The rapid growth of e-commerce sales has initiated many changes throughout retailers global supply chains. But it seems that the transition may also be causing significant challenges for logistics providers.
According to The Wall Street Journal, shipping delivery company EZ Worldwide Express has filed for chapter 11 bankruptcy protection and the reason is largely attributed to an increase in online sales.
The fourth quarter is usually a busy time for EZ Worldwide, accounting for 40 percent of total revenue, but this year was different. The company told the court that business was comparatively slow and the stagnation was especially damaging because it had just spent $12 million on new vehicles and warehouses, according to the source.
Online sales impact
EZ Worldwide has 700 employees and provides transportation and shipment services to a handful of major retail companies, including Forever 21 and Amazon Inc., The Wall Street Journal said. The New Jersey-based corporation filed for the chapter 11 protection with the U.S. Bankruptcy Court in Newark and explained its expansion caused a recent deficient in funds. Owned by Ajay Aggarwal and his brother, United Business Xpress, the trucking sector of the company, has also filed for bankruptcy.
The source also added Aggarwal, the company's president, explained to Bankruptcy Judge Stacey Meisel in court papers that despite many retailers having "a satisfactory season, the balance between in-store retail sales and online sales tipped dramatically towards online sales and direct-consumer delivery. Since [EZ Worldwide] businesses serve primarily in-store retail sales, [it] suffered accordingly."
In addition to delivering shipments to retail giants, including J.C. Penney Co., Wal-Mart Inc. and Macy's Inc., The Wall Street Journal revealed that the organization gets approximately 50 percent of its revenue from exclusively handling deliveries to Forever 21.
The shipping provider is also in a dispute with PNC Bank. In November, EZ Worldwide overdrew its account by more than $1.2 million a situation that, according to the source, PNC Bank feels was a "check-kiting scheme."
Future of shipping and distribution centers
Though the logistics industry has already been dealt its fair share of obstacles pertaining to the growth of e-commerce, it is safe to assume the challenges will continue to present themselves as new technologies dominate the market.
A few months ago, Jeff Berman, a group news editor for Logistics Management, highlighted some of the key points made in a speech by FedEx Ground CEO and President Henry Maier at a supply chain management event.
"E-commerce is the biggest driver of change and growth in the transportation industry," Maier said, according to the source. "This year it will top roughly $300 billion, which only represents a little less than 10 percent of total retail sales. It is fast outpacing the growth of traditional brick and mortar."
Berman also added that another major trend Maier said he expects supply chains to see is an increase in companies choosing to ship products directly from stores rather than a distribution center - a model that will speed up delivery time and ultimately give businesses a competitive edge.