ELECTRONIC COMMERCE
II.3 Commercial trends
II.3.2 Electronic commerce and logistics
The word ´logistics´ was originally used in a military sense to mean the
optimisation of support functions for combat activities, although its civil use has become more widespread. In its civilian use, logistics is understood to mean the management and optimisation of material, information and capital flows.
Logistics is concerned with the cost-efficiency of the supply and delivery chain starting from the supplier and ending at the end user´s premises. Participants in the chain should cooperate to reach optimal solutions for each party involved.
33 Grieger, p. 162 citing A.T.Kearney.
For instance, Celarix and SmartShip.com offer services that help shippers and their customers to arrange small and large-scale transportation. ClearCross and myCustoms.com, on the other hand, maintain online databases and related services that help shippers to manage tax, duty and customs laws in different countries.
34 The term Business Process Outsourcing (BPO) is defined e.g. as “contracting with an external organization to take primary responsibility for providing a business process or function” (E-commerce and Development Report 2003, p. 137 and the sources referred to therein).
35 Grieger, pp. 269-270. He refers to the ChemConnect network that covers a variety of different strategic alliances and, thereto a lot of connections made through e-hub connection; see http://www.chemconnect.com, visited on 1.4.2004.
A new concept, ´e-logistics´, has emerged to denote the use of information technology in the service of the supply and delivery chain.36 An ´e-supply chain´
harnesses the Internet-based technology and its applications to drive
improvements in planning, design, collaboration, execution, management, and the efficiency of the supply chain.37
The relationship between electronic commerce and logistics is based on the fact that ordering materials through the Internet (´e-procurement´) will become more and more common. This applies not only to business-to-business but also to business-to-consumer relationships.38 Methods of transportation and delivery will have to be adapted to the new needs, especially to the need for a fast or on time delivery.
Logistics services are often outsourced to specialist companies which offer
´third-party logistics´. This service is carried out by an external company on behalf of a shipper and covers the management of multiple logistics services.39 These activities are offered in an integrated way, not on a stand-alone basis. The co-operation between the shipper and the external company operation is regularly a continuous relationship.40 The market has created a branded concept of ´fourth party logistics´, which develops outsourced logistics services even further by taking a fully holistic approach to its customers´s logistical process.
What is characteristic of ´4PL´ is the extremely strong use of IT capabilities, an assembly of organisations with a full spectrum of required capabilities, the culture of innovation and the management of information flows.41
In addition to distribution, e-commerce may affect sales management by cutting the sales organisation and moving to a more direct relationship between the manufacturer and customer.42 Electronic commerce and communications can affect the supply chain in various ways. For instance, sales and supply chain management includes risk management, which in turn consists of many components from tackling physical risks to contractual risks and insurance matters.43
36 See e.g. ´Information and technology in the supply chain, virtually there? The reality of eMarkets´, PricewaterhouseCoopers 1991, and ´The changing shape of European logistics, PELS Yearbook 2001, The e-logistics marketplace as the challenge for logistics service providers´, PricewaterhouseCoopers 2001.
37 E-Business Logistics Technology Roadmap ELO 2002-2005, Version 2.0, p. 24.
38 E-commerce and Logistical Consequences, http://www.oecd.org/dataoecd/56/22/
2662099.pdf, visited on 18.12.2002, p. 1;
39 These services include some of the following: operation of a vehicle fleet, warehouses, packing, labeling and sub-assembly, managing of international movements, warehouse monitoring, routing and scheduling.
40 E-Business Logistics Technology Roadmap ELO 2002-2005, Version 2.0, p. 24.
41 Bedeman and Gattorna in Gower, pp. 482-484.
In another context (see Chapter IX.4.2., post), the ´fourth party´ is a metaphor for applications that enhance the process and thus do more than simply deliver the expertise of the human third party across the network. The metaphor views the network as a
´communication network plus more´.
42 Räty, p. 3.
43 Räty, p. 8.
An important development is the increase of information in the supply chain. E-commerce is particularly well-suited to providing information such as product tracking and tracing. Shipment tracking and monitoring of delivery increase the information about the situation, status, and condition44 of cargo in the delivery chain.45 These are also important matters for the delivery of the goods under the contract of sale and for the execution of the contract of transport.
The availability of information in real time gives impetus to look at the carrier´s obligations to deliver to the correct consignee and puts the role of trade documentation in recording the consignee and cargo particulars in a new light.
Information is available all the time, not only when the ship sails to sea. Carriers can be in situations in which they do not know to whom to deliver the cargo because of conflicting claims, some of them potentially based outside the contract of carriage.
Legislation gives weight to the good faith of the parties as to the physical condition of cargo or conflicting claims in respect to it. The legal provisions were created during an era when information about the condition of the goods and the parties´ rights in respect to them were not general information. Modern
technology facilitates and market conditions often compel the disclosure and distribution of relevant information in the chain.
Another dimension, which is even more crucial to this study, is the streamlining of documentary processes by using electronic records instead of paper documents. This process requires that the functions of various documents used in connection with a trade transaction are analysed, whether the
contemporary documentary process is actually relevant, or whether parts of it can be considered redundant. As already noted, managing trade documentation is an important cost factor to businesses.
New services have also emerged for the management of trade
documentation.What the Bolero System, which is the most well-known example of the new approach, is doing is interconnecting various operators in a transaction by providing an electronic platform for the document flows between them. As the documents are electronic messages exchanged in the system that replicate the functions of paper documents, the use of the system is close to the idea of
outsourcing trade documentation functions. Obviously, the information content and use of the messages is run by the companies themselves.
A project launched by the Finnish Ministry of Transport and
Communications46 in the late 90s found that an international sale of goods transaction required 34 different documents. Surprisingly, however, the number of documents used in trade inside the European Union amounted to 31, whilst purely domestic Finnish trade required 26 documents. There are documents in use which are either country-specific or sector-specific.
44 If the cargo has been loaded into containers, or is packed in a way that covers defects, its condition is not conspicuous during the transportation. There are, however, situations where new information on cargo condition is obtainable during the transportation.
45 For the role of Wi-Fi technology in logistics, see Chapter III, note 1, post.
46 Logistics Chain EDI Project, p. 5.
The report made on the basis of the project demonstrates that all pertinent information between the trading partners, the seller and the buyer, has already been created and documented during the offer and order confirmation stages.
Documents created at a later stage, notably the invoice and the transport document, merely repeat the same information regarding the contract of sale.47
As the Finnish ministry report suggested, data exchange between trading parties can be carried out faster and more securely by employing electronic messaging. Cost savings are made by eliminating unnecessary documentation and avoiding duplication by way of repetitive keying or copying of information into documents or information systems. Parties may decide to use electronic trading platforms which increase the benefits of electronic communication.48
The use of the Internet has different effects in terms of logistics. It has enabled small- and medium- sized enterprises (SMEs) to share in the commercial flows it generates. At the same time, however, the Internet and e-commerce are reshaping and transforming the way in which the production and distribution of marketable goods is organised.49 Industry will respond to the increasingly stricter demands of customers by offering a range of new products and services, which leads to an increasing use of tailor-made products. The use of information and communication technology will help to increase collaboration between the players in the production and distribution chain. The production chain is directly linked to demand and inventory has virtually disappeared from the production stage.50
As for transportation, highly fragmented consignments need to be delivered globally within a very tight timeframe and at low cost. E-commerce can
contribute to achieving an efficient distribution system by using online bidding for transportation and shipment tracking.51 Although information technology
47 A transport document contains, however, information specific to the contract of carriage.
A model examined in the middle of the 1990s, the Electronic Trade Credit (ETC) within the International Chamber of Commerce, would have used the sale contract´s data elements such as the goods description, price, insurance particulars etc. to obtain simple confirmations from the contracting participants (carriers, insurers etc.) in a transaction.
48 A list included in the Bolero Feasibility Study 1999 is given in the preamble of Chapter VIII.7., post.
49 Summary of the discussions of the Joint OECD/ECMT seminar on the impact of e-commerce on transport, p. 2, at http://www.oecd.org/dataoecd/32/26/2404595.pdf, visited on 18.12.2002.
50 Ibid., p. 3; the automobile industry serves as an example of ´tailor-made´ goods, where cars are produced to meet the exact requirements of a customer.
One of the most famous abbreviations in logistics is ´JIT´or ´JOT´ i.e. “just-in/on-time”
signifying first and foremost the avoidance of unnecessary storage or inventory of goods.
Should an anecdote be admitted here, even burglars in Belgium are considered to apply this strategy to their activities: they do not take with them anything which they might not be able to place on the market, however, they register anyway the existence of objects with certain characteristics that may be of interest to their clientele. Once there is a customer, for instance, for a blue BMW station wagon, the burglar makes a second visit to his source.
51 See also Sähköisen tiedonsiirron kehittäminen vaarallisten aineiden kuljetuksissa (The development of electronic data interchange in the transportation of dangerous goods), a study ordered by the Ministry of Transport and Communications of Finland conducted by Viatek Oy, 12.6.2001, at http://www.mintc.fi/www/sivut/dokumentit/julkaisu/
julkaisusarjat/2001/34a.html, visited on 25.11.2003.
yields business opportunities for SMEs, some advanced technological facilities, like those used in shipment tracking, may require investments beyond the possibilities of SMEs.52 Therefore, the impact of e-commerce in terms of competition may be detrimental to them. This could be a matter for public policy.53 On the other hand, technological development increases the functionality and reduces the cost of technical devices, e.g. computerising haulage.54