Urbanisation's Impact on Logistics & Supply Chains

Urbanisation, when a population moves from rural to urban areas, has significantly transformed the landscape of supply chains in recent decades. As more people move into cities and towns, the demand for efficient and sustainable logistics solutions has increased. This shift has led to the development of closer warehousing and innovative supply chain strategies to meet the needs of densely populated cities.

But just how big is this growth? According to data from the World Bank Group, more than 56% of the global population resides in urban areas, amounting to approximately 4.4 billion people today. This figure is projected to double by 2050. For a sense of scale, in 1975, about 1.5 billion people lived in urban areas. This means that approximately 3 billion people have moved from rural areas and farmland into cities during this period. This massive migration has been driven by various factors, including the search for better economic opportunities, improved living standards, and access to services and infrastructure available in urban areas.

Urbanisation greatly influences logistics and the entire supply chain, driving the need for greater efficiency, agility, infrastructure capacity, and environmental considerations.

Urbanisation: Challenges and Opportunities for Logistics

Researchers Hannah Ritchie, Veronika Samborska, and Max Roser provide an in-depth analysis of urbanisation on OurWorldinData.org. Their data underscores the connection between urbanisation rates and all aspects of society: housing, transportation, healthcare, education, and employment opportunities. Urbanisation is expected to continue to increase with rising incomes and shifts away from employment in agriculture. Agriculture impacts urbanisation rates primarily because as urban populations grow, employment tends to shift from agriculture to industry or services. This phenomenon, known as structural transformation, is driven by rural-urban migration. As more people move to urban areas, the share of agricultural employment generally declines.

Companies are now questioning how to meet the growing demands of changing cityscapes, and what needs to be done to meet their customers’ needs. There are several things to consider when thinking about urbanised areas in the context of supply chains:

• Increased Demand for Efficient Logistics: As urban populations grow, the demand for goods and services is expected to rise, necessitating more efficient logistics systems to handle the increased volume. Companies must optimise their supply chains to ensure timely deliveries and maintain customer satisfaction. A white paper by the World Economic Forum and Accenture states that speed of delivery is a key differentiator for e-commerce businesses. Consumers use delivery speed as a factor in choosing where to shop, with delivery to the home still widely preferred to the alternative out-of-home options. To meet these needs, supply chains need to expand and realign on different levels, such as companies will need warehousing solutions closer to end destination. Companies will also need to ensure that their landside connections are stronger than ever and will be best positioned by working with integrated end-to-end logistics partners who can offer a diverse range of solutions like air, barge, trucking and landside.
• E-commerce Growth: Urbanisation fuels e-commerce growth, necessitating robust logistics networks. With e-commerce sales projected to exceed $8 trillion by 2027, delivery traffic in urban areas will rise. Businesses must adapt to both in-store and online consumer needs by partnering with logistics providers and using advanced software and automation technologies to enhance efficiency and responsiveness.
• Last-Mile Delivery Challenges: Urban areas often face congestion and limited delivery windows, complicating last-mile delivery. E-commerce growth has significantly increased delivery traffic, contributing to urban congestion and greenhouse gas (GHG) emissions. To alleviate this issue, companies are investing in technologies like drones, autonomous vehicles, and local distribution centres to overcome these challenges. Additional solutions like Pick-Up and Drop-Off (PUDO) networks and smart kerbsides are being implemented by city governments to enhance efficiency and reduce GHG emissions.
• Infrastructure Strain: Existing infrastructure in many cities may struggle to cope with the increased demand, leading to delays and higher costs. Partnering with logistics providers with smart infrastructure, such as urban warehouses, will become even more essential.
• Climate Impact: With more deliveries and transportation activities, urbanisation can lead to higher GHG emissions. Companies are adopting practices such as using electric vehicles and optimizing delivery routes to mitigate their climate impact. The World Economic Forum predicts that, under a business-as-usual scenario, GHG emissions from all urban delivery traffic could increase by 60% by 2030. Despite many consumers indicating a preference for deliveries with lower GHG emissions, less than 30% are willing to compromise on cost. No one can achieve their decarbonisation goals alone, and cooperation across industries is essential in this collective effort.
• Supply Chain Agility: Urbanisation requires supply chains to be more agile and responsive. Companies need to quickly adapt to changing consumer preferences and market conditions, facilitated by advanced analytics and real-time data.

Adapting to Urbanisation Challenges with Warehousing

Efficient warehousing in urban centres is a critical component of modern supply chain and logistics management. As urbanisation continues to rise, the demand for quick and reliable delivery of goods has increased, making urban warehousing more important than ever.

By working with partners who have strategically located warehouses closer to urban centres, companies can reduce transportation distances, lower GHG emissions, and improve delivery times. This proximity also allows for better inventory management and quicker response to market demands.

• Proximity to Customers: One of the primary advantages of urban warehousing is its proximity to customers. Being closer to the end consumer reduces the time and cost associated with transportation. This is particularly important in the era of e-commerce, where customers expect fast delivery times. Urban warehouses enable businesses to offer same-day or next-day delivery, enhancing customer satisfaction and loyalty.
• Reduced Transportation Costs: Urban warehouses help in significantly reducing transportation costs. By storing goods closer to the customer base, companies can minimize the distance that products need to travel. This not only lowers fuel costs but also reduces wear and tear on vehicles, leading to lower maintenance expenses. Additionally, shorter transportation routes contribute to a reduction in carbon emissions, supporting environmental sustainability goals.
• Improved Inventory Management: Efficient warehousing in urban centres allows for better inventory management. With advanced technologies such as warehouse management systems (WMS), businesses can track inventory levels in real-time, ensuring that stock is always available to meet customer demand. This reduces the risk of stockouts and overstock situations, optimizing inventory turnover and reducing holding costs.
• Enhanced Supply Chain Resilience: Urban warehouses contribute to a more resilient supply chain. By decentralizing storage locations and having multiple urban warehouses, businesses can mitigate the risk of disruptions caused by unforeseen events such as natural disasters, transportation strikes, or pandemics. This ensures that goods can still reach customers even if one warehouse is temporarily out of operation.
• Faster Response to Market Changes: Warehouses located in urban centres allow for a faster response to changes in market demand. Businesses can rapidly adjust their inventory levels and distribution strategies based on real-time data and customer preferences. This agility is crucial in a dynamic market environment where consumer trends can shift rapidly.

Conclusion

Efficient warehousing in urban centres is essential for modern businesses to meet the demands of a growing urban population. By storing goods close to customers, companies can reduce transportation costs, improve delivery times, enhance inventory management, and build a more resilient supply chain. As urbanisation continues to accelerate, the importance of urban warehousing will only increase, making it a key strategic asset for businesses aiming to stay competitive in the market.

The next part of the series will explore examples from cities around the world, showcasing how the supply chain and logistics industry is approaching evolving challenges in increasingly urbanised areas.

Be ready for urbanisation to go all the way! Discover more with Maersk Logistics Insights, learn about supply chain logistics management available at Maersk, and explore how scalable and resilient contract logistics solutions can support your supply chain needs in warehousing and beyond.