Logistics in e-commerce: the core competence that drives your business

When looking at e-commerce success factors, SEO, advertising, and UX are the first things that come to mind for many. However, it’s logistics and fulfillment that are playing an increasingly crucial role for etailers. They are the elements that enable us to surpass the competition and ensure long-term growth. 

Nabil Malouli, VP of Global e-commerce at DHL, agrees: “It’s becoming clearer how logistics gives companies a competitive edge, which wasn’t the case previously. A successful delivery experience leaves customers satisfied, which in turn, can lead to lifetime customer retention and loyalty”.

So, whether you’re just launching or you want to improve the quality of existing logistics practices, there are steps you should take first: understand the latest e-commerce trends and the main fulfillment options available. 

Only then you will successfully determine which ones are best suited for your particular business. 

And that’s exactly what this article will help you achieve.

E-commerce: changes, changes, and…more changes

The pandemic was a pivotal moment that fundamentally reshaped e-commerce and consumer behavior. In particular, sustainability has become an even more important criterion for shoppers, and brand loyalty has taken a massive hit, making a high customer experience (CX) a must.

In response to increasingly demanding customers, micro-fulfillment centers (MFCs) gained speed. MFCs are small but highly automated storage and distribution centers located in densely populated urban areas that enable faster, sustainable, and more flexible deliveries. They are largely what made any logistics possible during the pandemic. In fact, they are expected to keep growing, even to $32 billion by 2030. Moreover, the increased use of AI and automation was a notable development for MFCs, which reshaped e-commerce logistics to meet the high growth in demand.

Going back to sustainability during the pandemic, another major movement was green logistics, which focuses on tracking and reducing the impact of logistics operations on the environment. And here, too, the topic is not stagnant: the global green logistics market is expected to reach $2.9 trillion by just 2032!

There was also the recommerce movement. The re-selling and refurbishing of new or used products were in demand in post-pandemic times. The case is that in 2023, recommerce gained $188.4 billion in the United States. Now, it’s predicted to grow to $291.6 in 2029. 

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Combined with the high amount of product returns, this is spurring the e-commerce reverse logistics market, which is set to grow at a CAGR of 4.3% between 2023 and 2032.

But you know what? Let’s not forget about the hype created by AI. 

As early as August 2024, it was said that 40% of global companies right now use AI, and as many as 82% are using/considering AI in their organization. So, it can be expected that 2025 will bring many more AI features and products than we have seen so far.

One of the brands at the forefront of leveraging AI to enhance client experiences is – none other than – Amazon. The company introduced a generative AI assistant, codenamed Project Amelia, designed to provide sellers with personalized recommendations and insights to boost their business performance. 

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But that’s not all, as Amazon has also launched new tools and features in areas such as:

• generative AI product listings, 
• A+ Content, 
• personalized product recommendations and descriptions, 
• and AI for highly engaging video ads.

And this is what a proactive approach to driving customer engagement, satisfaction, and revenue is.

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What else has proven to be a trend in e-commerce? Well, with social media being a key enabler in brand discovery, social commerce has become even more crucial to the e-commerce strategy. It doesn’t just involve promoting your products via Instagram and sending customers to your website. Instead, the entire transaction is completed in-app, often with a single click. 

Here, TikTok Shop has demonstrated remarkable growth. In February 2024, it accounted for 68.1% of the total social shopping gross merchandise value (GMV), surpassing other platforms like Whatnot, Instagram Checkout, and Facebook Shop. This success mirrors trends where beauty and personal care products lead in gross merchandise value reaching nearly $2.5 billion.

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Add to this fact that during Black Friday 2024, TikTok generated over $100 million in U.S. sales, hosting more than 30,000 livestream sessions.

So, what can we see? That these changes and forecasts highlight e-commerce evolution: AI-driven personalization, recommerce, sustainability, MFCs, and social media integration redefine how consumers discover and purchase products.

As your business grows, so does the complexity of order fulfillment

At the outset, the e-commerce fulfillment process is straightforward:

1. Before an order is made, you store your products in warehouses and manage inventories. 
2. Once it’s received, you pick the goods, package them, and ship them. 
3. If the customer wants to return a product, you must also process that. Of course, without using a complicated online booking system, so as not to discourage users. 

Simple, right? For smaller retailers facing a dozen orders a day, it certainly is. 

However, once you reach hundreds, thousands, or more daily orders, fulfillment gets more complicated. Making sure you have enough stock without over-ordering and processing orders and returns quickly gets infinitely more complex. Not to mention periods of peak demand, which skyrocket your orders and further strain your logistics and fulfillment operations. 

Simply put, after you reach a certain order threshold, it’s impossible to handle everything on your own. There are just too many shipments, components, and data logs to manage. That’s where you need to start pulling in multiple 3PL providers to manage inventory across several warehouses and fulfil orders fast enough. Doing so efficiently requires you to leverage automation, technology, and software. All of this adds complexity and becomes more challenging as you grow.

Why logistics is a core competence for e-commerce

Global e-commerce sales have increased significantly in recent times, enjoying an average growth rate of 9.49% (CAGR 2024-2029). While this is obviously good news for etailers, it also creates a new challenge for them: how to handle such rapidly increasing growth in demand efficiently. 

Additional hurdles are an increasingly competitive market and higher customer expectations regarding deliveries, returns, and service. You must also account for the rise in eco-conscious consumers, which means operations need to be optimized for growing trends like sustainable logistics and recommerce. 

Putting it all together, it’s clear that logistics is no longer a mere enabler but a key driver for e-commerce success. 

The better and more efficiently you solve the aforementioned challenges, the more you’ll be able to stand out from the crowd, grow your business, and build customer loyalty to achieve higher profits. 

To better illustrate this point, consider this: logistics isn’t just about getting the goods to the consumer anymore. Now, it’s actually key for whether an order is made in the first place. 

Shopify says more about this:

• 47% of shoppers abandon carts due to high extra costs like shipping fees, taxes, and duties not disclosed upfront.
• 45% of shoppers prefer free delivery.
• 25% of shoppers abandon the checkout process if they’re required to create an account, especially when asked for unnecessary details like birthdays or phone numbers.
• 19% of shoppers leave because they don’t trust the website with their credit card details.
• 18% of shoppers are discouraged by lengthy and complicated checkout processes, often with unnecessary form fields.
• 17% of shoppers abandon carts when the total order cost isn’t clear upfront.

Logistics is also critical for customer retention, the cornerstone of e-commerce. Order fulfillment is complicated and involves many players, technologies, and data flows. So, a lot of things can go wrong and affect the CX.

For example, even if just one letter in the SKU number is missing, that can result in an incomplete order and a dissatisfied customer. Moreover, seemingly small things like a damaged parcel, lack of personal touch during fulfillment, or not handling returns fast enough can all make your customers go elsewhere next time – and they do.

• 21% say a bad shipping experience makes them lose trust in the brand.
• 23% say they won’t buy from the store again after delayed delivery.
• 55% of consumers cancel a delayed package due to a negative experience.

Finally, beyond providing quality service, it’s also about making sure your fulfillment and logistics operations are efficient so you can maintain healthy profit margins. This means digitally connecting all players involved, like warehouses, 3PL providers, and customers, to optimize decision-making based on data.

The optimal logistics and fulfillment approach to achieving this efficiency, though, also depends on your specific situation.

The main types of logistics and fulfillment

Dropshipping

Dropshipping is a business model wherein you accept orders but don’t store or fulfill them yourself. Instead, stock is produced or purchased by a third-party manufacturer or wholesaler that ships the order directly to the customer. 

Pros: 

• No upfront investment, including employee hiring, storage, or fulfillment costs.
• There is a low impact of wrong-demand predictions as you‘ll never be stuck with large piles of unsold products.
• You can focus solely on curating, branding, and marketing your store 

Cons:

• Low control over items you sell means finding trustworthy partners is a must.
• Some suppliers require small companies to buy a minimum stock quantity.
• Slow returns and complaints handling, plus no control over customer service affects CX.

Best for:

1. Small and new businesses focusing on a specific niche category (e.g., pet grooming).
2. Companies with a massive assortment cannot or do not want to store all their products.
3. Firms selling long-tail products (e.g., wider range of less popular laptop charger brands) or products that need a lot of storage space but have a low order volume (e.g., large seasonal items).

Flexible (on-demand) warehousing

This model utilizes multiple decentralized distribution and fulfillment hubs via a 3PL provider. They take care of your storage, distribution, and fulfillment needs, including returns, and utilize specialist software to find open warehouse space that fits your requirements. 

Pros:

• Last-mile deliveries are shortened, making overall delivery faster.
• More flexibility to scale up and down due to shorter contracts.
• You only pay for what you need in terms of warehouse space, amount of orders to fulfill, etc.

Cons:

• Difficult to see data on stock movements and manage communication between your online systems and WMS.
• Minimal technology and numerous customers served from each location can result in reduced CX.
• Pickers can’t be experts in handling and packing specialist products from every business area.

Best for:

1. Both businesses with basic requirements and those with high turnover products that only sit in a warehouse for a short time (e.g. perishables).
2. Rapidly expanding businesses that could outgrow a warehouse mid-contract.
3. Those requiring temporary warehousing while looking for something more permanent.

Cross-border warehousing

This involves storing and shipping goods from local warehouses in different target countries to customers based in the same country. Due to the high upfront capital expenditure, etailers often outsource this to an international fulfillment provider.

Pros: 

• Faster, cheaper shipping, and the ability to react quickly to complaints or return requests.
• More control over stock and deliveries, leading to improved CX.
• You can adjust the shipment to post office and courier hours to speed up your deliveries.

Cons: 

• Control over your stock also means responsibility for it. Managing all the orders is very time consuming.
• More complex to set up, especially as you need to consider country-specific factors in each location.
• Big upfront investments, including rent and inventory costs, may deter smaller companies or force them to fulfill their top 10 – 25 products via this method.

Best for: 

1. Any e-commerce business wanting to sell globally and with the means to afford it.

Micro-fulfillment

Micro-fulfillment involves setting up small, highly automated storage and distribution facilities (MFCs) in densely populated urban areas to reduce last-mile delivery distance and thus speed up deliveries. 

Pros: 

• Higher conversions and very high CX as you can offer faster, more convenient delivery.
• Ability to create greener fulfillment operations.
• Enable deeper integration of technology and innovation for increased efficiency.

Cons: 

• High CAPEX needed to set up yourself if you don’t own properties, plus a higher capital commitment due to having to carry higher inventory.
• Added complexity requires software/tech to operate properly.
• Not suited to all products (e.g. heavy, high-ticket items like large pieces of furniture).

Best for:

1. Firms that need extremely fast deliveries, whether next-day, same-day, or even quicker (e.g., grocery retailers).

Outsourced fulfillment

In outsourced fulfillment, a 3PL provider manages your entire fulfillment process. This includes receiving inventory, storing, picking, packing, and distributing, as well as restocking returned products, quality control, customer services, and other activities. 

Pros: 

• Outsourcing frees you to focus on brand strategy, growth, and other important business aspects.
• 3PLs can negotiate discount bulk shipping rates from carriers thanks to their long-term expertise, networks, and the large number of shipments they make daily.
• They also tend to have multiple locations, thus improving lead and delivery times.

Cons:

• Loss of control over fulfillment as you have to trust your chosen provider and their carriers to satisfy your customer.
• Minimum order quantities can be hard to meet for small businesses.
• It takes longer to execute return requests and complaints made by your customers, impacting CX.

Best for:

1. Any merchant who wants to rely on the wealth of expertise and the high-quality, professional services provided by a 3PL.

Codept drives the success of your logistics

Since many etailers don’t have the means to tackle the aforementioned challenges themselves, they turn to 3PL partners. However, without the right middlemen and technology in the supply chain, one delay or error could easily cause a disastrous domino effect. 

This is why it’s vital to have trusted, expert 3PL providers and the necessary digital solutions to manage your entire logistics and fulfillment processes. 

Codept helps you with both – regardless of the method you choose. Our platform allows you to synchronize all data and easily add new providers and warehouse locations or build up a drop-shipper network as you grow. Simply find and select the right fulfillment service providers from over 250 options and then – integrate them in a fast, secure, and GDPR-compliant way into Codept’s SaaS solution. 

This empowers you to manage all connected providers, warehouses, and orders in one place, closing the gap between shop systems, ERP, and WMS. 

On top of that, Codept lets you optimize the entire logistics process from order to delivery and return by tracking SLAs and performance of your orders, as well as sending you automatic alerts if items aren’t where they should be.

Ultimately, with Codept you efficiently reduce costs, minimize risks, and improve your customer experience related to logistics and fulfillment.

Logistics is a driver, not just an enabler, for your e-commerce success

Customers are increasingly demanding speed, excellent service, and sustainability. One area that can help you meet these expectations is streamlined logistics. Yes, it has become a key factor in e-commerce success. And no wonder, after all, it has a huge impact on the customer experience and is directly linked to sales, retention, and profitability. 

What should your next step be? Giving logistics the attention it deserves! Then, you’ll turn order fulfillment into a key asset of your business.

Looking for a SaaS solution to support your e-commerce logistics? Contact Codept to get help.

And as always – a quick reminder to sign up for our newsletter so you don’t miss any important e-commerce news. 😉

About Codept

Codept, founded by Felix Ostwald and Jonas Grunwald in Berlin in 2019 and backed by Beumer Group,  links retailers and logistics providers via its logistics platform. With Codept, merchants find the best logistics service providers, and these, in turn, find new customers – without having to reinvent their IT.