Ecommerce and the Environment: Considerations for Counting Impacts and Financing Improvements
Kati Suominen, Founder and CEO of Nextrade Group; Technical Director of the Alliance for eTrade Development
The Covid-19 crisis has accelerated the growth of online shopping worldwide and made it a priority for small businesses in developing countries to set up ecommerce capabilities. In recent business surveys by the USAID-supported Alliance for eTrade Development aimed to promote micro, small, and medium-size enterprises’ (MSMEs) use of ecommerce for expanded trade, growth, and job-creation, MSMEs around the developing world report prioritizing ecommerce and digital marketing capabilities in 2021. While the Alliance tracks the many benefits small businesses score from selling online, little is still known about the impact of ecommerce on the environment, especially in developing economies – and subsequently what donors and businesses can finance to support environmentally-friendly ecommerce. Here are some of early considerations for future research.
Ecommerce is often thought of as shipments – and returns – of parcels and packages of individuals items. There is some early evidence of the impacts of this “B2C ecommerce” on the environment:
- Delivery trucks have proliferated on city streets around the world. Many deliveries are also often made second or third time when no-one is home, adding congestion and emissions especially at the urban last mile. Of course, there is also a substitution effect at work – such as reduction in shoppers’ trips to stores and malls. Before Covid-19, some researchers found that ecommerce actually implies fewer aggregate miles driven, while others found that only click and collect practices (not shipments from pure-play online retailer) have this effect. This is unsurprising in that the substitution effects is highly specific to the type of good shipped, mode of transport, and location.
- Ecommerce has increased the premium on fast modes of transport like air and trucking that have traditionally been much less climate friendly than rail or ships.
- Returns, which are often 20-30 percent of B2C ecommerce shipments of clothing and footwear in particular, a much higher rate than for goods sold in-store, not only translate into duplicate trips, but also in landfill waste. This is because returned stock takes too much time and money for retailers to refurbish and bring back to inventory. According to some estimates, in the U.S. alone, returns contribute to five billion pounds of landfill waste and 15 million metric tons of carbon dioxide to the atmosphere (equivalent to emissions by 3 million cars).
- Packing materials have mushroomed thanks to single items shipped. By one count, 165 billion packages were shipped in the U.S. last year — using about 1 billion trees’ worth of cardboard. In markets where recycling is either regulated (as in USA) or not keenly practiced (as in poor economies), cardboard in ecommerce packaging materials can simply end up in the trash, requiring more tress to be downed. Plastics in ecommerce packaging have in some studies reported to burden marine ecosystems.
At the same time, ecommerce ecosystem businesses are acutely aware about these challenges, and many technologies, including ones promoted by the eTrade Alliance partners, are rapidly emerging as solutions:
- Recycled returns. Retailers are rolling our creative recycling programs to address the climate crisis – for example, U.S. department store Nordstrom has adopted a resell system for returned and damaged merchandise. Augmented reality and 3D holograms adopted by vanguard retailers enable shoppers to “try on” clothing and see products in 3D before shopping, reducing the need for returns.
- Aggregation technologies and urban warehousing. Logistics companies have long used big data to shorten miles – for example, UPS trucks have for years averted turning left, saving estimated 10 million gallons of fuel annually. Real-time dynamic routing practices among delivery services open opportunities for maximizing the volumes handled in each trip and ensure no fleet ever runs empty. Urban warehousing and predictive analytics on shopping behaviors in a location can reduce long tris for single items.
- Digital addressing systems such as Google Plus Codes enable delivery services to quickly find their target even in the many developing countries with poor addressing systems, reducing idle time, variability in delivery times, and duplicate trips.
- Rise of electric ships, vans and trucks. The modes of transport are greening and smartening, with electric trucks (yes Tesla has been in trucking business for years) and data-driven platooning systems that save gas, adoption of electric vans, use of drones to (literally) overcome urban congestion, and the substitution from trucks to electric ships, as pioneered by seafaring nations Norway and Korea, among others.
- B2B services ecommerce explosion. While electric planes are still rather remote, the rapidly growing B2B ecommerce in services – or “digitally deliverable services” that have doubled as a share of world trade in services in the past 15 years, to over 40% of total – may imply reduction in business air travel.
- Interoperability in logistics supply chains. Players in B2B trade transactions used to interoperate poorly, resulting in long delivery times, idle time and delays. Today, shippers, freight forwarders, logistics providers, ports customs and other players are adopting blockchain, digital B2B payments, and smart contracts to digitize and automate handshakes and payments with each other, accelerating flow of B2B and B2C transactions.
- Disruptions in ecommerce packaging materials and especially methods are ripe for disruption, with technologies such as 3D printing enabling reductions in packaging materials.
- Research and evidence from China to Chile suggest that infrastructure projects such as wider roads and warehouses further outside congested ports and the smart port revolution can reduce urban and port congestion and emissions.
- Consumers worldwide demonstrably love to shop online – but are also becoming more environmentally conscious. Green consumerism will also shape the future impacts of ecommerce, and consumption in general, on the environment. Ecommerce giants too are rising to address the environment – Latin America’s leading marketplace Mercado Libre recently set out to reforest 3,000 hectares in the Amazon.
The impacts of ecommerce on the environment in the developing economies depend on the evolution of these and great many other factors – and on what ecommerce is taken to mean. This is a rich and necessary research agenda to ensure that developing economies’ embrace of ecommerce is also good for the climate, and to finance technology, infrastructure and business model solutions with high environmental returns.
- Markets and Trade