How much did Harry Potter cost?

E-commerce is growing and environmentalists should be happy. Or should they? 

At first glance, Internet-based shopping seems to have benefits for both the consumer and the environment. Consumers believe they are getting better prices and greater convenience. Environmentalists believe that transportation and collateral costs are reduced because there are fewer trips to shopping malls. But are they right?

In practice, shoppers in the physical world bundle their errands together. The marginal effect on, say, traffic, of buying a book at the mall is small if, as part of the trip, other items are bought or other things are done, such as picking up the kids.

That there is a social cost there is no doubt, but the wider effect of ordering products over the Internet is not zero. Take energy for instance: estimates for 1998 of the electricity cost of operating Internet routers, switches and computers range from 1% of total US energy use to an impressive 8%! Electricity generation is one of the largest national sources of many pollutants. Moreover, the manufacture of computers and related equipment consumes substantial amounts of energy too. And it involves significant amounts of toxic materials as well. Many e-commerce companies build their own regional warehouses for storage and expedited transfer of their merchandise to shipping companies. The construction industry is one of the more energy-intensive industries, and the scale of warehouses being built (in the order of hundreds of thousands of square meters) adds pollution and waste and devours open space.

True, improvements in design, energy efficiency and manufacturing processes are being made. But e-commerce has its negative effects nonetheless. So where are the gains?

E-wizardry 

Last July, Amazon.com, the leading online retailer, partnered with FedEx, a top global courier service, to deliver more than a quarter of a million copies of Harry Potter and the Goblet of Fire to readers across the United States. As a showcase of their combined shipping prowess, Amazon.com announced that all pre-orders of the Harry Potter book would receive free Saturday delivery by FedEx. Thus, customers got books (which, incidentally, were shipped at a 40% discount), only a few hours after the midnight Friday embargo imposed by the publisher. Press releases from FedEx trumpeted the fact that the deliveries required a dedicated fleet of 100 airplanes and 9,000 trucks. The venture set a record for the online provision of goods in volume. It also probably set a record for the quantities of empty shipping boxes and packaging that would wind up in landfills, let alone the energy used – and transport pollution caused – in the deal.

Most orders were probably shipped in single boxes, not as part of larger orders. The total package weighed 1.5kg, with the book itself at 1.1 kg. These packages travelled by air and truck. Per ton-mile, air transit costs three times as much and uses about five times as much fuel as trucking. Rail and water shipping are even cheaper and less polluting, but are clearly unsuitable for fast delivery.

In fact, the total costs of delivering books via a web-based retailer like Amazon.com and a traditional bookstore are comparable. However, when private car trips to bookstores and return shipments of unsold inventory are included, the total system-wide costs of the “traditional retailer” model are nearly double those of the Internet-based ones. These significant savings partly justify the deep discounts offered by web booksellers. It is also possible to understand the relative importance of “upselling”, since more savings are possible if a web company is able to sell two books to a customer and ship them together.

Similarly, if a customer buys two books from the local bookstore, then the effective impacts from the car trip are halved on a per-book basis. Further, the ability to cross-sell other products (in both traditional and online systems) holds the potential of increasing revenues without making the environmental damage worse. For example, a mother buying a new (low profit-margin) Harry Potter book at the local bookstore might grab a high-margin cappuccino while waiting in line.

Online bookstores are not the only example of a new system with uncertain net effects. Online grocers are expanding too, with miniature logistics networks in many large cities.

Green choices 

While Harry Potter cannot be branded as a major contributor to global climate change, the actual effects of current e-commerce systems remain at best unclear, and consumers seem unaware of the trade-offs. After all, while clicking at our PCs, we don’t think of mountains of packaging materials at the landfills, increased emissions or reduced open space.

E-commerce is still in its infancy and it is perhaps difficult to believe that our much treasured individualism -– to “drive to work alone”, and “to order items online and have them shipped overnight” – is contributing to congestion on our nation’s highways and in our skies. Yet, personal consumption choices and some emerging new services may be made greener, without significantly sacrificing customer service and convenience.

One new option for delivering parcels, for instance, is a service that lets customers choose the day and time for receiving their shipment. This feature might allow the local carrier to consolidate delivery trips, reducing the number of trips made and leading to improved environmental performance.

Several companies are considering becoming pickup locations for parcel deliveries. For example, the local video or grocery store could become the shipping address. Customers would stop in and pick up their online purchases the next time they drive past, and, the store hopes, rent a movie at the same time.

Internet companies could help by more effectively marketing such shipping options to consumers. They can help consumers save money, and better recognise the impacts of their purchasing decisions, by explaining the trade-off between delivery time and cost. After all, while items like groceries have to be delivered promptly, books, CDs and videos can probably wait. In other words, the “overnight” e-commerce mantra might be doing more harm than good.

* This article is based on a longer article by the same authors and published in iMP, the web-based magazine of the Center for Information Strategy and Policy at www.cisp.org. It was prepared specially for OECD Observer.

Reference

Visit Carnegie Mellon’s Green Design Initiative at http://gdi.ce.cmu.edu/,  is a research consortium aimed at solutions for businesses interested in reducing non-renewable resources and toxic materials in products. 

EDITOR's UPDATE from November 2018: See Green Design Institute is at https://www.cmu.edu/gdi/

©OECD Observer No. 224 January 2001




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