Reputational supply chain risks are beginning to surface closer to home for western brands using e-commerce distribution channels. In the rush to accommodate rising consumer demand for goods bought online, brands are increasingly at risk of using unvetted distributors who employ temporary workers that are vulnerable to labour violations.
In the second part of our Supply Chain Risk Outlook, we look at how home deliveries and next day shipping could unravel carefully laid responsible sourcing strategies and leave companies scrabbling for a response to allegations of labour rights abuses right on their doorstep.
Last-mile delivery working conditions a source of risk
Poor working conditions for distribution contractors have gained a significant profile over the past 18 months. In 2018 occupational health and safety, working time and decent wages violations were reported in the UK and US at fulfillment centres operated by leading multinationals. These reports were linked to major online retailers, including bricks and mortar superstores venturing into this space. More broadly, labour violations in the distribution stages of the e-commerce supply chain have been reported across major e-commerce markets such as China and Germany.
When it comes to labour rights, typically, consumers have focused their concerns on labour violation abuses occurring in the production of raw materials and manufacturing in the supply chain. This has driven the development of numerous certification schemes, begging the question will consumers demand similar checks now they are in direct contact with workers who may be at risk?
The road transportation industry, which includes long and short-haul freight services, faces significant labour standards issues. Overall, our Industry Risk Data identifies it as having one of the riskiest profiles for labour standards globally when compared with other logistics industries, such as marine and rail transportation (see figure below).
Risks of labour violations in many of the countries projected to experience the most rapid growth in e-commerce this year are already high – as highlighted in Figure 2. Notably, e-commerce is expected to capture a quarter of Chinese retail sales by 2020. Similarly, Brazil’s e-commerce industry is expected to grow 11% between 2018 and 2022, which is significant considering it already captured 38% of all South American online retail in 2017.
Risks to businesses will worsen with time if left unaddressed
With global e-commerce demand expected to grow by 17% in 2019 and by 36% over the next 3 years, labour standard concerns will grow alongside the industry if left unaddressed. In 2019, we expect online retailers will continue to face capacity challenges and associated risks as they look to develop e-commerce distribution partnerships to meet consumer demands for fast delivery.
The pace of the growth increases the likelihood of contractors being onboarded at short notice, with little time available to conduct thorough due diligence on their business practices. What’s more, the use of branded packaging by third party distributors for goods means control of these issues can be taken out of the hands of brands, which could escalate the potential for reputational impacts if these service providers are associated with labour violations.
Logistics operators that have implemented effective measures to mitigate labour concerns include a National UK courier, who introduced multiple options for methods of employment in an effort to accommodate varying employee credentials and working preferences. Additionally, other last mile couriers have integrated routing and logistics software to boost efficiency while reducing hours required by delivery workers.
With e-commerce expected to continue to grow, businesses will need to thoroughly vet their distribution networks or be ready to face potential brand association with labour violations and poor working conditions. It could be a hard road if they don’t.