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How Cities Can Anticipate the E-commerce Boom

Online shopping continues to grow in importance

December 6, 2022

E-commerce—what is more commonly known as online shopping—continues to grow in importance. The sector grew by 16% last year, and is projected for another 12% this year. This has outpaced the 5% growth typically seen for conventional retail, and e-commerce’s share of total retail is projected to reach 24% by 2025. Global urbanization is also supposed to increase, driving the population clusters that cause e-commerce to thrive.

This is doing a number on the infrastructure and general quality-of-life in cities. The underlying issue can be summarized as the last-mile problem—goods must be transported from large exurban warehouses (where they have relatively less impact) to a customer base focused in urban centers. As Xiahnzeng Fang writes for the urban planning blog Practical Visionaries, “the demand for delivery—which used to be concentrated but now is spreading throughout cities at all times of day—is massive and growing. It will unavoidably bring some traffic problems, such as traffic congestion, the lack of available parking for delivery trucks, and even some fatal accidents.” Environmental issues, such as increased runoff and air pollution, are also a problem.

Fortunately, the market is already responding to this, pumping out innovations that range from the obvious and practical, to completely outside-the-box. Here are some examples.

Micro-Fulfillment Centers

The typical image of a “fulfillment center” is a massive exurban warehouse, built by the likes of Walmart or Amazon. But now merchants are acquiring smaller “micro-fulfillment centers” within cities. They are usually under 10,000sqft (compared to the 300,000+ sqft footprints common with normal warehouses), and can be purpose-built, sometimes next to existing retail.

The genre has been particularly notable for grocery deliveries. Upstart firms are using micro-fulfillment centers called “dark stores” to provide groceries, but not hosting customers in-store, instead delivering goods off-site. The premise is to enable rapid delivery of perishable food items. One example of a company using these centers is GoPuff, which has been operating since 2013 and initially targeted colleges. Another is Getir, a company that promises to be “at your door in minutes.”

Growth in rapid delivery is iffy, as several firms have gone out of business and the aforementioned ones have had notable public struggles. But micro-fulfillment centers, as an idea, seem sound, as they would reduce VMT, speed up delivery, and reduce shipment costs for the end consumer.

Alternative vehicles

The last-mile problem involves getting e-commerce goods from fulfillment centers to homes. This requires the use of large delivery vehicles, which create the aforementioned externalities. 

One company’s answer, which has attracted the attention of UPS, is electric and bike powered vehicles. Fernhay began developing the pedal-powered motorized vehicles in Ireland, partially supported by government grants. The 10-foot vehicles are ostensibly able to operate within roughly the same spatial constraints as bicycles. In 2020, UPS announced that it would acquire a fleet from Fernhay, although no information is available about their deployment.

In any event, such vehicles could lower emissions, reduce congestion, and make collisions less deadly. 

Drones

Drone delivery has long been the subject of research and speculation. In March 2022, McKinsey and Company observed, “over the past three years, there have been over 660,000 commercial drone deliveries to customers, not including the countless test flights to develop and prove the technology.” And companies continue testing them. For example, Amazon has experimented with such deliveries in the U.K., and recently announced a pilot in a rural Central California town. Google conducted their own, albeit severely-limited test flights in Virginia. 

Approval ultimately hinges on authorization for Part 135 clearance, a Federal Aviation Administration rule governing commercial drone operation. According to UPS’ Roadie subsidiary, the agency updated its rules in late 2020 to remove time restrictions on drone flights over populated areas, so long as the vehicles and operators meet specific qualifications. 

If these approvals happen and e-commerce firms are able to roll out working drone models, it would be another technology that offers a less-impactful, more environmentally-friendly way to transport goods.

Tubes

An even more speculative innovation than drones is a pneumatic tube system. A company called Pipedream envisions one where drivers bring goods to various drop points, and then inserts them into a tube system that delivers close to homes. CEO Garrett Scott said via Twitter that the company believes it can make deliveries in “single digit minutes.”  

This, once again, would be an alternative that reduces the VMT, carbon emissions, and grade-level safety hazards now presented by trucks. Of course, it seems at this point like somewhat of a, to borrow a phrase, “pipedream”, due to the complicated nature of underground right-of-way. Pipedream’s ability to build this system would likely require buying or leasing space from any number of private and public actors who own it—not an easy task.  

Smart parking equipment

In the nearer term, pricing parking is the more realistic way to reduce the congestion and double parking caused by e-commerce delivery. Smart meters are capable of precise billing based on a variety of conditions, incentivizing drivers to reduce time spent at curbs. They can bill using phone numbers or license plates, as to enable mostly frictionless payment. 

While most smart meters are not geared for the “per-minute” timeframes desired by delivery trucks, they could be. Pebble, which is beneath the umbrella of Google’s Sidewalk Labs, uses sensors to provide dynamically-priced loading zones

“Space availability data at these zones could enable real-time reservations or redirect drivers to a nearby zone when another is occupied,” reads a Sidewalk Labs post on Medium.

Automotus is another company building curb management technology for cities. Its goal is to charge drivers who park at curbs without their needing to download an app. 

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This list is not exhaustive. Other technologies could help soften the impacts of the e-commerce boom, from transponders that make toll roads easier to operate to “smart” delivery vehicles that reduce accidents. 

Most of these innovations face resistance. Fulfillment centers (be they micro or macro) have seen neighborhood NIMBY backlash just as housing projects do. Other innovations, such as drones, tubes, and per-minute curb zones, will require city governments to have more complex dialogues than they now have about proper use of right-of-way. Making space for alternate transport options may mean reducing space for delivery trucks—an outcome that is good but politically difficult. 

The best thing governments can do is stay open to such conversations, and to new companies that present out-of-the-box solutions. The pace of innovation in the private sector is what got us rapid on-demand delivery to begin with. Continued innovation, along with governments that leverage it, can help solve some of the collateral damage from this shift to e-commerce.

This article was co-authored by Market Urbanism Report content staffer Ethan Finlan.