THE FINAL PUSH

Last Mile Delivery Trends And The Challenges Ahead

The term “last mile” delivery refers to getting a product from the closest fulfilment or distribution centre to the final customer and end-user, meaning the last leg of the sometimes long journey from online retailer to consumer. During the e-commerce boom years, that is during the pandemic, operators paid less attention to this, as they were focused on keeping up with growing customer demand and expanding market share.

The growth of e-commerce has now slowed down, as consumers look for human contact – following a couple years of lockdowns, many of us enjoy getting back to physical stores. In the US, for example, when it peaked in 2020, the share of e-commerce sales reached almost 17 per cent of total retail sales, whereas it’s down to around 15 per cent today. With less growth and more competition, operators are looking for ways to cut costs and last-mile delivery is one of the components they scrutinize closely.

Varying Costs

The cost of last-mile delivery varies a lot, depending on several factors, like package size and weight, geography, market density, season, traffic, and waiting times. Delivery points vary greatly in distance and customers may be far apart, with only one item delivered at each location. In urban areas, delivery points are closer together, but traffic congestion often leads to delays and inefficiencies. But an average cost that’s often mentioned is around US$10 per package. Interestingly, the average revenue per domestic package in the UPS network in the first quarter of 2023 was reported at US$12.54. There is no direct correlation between the two, but it gives us a scale and it’s amusing that they come to relatively similar amounts.

How do we know the cost of the last-mile delivery has become a prime concern? This factor, and logistics costs in general, are often mentioned in reports by financial analysts who examine the prospects and stock market value of this or that company. And confirming the importance of the last-mile delivery and its costs, in early May, Amazon started offering US customers a US$10 credit to pick up any purchase of US$25 or more, at selected pick-up locations, rather than having it shipped to their home address. This is an amazing development, as since its inception, the Amazon business model has been to get consumers hooked to fast, free delivery (and returns), and this is another example of the e-commerce giant trying to cut costs, as consumer demand slows.

Courier companies, on their side, are trying to cut costs and reduce the time a driver spends delivering a parcel, by maximizing the use of communication technology: consumers are contacted ahead of time by email and text and encouraged to preauthorize delivery without signature. When some charges need to be collected, for example freight, handling, customs, taxes, and so on, customers get their bill electronically ahead of time and are strongly encouraged to pay online with their credit card. This saves drivers an enormous amount of time: no need to ring the bell, wait for a response, issue a slip so the customer can pick-up their parcel from a depot, and so on.

The cost of returns is also a big issue for e-commerce, as the probability of a customer returning a product bought online is around 30 per cent, compared to below 10 per cent for traditional brick-and-mortar stores. In these cases, the last-mile delivery takes place as usual but is repeated in reverse, more than doubling the overall cost. Many opera- tors use third parties to handle their reverse logistics, consolidating returns in order to reduce the number of trips, thereby cutting costs.

Technology brings various solutions and provides tools like predictive analytics that will help rationalize the deployment of the last-mile delivery, by anticipating challenges, risks, and options.

Route planning software analyzes historical delivery data, including distance covered, time per delivery, fuel used, the number of successful deliveries versus failed ones, to help identify inefficiencies, optimize the number of trucks and drivers, improve service while generating cost savings at the same time. Managing the proof of delivery confirming that the customer received his or her package in good condition, can also be helped thanks to technology: electronic signature versus paper, photo signatures, contactless signatures, digital ID verification, and so on. Another method that emerged recently is “crowdsourced delivery,” with stores pooling (or crowdsourcing) their delivery services together to hire delivery contractors, giving them the flexibility to scale up or down, as required and without major investments.

Small Is Beautiful

Micro-fulfillment is another option used primarily to improve delivery times, but also to potentially reduce the cost of last-mile delivery: it refers to using networks of small fulfillment centres strategically located in densely populated areas, closer to customers. It enables retailers to offer very fast delivery services and simple store replenishment, though this solution is not very green and increases the carbon footprint of e-commerce.

No matter how much help technology can provide, some undisputable facts remain: shipping single orders across the globe to someone’s residence has a cost, including ecological, and the last-mile delivery is one of them. Shipping is not free and as the growth of e-commerce is slowing, it can be challenging for operators to achieve economies of scale in this respect. This was indirectly confirmed by Shopify, the Canada-based online retail services platform, who announced in early May that it was selling its logistics fulfilment operation. Furthermore, Loblaws has recently announced that it is shutting down its e-commerce marketplace platform for third-party sellers effective June 14. Hudson’s Bay has also suspended its marketplace, though temporarily, while it reviews its processes. This means hard times for independent merchants who depend on these platforms to reach a wider market. And it may also lead to increased business concentration, with the likes of Amazon and Alibaba eventually grabbing an even greater market share. No doubt, they’ll continue to look for ways to master the last-mile delivery cost challenge, which incidentally, we could call the “last-kilometre delivery” in Canada. SP

BY VINEETHA JAYARAM