GLOBAL REVERSE LOGISTICS MARKET
Reverse logistics is the supply chain activity in moving the goods from consumer or customer to the upstream of supply chain, the objectives of reverse logistics include: Maintenance, Reuse, Refurbish or Recycle of the product.
Reverse logistics helps businesses in efficiently reducing costs, improve asset utilization and help in reduce the waste that reaches landfills. It plays a crucial role in realizing a circular economy, which helps in maximizing the recapture of material and reduces the material that ends up in landfills.
Some key drivers in reverse logistics market are:
- Increase in pressure to reduce the consumer products ending in landfills and efficient use of materials to reduce the soil pollution. This is mainly driven by the increasing restrictions by countries on waste disposal.
- Increasing raw material prices as some of them are hard to extract. Metals like Cobalt and Lithium are perfect example as costs are high because of complex extraction processes.
- Increase in pressure to improve customer satisfaction. E-commerce is one big player which is helping in driving this, as they provide the best customer service compared to the retail players, customer returns play a major factor of differentiation.
- Increase in pressure to keep the cost of manufacturing in check and achieve better competitive prices. A good example of this is related to the electronics industry, refurbishment is increasing in scale and efficient reverse logistics play a vital role.
- To keep the logistics cost under check reusable packaging material is making its way, automobile industry is improving this for the movement of the components in international trade, this helps them in keeping their costs in check.
OBJECTIVES OF DIFFERENT INDUSTRIES FOR REVERSE LOGISTICS
- Textile and Garments Industry: recycling of clothes is a major trend that is catching up with wool, logistics players have a huge potential to connect the industry, designing an effective collection method plays a vital role for the logistics players. Companies like H&M are using their retail stores as collection centers but only limited to their own garments.
- Electronics Industry: some of the key metals that are used in building electronic components like lithium, cobalt and gold have good potential to be reused. With shorter product life cycle in the industry this industry has a huge potential base. One key challenge for the logistics players is building a scalable model as currently each maker is having his independent channel of collection.
- E-commerce: returns play a vital role in the e-commerce segment, this helps them in building trust with the customer, e-commerce logistics players have efficiently captured this and integrated this with the forward logistics. For most of the e-commerce players building a reverse logistics network plays a vital role.
- Automotive: Movement of auto components from service provider to vendor is still a logistics market that is yet not scalable I many regions in terms of logistics. These components are used for repairs and recycling. Another market is of packaging and dunnage material return movement which don’t have a separate logistics network as they have been integrated with the forward logistics.
- Pharmaceutical Industry: Most of the demand for reverse logistics is getting generated because of regulations regarding environment. It is concerned with the movement of expired goods from retail and wholesale players to upstream where they are properly disposed.
E-COMMERCE: LEADING THE REVERSE LOGISTICS CHANGE
With the ongoing growth of e-commerce, the volume of returned inventory continues to rise for logistics managers in a variety of industry sectors. But arguably, it’s U.S. retailers who have felt the greatest impact in recent years with over $400 billion in goods are returned in any given 12-month time frame. e-commerce sales had a much higher return rate than those of brick-and-mortar stores—between 15% and 30%. Look for reverse logistics to be the main reason shippers will continue to search for class B industrial warehouse space in particular.
As of October 2020, in United States in real estate space, 3PLs accounted for 27.1% of the transaction volume for deals of 100,000 sq. ft. or more, compared with 22% for e-commerce occupiers.
Key challenge for fashion apparel industry in e-commerce is that, reverse logistics include product value depreciation and time sensitivity. As the overall return rate continues to grow by 10% annually, a higher amount of inventory is subject to depreciation. Apparel depreciates by 20% to 50% of its value within 8 to 16 weeks, creating urgency to get inventory back into circulation and ready for resale.
Most of the companies are inclined to outsource their returns management to third-party logistics (3PL) providers in order to free up space for forward logistics. This has created a significant amount of opportunity for the 3PLs specializing in the reverse loop, including XPO Logistics, Ryder and NFI.
Social media impulse purchases are another factor to increase the returns as many companies are increasing their returns policy from 28 days to 45 days to attract more customers.
In US big retail players do use algorithms to decide on the returned items, algorithms suggest them if item sells for new, what it sells for on the secondary market and what generation technology an item is or has. Retailers can then decide if they want to sell it new at full price, sell it at a deep discount, resell it to a discounter, recycle it or liquidate it.
This space is rapidly growing with 3PL competing very hard to grab the reverse logistics market with recent acquisition of Pittsburgh-based GENCO, a third-party logistics (3PL) services provider specializing in product lifecycle and reverse logistics by FedEx shows the focus by 3PLs.