E-commerce has altered the practice, timing, and technology of B2B and B2C markets, affecting everything from transportation patterns to consumer behavior.
Thanks to the development of electronic commerce, the most basic of economic transactions— the buying and selling of goods—continues to undergo changes that will have a profound impact on the way companies manage their supply chains. Simply put, e-commerce has altered the practice, timing, and technology of business-to-business (B2B) and business-to-consumer (B2C) commerce. It has affected pricing, product availability, transportation patterns, and consumer behavior in developed economies worldwide.
B2B e-commerce leads the way
Business-to-business electronic commerce accounts for the vast majority of total e-commerce sales and plays a leading role in global supply chain networks (see Figure 1). In 2003, approximately 21 percent of manufacturing sales and 14.6 percent of wholesale sales in the United States were e-commerce related; by 2008 those percentages had increased to almost 40 percent for manufacturing and 16.3 percent for wholesale trade. One reason why B2B e-commerce is more sophisticated and larger in size than directto- consumer e-commerce is that B2B transactions developed out of the electronic data interchange (EDI) networks of the 1970s and 1980s.
Article Figures
[Figure 1] Supply chain web with e-commerce retail tradeEnlarge this image
The steady growth in business-to-business e-commerce has changed the cost and profit picture for companies worldwide. At the microeconomic level, growth of B2B e-commerce results in a substantial reduction in transaction costs, improved supply chain management, and reduced costs for domestic and global sourcing. At the macroeconomic level, strong growth of B2B e-commerce places downward pressure on inflation and increases productivity, profit margins, and competitiveness.
Double-digit growth for B2C
E-commerce retail has become the fastest growing trade sector and has outpaced every other trade and manufacturing sector since 1999, when the U.S. Census Bureau started collecting and publishing data on e-commerce. That year, e-commerce retail sales represented less than 1 percent of total U.S. retail sales. In 2003 that number climbed to a little less than 2 percent; by 2008 it had grown to 3.6 percent, and by the fourth quarter of 2010 B2C e-commerce reached 4.4 percent of total U.S. retail sales. In dollar terms, e-commerce retail revenue currently stands at approximately US $165 billion, considerably less than the US $3.9 trillion that represents the total U.S. retail market.
During the "Great Recession," which lasted from December 2007 through June 2009, manufacturing, wholesale, and bricks-and-mortar retail sales took a heavy beating. By the fourth quarter of 2010 they still had not fully recovered, even though U.S. gross domestic product (GDP) and personal spending (adjusted for inflation) had surpassed their previous peaks seen in late 2007.
Retail e-commerce, by contrast, weathered the recession relatively well, albeit with considerably slower growth than had been seen prior to the financial crisis. In the first quarter of 2002, retail ecommerce experienced quarterly, year-over-year growth of about 42 percent. On the eve of the recession, that rate dropped to a still-respectable 18 percent. Quarterly sales continued to grow until the latter part of 2008, and in the fourth quarter of 2009 sales surpassed the previous peak (see Figure 2).
It's important to note here that a large portion of B2C sales come through mail-order houses, many of which have an online presence as well as traditional storefront outlets. Contrary to popular opinion, mail-order houses still have a very strong online presence, and until just recently their sales outperformed online-only retailers.
Economic, behavioral changes
The changes that B2C e-commerce has sparked arguably have had a more significant impact on the economy and on buyers' behavior than has B2B ecommerce. In the past, when consumers wanted to make purchases they had to set aside time to shop during certain hours of the day, or they had to read through catalogs sent to them by mail-order houses. Today, many consumers can simply use their computers— and now smart phones or other portable electronic devices—to shop online. Buyers and sellers that engage in e-commerce retail trade are no longer restricted by store hours, geographic marketing areas, or catalog mailing lists. With a few simple clicks they can gain access to a variety of goods 24 hours a day, seven days a week.
The characteristics of retail e-commerce merchandise also have changed significantly over the past decade. Back in 2000, computer hardware was the most common type of merchandise sold over the Internet. Today, the variety of merchandise is extremely diverse, and shoppers can buy almost anything online.
Online shoppers have benefited in other ways. The growth of e-commerce retail sales has reduced consumers' search cost, placed downward pressure on many consumer prices, and reduced price dispersion for many consumer goods. But this has led to a substantial decrease in the number of small companies operating in certain industries, as they tend to be less involved with e-commerce. Larger businesses, most notably retail book outlets, new automobile dealerships, and travel agents, are better able to compete in this new market environment.
The extremely rapid growth of e-commerce retail sales has provided a major boost to residential parceldelivery services. That's because online merchandise purchases involve some form of residential delivery by a third-party vendor such as FedEx, UPS, or the U.S. Postal Service. In addition, there appear to be considerable synergies related to B2C parcel and heavier freight volumes—parcel industry insiders have observed that businesses with strong e-commercerelated B2C parcel shipment volumes often have stronger B2B shipment volumes than those that do not engage in B2C e-commerce.
E-commerce influences demand patterns
As technology, e-commerce, and globalization become more intertwined, buyers and sellers are increasing their connectivity and the speed with which they conduct sales transactions. As we saw during the recent turmoil in the financial markets and some supply chain networks, speeding up sales transactions can be a very positive attribute when small market corrections are taking place. However, during a major economic correction like the one we witnessed during the Great Recession, a quicker response to sales transactions can have cascading impacts on supply chains, resulting in large contractions or expansions in orders, production, shipments, and inventory.
That's because years ago, it might have taken two years for events in one country to affect another's economy. Now, thanks to technology and instant communication, the impact can be almost immediate.
Thus, there are some potentially negative consequences to the rapid growth of e-commerce. In this volatile business environment, supply chain managers should consider developing strategies for dealing with the rapid swings that can result from increasing use of e-commerce in a globalized market.
Companies in every sector are converting assets from fossil fuel to electric power in their push to reach net-zero energy targets and to reduce costs along the way, but to truly accelerate those efforts, they also need to improve electric energy efficiency, according to a study from technology consulting firm ABI Research.
In fact, boosting that efficiency could contribute fully 25% of the emissions reductions needed to reach net zero. And the pursuit of that goal will drive aggregated global investments in energy efficiency technologies to grow from $106 Billion in 2024 to $153 Billion in 2030, ABI said today in a report titled “The Role of Energy Efficiency in Reaching Net Zero Targets for Enterprises and Industries.”
ABI’s report divided the range of energy-efficiency-enhancing technologies and equipment into three industrial categories:
Commercial Buildings – Network Lighting Control (NLC) and occupancy sensing for automated lighting and heating; Artificial Intelligence (AI)-based energy management; heat-pumps and energy-efficient HVAC equipment; insulation technologies
Manufacturing Plants – Energy digital twins, factory automation, manufacturing process design and optimization software (PLM, MES, simulation); Electric Arc Furnaces (EAFs); energy efficient electric motors (compressors, fans, pumps)
“Both the International Energy Agency (IEA) and the United Nations Climate Change Conference (COP) continue to insist on the importance of energy efficiency,” Dominique Bonte, VP of End Markets and Verticals at ABI Research, said in a release. “At COP 29 in Dubai, it was agreed to commit to collectively double the global average annual rate of energy efficiency improvements from around 2% to over 4% every year until 2030, following recommendations from the IEA. This complements the EU’s Energy Efficiency First (EE1) Framework and the U.S. 2022 Inflation Reduction Act in which US$86 billion was earmarked for energy efficiency actions.”
Economic activity in the logistics industry expanded in November, continuing a steady growth pattern that began earlier this year and signaling a return to seasonality after several years of fluctuating conditions, according to the latest Logistics Managers’ Index report (LMI), released today.
The November LMI registered 58.4, down slightly from October’s reading of 58.9, which was the highest level in two years. The LMI is a monthly gauge of business conditions across warehousing and logistics markets; a reading above 50 indicates growth and a reading below 50 indicates contraction.
“The overall index has been very consistent in the past three months, with readings of 58.6, 58.9, and 58.4,” LMI analyst Zac Rogers, associate professor of supply chain management at Colorado State University, wrote in the November LMI report. “This plateau is slightly higher than a similar plateau of consistency earlier in the year when May to August saw four readings between 55.3 and 56.4. Seasonally speaking, it is consistent that this later year run of readings would be the highest all year.”
Separately, Rogers said the end-of-year growth reflects the return to a healthy holiday peak, which started when inventory levels expanded in late summer and early fall as retailers began stocking up to meet consumer demand. Pandemic-driven shifts in consumer buying behavior, inflation, and economic uncertainty contributed to volatile peak season conditions over the past four years, with the LMI swinging from record-high growth in late 2020 and 2021 to slower growth in 2022 and contraction in 2023.
“The LMI contracted at this time a year ago, so basically [there was] no peak season,” Rogers said, citing inflation as a drag on demand. “To have a normal November … [really] for the first time in five years, justifies what we’ve seen all these companies doing—building up inventory in a sustainable, seasonal way.
“Based on what we’re seeing, a lot of supply chains called it right and were ready for healthy holiday season, so far.”
The LMI has remained in the mid to high 50s range since January—with the exception of April, when the index dipped to 52.9—signaling strong and consistent demand for warehousing and transportation services.
The LMI is a monthly survey of logistics managers from across the country. It tracks industry growth overall and across eight areas: inventory levels and costs; warehousing capacity, utilization, and prices; and transportation capacity, utilization, and prices. The report is released monthly by researchers from Arizona State University, Colorado State University, Rochester Institute of Technology, Rutgers University, and the University of Nevada, Reno, in conjunction with the Council of Supply Chain Management Professionals (CSCMP).
"After several years of mitigating inflation, disruption, supply shocks, conflicts, and uncertainty, we are currently in a relative period of calm," John Paitek, vice president, GEP, said in a release. "But it is very much the calm before the coming storm. This report provides procurement and supply chain leaders with a prescriptive guide to weathering the gale force headwinds of protectionism, tariffs, trade wars, regulatory pressures, uncertainty, and the AI revolution that we will face in 2025."
A report from the company released today offers predictions and strategies for the upcoming year, organized into six major predictions in GEP’s “Outlook 2025: Procurement & Supply Chain.”
Advanced AI agents will play a key role in demand forecasting, risk monitoring, and supply chain optimization, shifting procurement's mandate from tactical to strategic. Companies should invest in the technology now to to streamline processes and enhance decision-making.
Expanded value metrics will drive decisions, as success will be measured by resilience, sustainability, and compliance… not just cost efficiency. Companies should communicate value beyond cost savings to stakeholders, and develop new KPIs.
Increasing regulatory demands will necessitate heightened supply chain transparency and accountability. So companies should strengthen supplier audits, adopt ESG tracking tools, and integrate compliance into strategic procurement decisions.
Widening tariffs and trade restrictions will force companies to reassess total cost of ownership (TCO) metrics to include geopolitical and environmental risks, as nearshoring and friendshoring attempt to balance resilience with cost.
Rising energy costs and regulatory demands will accelerate the shift to sustainable operations, pushing companies to invest in renewable energy and redesign supply chains to align with ESG commitments.
New tariffs could drive prices higher, just as inflation has come under control and interest rates are returning to near-zero levels. That means companies must continue to secure cost savings as their primary responsibility.
Specifically, 48% of respondents identified rising tariffs and trade barriers as their top concern, followed by supply chain disruptions at 45% and geopolitical instability at 41%. Moreover, tariffs and trade barriers ranked as the priority issue regardless of company size, as respondents at companies with less than 250 employees, 251-500, 501-1,000, 1,001-50,000 and 50,000+ employees all cited it as the most significant issue they are currently facing.
“Evolving tariffs and trade policies are one of a number of complex issues requiring organizations to build more resilience into their supply chains through compliance, technology and strategic planning,” Jackson Wood, Director, Industry Strategy at Descartes, said in a release. “With the potential for the incoming U.S. administration to impose new and additional tariffs on a wide variety of goods and countries of origin, U.S. importers may need to significantly re-engineer their sourcing strategies to mitigate potentially higher costs.”
Freight transportation providers and maritime port operators are bracing for rough business impacts if the incoming Trump Administration follows through on its pledge to impose a 25% tariff on Mexico and Canada and an additional 10% tariff on China, analysts say.
Industry contacts say they fear that such heavy fees could prompt importers to “pull forward” a massive surge of goods before the new administration is seated on January 20, and then quickly cut back again once the hefty new fees are instituted, according to a report from TD Cowen.
As a measure of the potential economic impact of that uncertain scenario, transport company stocks were mostly trading down yesterday following Donald Trump’s social media post on Monday night announcing the proposed new policy, TD Cowen said in a note to investors.
But an alternative impact of the tariff jump could be that it doesn’t happen at all, but is merely a threat intended to force other nations to the table to strike new deals on trade, immigration, or drug smuggling. “Trump is perfectly comfortable being a policy paradox and pushing competing policies (and people); this ‘chaos premium’ only increases his leverage in negotiations,” the firm said.
However, if that truly is the new administration’s strategy, it could backfire by sparking a tit-for-tat trade war that includes retaliatory tariffs by other countries on U.S. exports, other analysts said. “The additional tariffs on China that the incoming US administration plans to impose will add to restrictions on China-made products, driving up their prices and fueling an already-under-way surge in efforts to beat the tariffs by importing products before the inauguration,” Andrei Quinn-Barabanov, Senior Director – Supplier Risk Management solutions at Moody’s, said in a statement. “The Mexico and Canada tariffs may be an invitation to negotiations with the U.S. on immigration and other issues. If implemented, they would also be challenging to maintain, because the two nations can threaten the U.S. with significant retaliation and because of a likely pressure from the American business community that would be greatly affected by the costs and supply chain obstacles resulting from the tariffs.”
New tariffs could also damage sensitive supply chains by triggering unintended consequences, according to a report by Matt Lekstutis, Director at Efficio, a global procurement and supply chain procurement consultancy. “While ultimate tariff policy will likely be implemented to achieve specific US re-industrialization and other political objectives, the responses of various nations, companies and trading partners is not easily predicted and companies that even have little or no exposure to Mexico, China or Canada could be impacted. New tariffs may disrupt supply chains dependent on just in time deliveries as they adjust to new trade flows. This could affect all industries dependent on distribution and logistics providers and result in supply shortages,” Lekstutis said.