Understanding and innovating last-mile delivery
You can read this article in 11 minutes
Local delivery companies, regional parcel carriers and the largest integrated carriers have been managing the last-mile delivery forever. However, only in recent years have we been calling the final leg of the delivery process, the last mile.
Both the mega parcel carriers and large e-commerce retailers have estimated that the cost of an e-commerce specific, last-mile home delivery, could represent between 25 and 35 percent of the fully landed, delivery transportation expense. The total delivery expense for an integrated carrier solution includes pick-up, local terminal handling, line-haul, hub sortation and local delivery. It’s in the last mile delivery segment where the opportunity for the most savings exists.
Additionally, the expense related to the B2B last-mile delivery is much lower than that of the home delivery, so the focus has been on reducing the cost of the B2C, home delivery. The question begs, why is the last mile segment of the total home delivery equation, from pick-up to delivery, so expensive?
Home delivery is just ugly, and B2B delivery is a wonderful thing.
It has been difficult for the carriers and e-commerce retailers to scale the home delivery and drive lower costs for this most costly segment of the delivery chain. Reasons for this include:
- The average number of parcels per home delivery are less than 1.5 pieces per delivery stop where the average number of pieces for the B2B delivery is over 3 parcels per stop.
- Last-mile home delivery stops are not in close proximity to each other. This drives higher, overall operational expense when compared to more-dense, B2B delivery stops.
- There are numerous other conditions specific to the last mile home delivery that drive higher expense including the loss/theft of released shipments and failed first-time delivery attempts which require costly reattempted delivery.
- Home delivered parcels are more prone to incorrect delivery and the expense/inconvenience related to tracking down and redelivering incorrectly delivered the last mile, home-delivered shipments to a residence, bears a significant cost burden for the carrier.
- The growth of new last-mile service providers is making it harder to scale the home delivery for many carriers. While there are more last-mile shipments, there are also many more carriers and drivers making that last-mile delivery.
- Click and Collect store pickup and direct-ship to access points for consumer pickup are also making it more difficult to scale the home delivery.
What all this means, is that the effort to rethink the last mile delivery is focused on the e-commerce specific, last-mile home delivery. The goal is to both reduce operational expense and improve the last-mile delivery experience for the consumer and here are some examples of innovation taking place in this delivery space:
Access Point Delivery: Carrier access points include drop boxes, carrier counters, parcel lockers, authorized shipping centres and 3rd party, retail stores like Walgreens, that accept and hold parcels for consumer pick-up. Access point delivery is also a last-mile solution that does not include the home delivery and drives savings for the carriers by allowing them to consolidate multiple residential deliveries at a retail location. Access point delivery has become a lower-cost alternative to the costly, home delivery.
Delivery sourced from forward-stocking retail stores:
In an effort to compete with Amazon’s market dominance and the Prime value proposition, legacy big-box stores like Target, Walmart and Best Buy, are now sourcing consumer last-mile delivery from many of their forward-positioned retail stores. Sourcing product as close to the consumer as possible drives savings specific to the last mile delivery solution. This solution also supports both same-day and next-day delivery solutions well for the retail merchants with many carrier options for next-day, last-mile delivery and on-demand delivery solutions, for 2-hour and same-day delivery.
On-Demand delivery models:
These contractor-, app-based delivery solutions are ideal for supporting same-day, point-to-point, last-mile delivery. In most cases, the merchant may be charging extra for a same-day, last-mile delivery via an annual subscription fee or assess a per delivery charge of up to ten dollars. The growth of same-day, last-mile delivery solutions will be interesting to watch as it’s availability will continue to feed consumer expectations of faster delivery of online purchases.
Amazon Delivery Service Partners: You can’t mention improving the last mile delivery experience and lowering last-mile delivery cost without referencing this new in-house initiative by Amazon to mange their own last-mile delivery. Today, Amazon is now delivering over half of their merchandise via their DSP network. Developing this in-house, last-mile delivery capability is costing Amazon a boatload of money, but their huge network of forward stocking fulfilment centres dove-tails nicely with local, last-mile delivery, in major markets. It will also be very difficult for any other e-commerce retailer to replicate what Amazon has done in this space.
Lower cost employee models/classifications supporting home delivery:
The race to reduce the cost of the last mile delivery is on and it’s focused on the following 2 areas:
1. On-demand, contractor models: In most cases, on-demand, last-mile delivery solutions are not inexpensive for the consumer or carrier as they usually involve a single, point-to-point delivery that can’t be scaled via a traditional delivery route. On the positive side, this is a variable cost, a last-mile delivery solution where the carrier or merchant is only incurring expense when they have an actual delivery.
2. New, low-cost carrier driver models: Both UPS and FedEx are now hiring lower-cost employees to support the high cost, last mile, residential delivery.
Autonomous delivery vehicles:
The development of Autonomous, local delivery vehicles in support of last-mile delivery is going strong with numerous test vehicles on the road. However, applications for this type of delivery vehicle may be limited as the major carriers may never implement this solution out of abundant concern for the safety of pedestrians and domestic pets. Additionally, getting the shipment from the curb-parked, autonomous delivery vehicle to the front door is still a major challenge.
This is another advanced technology, last-mile delivery solution that may have limited applications. A number of companies are in the development/testing stage of delivery bots to include FedEx and Amazon. This last mile delivery solution may be better suited to serve restaurant-to-go services verses the last mile, home delivery, in support of on-line purchases.
The roll of technology.
Technology is playing a huge role in reinventing the last mile delivery. From the algorithms, sensors and AI that make autonomous local delivery vehicles possible to the apps and software platforms that efficiently route delivery vehicles, new technology solutions will still need to advance, to further reduce the cost of the last mile delivery and improve the customer experience.
Free shipping and the e-commerce value proposition:
While many new last mile delivery solutions will continue to be brought to market, we must not forget that the free-shipping, an e-commerce value proposition is the number one buying motive for the e-commerce consumer. This is the sacred buying motive that drives the success of e-commerce merchants across America and much of the world. The challenge is to reduce the operationally high costs specific to the last mile home delivery, improve perceived service/value to the consumer and do all this under the banner of free shipping.
The future of the last mile and potential for radical change:
The wave of change specific to e-commerce, residential delivery is already upon us. While advanced new last mile technologies will continue to be introduced, it’s getting harder to quantify the practical applications of newly introduced technology. Over-engineering the last mile delivery sure looks sexy on those product development videos, but in many cases, the application itself and benefits are limited.
However, the real opportunity for radical change lies with new last-mile solutions for legacy delivery models, that may have nothing to do with e-commerce parcel delivery, such as:
1. Large and bulky/white-glove delivery – Numerous transportation carriers are offering, testing and introducing versions of this last-mile service to the home and for inside business deliveries. These deliveries are usually supported by a straight truck with lift-gate and a two-person crew.
2. The demise of distributor models – Many product manufacturers/importers are dependent on costly distributor models that control all elements of product sales, customer service and distribution. The internet and new technology now allow a product manufacturer or importer to control sales and customer service so all that is needed, is a local last-mile warehousing and delivery solution. You simply no longer require a local or regional distributor relationship that sucks-up most margin as numerous, local warehousing and last-mile delivery solutions are now available to support both warehousing/fulfilment and last-mile delivery.
3. New 3PL solutions – Agile and tech-savvy 3PL’s can now support warehousing, fulfilment and same-day/next-day local delivery for products of any size. 3PL based Warehousing-As-A-Service models are flexible, can bring on new customers in a short period of time and can easily transition customers with limited long-term obligations. Cash starved new enterprises can now offer a 3PL based, last-mile delivery solution as they go-to-market with their products.
4. National last mile service providers – Solution providers like Cardinal Logistics Management are replacing in-house delivery solutions for companies like Home Depot. They offer a higher level of transportation specific expertise, leverage technology to drive efficiency and reduce the cost of local, last-mile delivery for the retailers they serve. Best of all, many of these service providers are now operating in most major US markets, which allows their national clients to work with a single service provider across the US.
5. Last-mile delivery start-up opportunities: There has never been a better time to start-up a local delivery company and offer last-mile delivery services. The demand for last-mile delivery continues to increase and the trend is moving in the direction of subcontracting local delivery versus providing these services in-house.
Please feel free to contact Dean at Logistics Trends and Insights if you have questions regarding a last-mile distribution solution.
Dean Maciuba is the Director of Consulting Services at Logistics Trends & Insights LLC and he is an expert on last-mile delivery, Amazon, e-commerce, and the design/implementation of speciality distribution solutions.
Photo: Mark Ashmann/ Wikimedia Commons