes, household products,
electronics, etc.) and contribute to additional freight volumes moving in the
multimodal transportation system. Each
may produce varying effects on the system that is influenced by the unique
characteristics / demands / needs of each. Example product category return
rates are shown in the following table[23];
after returned and processed, they may enter the domestic secondary retail
market[24],
or to another destination, but the net result remains of additional demand to
once again move that freight through the multimodal transportation system –
through the returns process as well as after that process completes and the
product moves to its next market and ultimate destination.
Additionally,
some merchants with brick-and-mortar facilities may accept returns of online
purchases at those facilities[25], while online-only
channels may only accept via the vendor who initially delivered the
product. In this
age of increasing e-commerce, there is important need to understand the
characteristics of these flows and their impact on vehicle movements. For example,
are there specific corridors/geographies or modes that bear a
disproportionate burden now? What are
projections and subsequent future impacts for those same questions? |
Literature Search Summary
A cursory
review indicates research on reverse logistics have been on specific
commodities, products or industry-internal topics, many of which were focused
outside of North America. Several may be
germane but dated and do not reflect the recent rise and continued growth of
e-commerce:
• “Reverse Logistics – A review of the
Literature and Framework for Future Investigation” in
the Journal of Business Logistics (1998);
• “The Who, What and Where of Reverse
Logistics” (2003);
• “Emerging Supply Change Management
Trends and their Impact on Spatial Organization of
Logistical Networks” (2002) presented at 2003 TRB Annual Meeting;
• “Multiproduct Distribution Network
Design of Third-Party Logistics Providers with Reverse
Logistics Operations (2007);
• “Reverse Logistics Retail Level
Return” (2014),
• “Reverse Logistics in the Circular
Economy” (2017);
• “Riding the Returns Wave: Reverse Logistics and the U.S. Postal
Service” (2018);
• “Reverse Logistics in the Age of
COVID-19” (2020); and
• “The History, Evolution and Future of
Reverse Logistics” (2020).
Research Objective
The primary objective of the research will be to understand
these unique freight volume flows, characteristics of their impact on the
freight network and specific modal needs, and associated land use change trends
related to industrial and warehouse/distribution developments in communities in
across the nation.
The
research will focus on 1) a thorough understanding of the commodities groups
which are being moved, 2) the volume of goods moved and the characteristics of
the traffic including seasonality, dominate destinations and mode of transport,
3) the characteristics of the origins of the return shipments including
dispersion, frequency, etc., 4) likely land use development – and/or
redevelopment – trends, and 5) the impact of these flows on truck operations
including pick-up and line-haul.
Urgency and Potential Benefits
The
recent expanded – and anticipated increasing – use of online (e-commerce)
platforms has increased the volume of e-commerce related freight moving through
the intermodal transportation system, and subsequently the consumer return
shipments via the reverse logistics supply chain. The nature of these flows
which have different characteristics in terms of origins and destinations, and
day-time and seasonal characteristics can significantly affect the capacity of
the local, regional and national freight system, as well as new demands for
local land use developments for manufacturing and warehouse/distribution.
Through the output of this research, local, regional and statewide land use
planners and freight planning practitioners will be better informed to
accommodate these flows in their planning mandates.
Implementation Considerations and Supporters
The output
of the research should be in a format which planners can employ to estimate the
volume and characteristics of return shipments and associated truck movements
within the area of responsibility. The output should provide a process to
identify the likely origins and associated volumes of return shipments, and the
location of return shipment handling and processing centers.
This
research needs statement is supported by:
AASHTO
Special Committee on Freight, Caroline Kieltyka (AASHTO Liaison), ckieltyka@aashto.org,
202-624-8489
Recommended Research Funding and Research
Period
The
research project should be completed within 18 months. Suggested research
funding amount is $500,000.
Problem Statement Author(s): For each author,
provide their name, affiliation, email address and phone.
• Charles Edwards, Univ. of North
Carolina at Chapel Hill, chwedwards@gmail.com , (919) 215-0605
• Sushant Sharma, TTI,
s-sharma@tti.tamu.edu, (314) 556-7363
• Tom McQueen, Georgia Department of
Transportation tmcqueen@dot.ga.gov, (404) 631-1785
Potential Panel Members: For each panel
member, provide their name, affiliation, email address and phone.
• Charles Edwards, Univ. of North
Carolina at Chapel Hill, chwedwards@gmail.com , (919) 215-0605
• Sushant Sharma, TTI, s-sharma@tti.tamu.edu,
(314) 556-7363
• Tom McQueen, Georgia Department of
Transportation tmcqueen@dot.ga.gov, (404) 631-1785
Person Submitting the Problem Statement: Name, affiliation,
email address and phone.
Tom
McQueen, AICP
Asst.
Planning Administrator
Georgia
Department of Transportation
tmcqueen@dot.ga.gov
(404)
631-1785