By Rashmi Jose, Senior Policy Advisor, IISD

E-commerce retail, the selling of goods and services online from businesses to consumers directly, has benefitted from steady growth since it first appeared in the 1990s. In many countries, that growth turned into a surge during the COVID-19 pandemic, when consumers staying at home because of intermittent lock-down regulations were forced to change their shopping habits from relying on trips to brick-and-mortar venues to shopping online. Age groups previously reluctant to shop online (such as the baby boomer generation) became more used to doing so due to the pandemic, and consumers became more open to experimenting with shopping across a range of product categories. While consumers in developed and emerging markets have made the most significant shift to online shopping, this has not yet been the case in other countries, in particular least developed countries (LDCs), due to persistent infrastructure, skills, and trust barriers.

E-commerce: a growing trend

The increasing tendency to shop online is not petering off in a post-pandemic world. According to recent estimates, in 2022, nearly 19% of retail sales worldwide had occurred through e-commerce. Forecasts expect that proportion to grow by nearly 1% year-on-year to 23% by 2027. In terms of value, global e-commerce retail sales amounted to around USD 5.3 trillion in 2022 and are expected to increase to more than USD 8 trillion by 2027. While growth rates will be strong in developed markets, large developing economies, such as India, Brazil, and Argentina, are expected to be the fastest-growing e-commerce markets in the coming years.

Consumers are also getting used to shopping internationally, which means that more and more e-commerce goods will travel longer distances. The share of consumers purchasing from international providers rose from 20% in 2017 to 25% in 2019. While most e-commerce retail sales will continue to take place at the domestic level, it is expected that the value of the cross-border e-commerce market will also thrive.

The growth of e-commerce retail in goods means that more and more products are transported each year directly to consumers, and they could also travel potentially longer distances. Many of these finished products are covered in multiple layers of packaging to ensure that the finished product is protected and suitable for transit. Materials used for this type of packaging include carboard, paper, and, notably, plastics. Examples of how plastic is used in packaging include air pillows, bubble wrap, and film wrap.

The plastic waste problem

The global economy’s reliance on plastic has meant that its production has grown 230-fold from the 2 million tonnes produced in 1950 to 460 million tonnes per year in 2019, with forecasts expecting production to triple by 2060. Packaging, which is when materials are used to enclose or contain something, is the industry that is driving the demand for plastics the most, using up approximately 36% of the total produced yearly. Not only does the packaging sector use the most, but the timespan for when that plastic gets used is short, often used on a single-use basis, and within six months after it is produced.

The high demand and the short lifespan mean that the packaging industry is a grievous contributor to the plastic waste problem, responsible for nearly half of the total plastic waste produced yearly. For example, in 2015, it was found that while 407 million tonnes of primary plastics had been made, 302 million tonnes of it went toward waste. Packaging was responsible for a staggering 143 million tonnes worth of that amount. This is problematic, given that of the waste produced, only 9% of plastic waste get recycled, while 22% is mismanaged and leaks into the environment. The rest either piles up in landfills or is incinerated. The waste is increasingly linked to catastrophic effects on the environment and human health.

With e-commerce retail projected to grow significantly, demand for plastic packaging will also increase. In 2019, the e-commerce industry was estimated to use approximately 1 million tonnes of plastic for its packaging, and almost all of it is assumed to have turned into waste. Most of this waste was caused by China and the US, which are currently the countries with the most significant market shares in the e-commerce industry. Plastic in e-commerce packaging is expected to double by 2025. It would be reasonable to expect these amounts and the waste produced to grow even further as e-commerce becomes more pervasive across the global economy.

Plastic waste generated through e-commerce may seem to be dwarfed by the overall amount of packaging waste produced by the broader packaging industry (1 million tonnes compared to 143 million tonnes, with varying years of comparison). However, the size and growth of e-commerce make it a fast growing business channel, which could make it one of the fastest growing waste streams, contributing to the worsening plastic waste problem. A study in the Republic of Korea found that the shift to online shopping generates 4.8 times more packaging waste than offline shopping, whereas another study notes an increase of 11.4 to 17.5 kilotonnes (kt) of additional plastic packaging in the EU due to an increase of e-commerce activity during COVID-19.

Why plastic in e-commerce may be a difficult habit to kick

The amount of plastic used for packaging in e-commerce is higher than what would have been used through traditional brick-and-mortar retail. One reason for this is because e-commerce increases the number of shipments. In conventional retail, goods are often transported in bulk to the retailer, whereas with e-commerce, goods are usually sent on an individual basis directly to the consumer. The plastic used to cover the surface area of the goods is considerably less so when transported in bulk. E-commerce purchases are also prone to a practice referred to as bracketing, in which consumers have a tendency to buy more goods than needed to test for fit, making the shopping more prone to returns, with estimates suggesting that almost 20-30% of e-commerce purchases are returned. The plastic packaging of those returns is also at risk of being turned into waste.

The complexity of the e-commerce supply chain also makes the specific characteristics of plastic – that it is lightweight, high-performing, and lower cost – particularly attractive to the industry making it more prone to rely on it for packaging and resulting in a tendency for over-packaging and empty space. These characteristics are especially useful to respond to the higher robustness needs of e-commerce. These robustness needs come about due to more actors engaging in the e-commerce supply chain and the package on average being handled four times more than traditional retail.

E-commerce also has a lower profit margin relative to traditional retail. A study found that pure online retailers in key European markets only benefitted from a pre-tax profit margin of 1.4% in 2019, compared to the total retail industry, for which the average is 5.4%. The low margins mean higher pressures to keep costs, including for packaging, low. Not only is plastic a relatively cheap input, but because of its lightweight nature, it reduces the overall weight of the package, lowering transportation costs.

Why regulatory action may be needed

While robustness requirements and cost pressures may result in a tendency to rely on plastics in packaging, e-commerce retailers are facing backlash and increasing consumer pressures across developed and developing countries to shift away from using plastic in packaging. Consumer surveys regularly emphasize that consumers today are more worried about environmental issues than ever. There is also an increasing awareness of the ramifications of plastic leakage to the oceans.

Yet, while some consumers have indicated that they are willing to pay more for sustainable packaging, they will only do so at low premiums. Many more consumers believe that sustainable products in general should not be more expensive that non-sustainable products, and that it is the responsibility of industries to shift to sustainable practices while maintaining competitive prices.

Consumer pressure has resulted in some leading e-commerce retailers testing out initiatives in sustainability packaging, from exploring eco-friendly plastic alternatives, to investing in packaging efficiencies. However, at the industry level, the scaling up of production of more sustainable alternatives to plastic packaging at competitive prices requires upfront investments in technologies and machines. Unless the industry is either incentivized or forced to undertake such investments, they may be unlikely to do so on a voluntary basis, especially due to the low premiums that consumers are willing to pay for it. This is where government policies, whether in the form of incentives or regulations, could play a role in shifting the industry towards such action.

In a forthcoming follow-up article, we will review existing regulatory efforts by governments to tackle the issue of plastic packaging waste in e-commerce, and discuss the main features of these emerging regulatory efforts.