Local delivery companies, regional parcel carriers, and the largest integrated carriers have been managing the last-mile delivery process forever. However, it has only been in recent years that we have 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% of the fully landed, delivery transportation expense. 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 delivering to the B2C segment. The question is, why is the last-mile segment of the total home delivery equation, from pick-up to delivery, so expensive?

Home Delivery vs. B2B

It has been difficult for the carriers and e-commerce retailers to scale the home delivery process and drive lower costs for this most costly segment of the delivery process. Reasons for this include:

  • The average number of parcels per home delivery is fewer than 1.5 pieces per delivery stop, whereas the average number of pieces for the B2B delivery is over three parcels per stop.
  • Last-mile home delivery stops are generally not close to each other. This drives overall operational expenses higher when compared to denser B2B delivery stops.
  • There are numerous other conditions specific to the last-mile home delivery that drive expenses up, including the loss/theft of released shipments and failed first-time delivery attempts, which require costly, reattempted delivery.
  • Parcels delivered to consumers’ homes are more prone to incorrect delivery, and the resulting expense and inconvenience related to tracking down and redelivering incorrectly delivered last-mile, residential shipments leads to 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.

What all this means is that the effort to rethink the last-mile delivery process needs to be 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. 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 centers, and third-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 home delivery and drives savings for the carriers by allowing them to consolidate multiple residential deliveries at a retail location. In the future, access point delivery may also become a lower cost alternative to the much more 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 for the retail merchants, with many carrier options for next-day, last-mile delivery and on-demand delivery solutions for two-hour and same-day, last-mile 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 10 dollars. The growth of same-day, last-mile delivery solutions will be interesting to watch as its availability may continue to feed consumer expectations of faster delivery for online purchases.

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 in the following two areas:

On-demand, contractor models: In most cases, on-demand, last-mile delivery solutions are not inexpensive 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, last-mile delivery solution where the carrier or merchant is only incurring expense when they have an actual delivery.

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 animals.

Delivery Bots: This is another advanced technology, last-mile delivery solution that may have limited applications. A number of companies, including FedEx and Amazon, are in the development/testing stage of delivery bots. This last-mile delivery solution may be better suited to serve restaurant-to-go services verses the home delivery segment resulting from online purchases.

The Role of Technology

Technology is playing a huge role in reinventing the last-mile delivery process. From the algorithms and AI that make autonomous local delivery vehicles possible to the apps and software platforms that efficiently route delivery vehicles, advanced new technology solutions will be required to reduce the cost of the last-mile delivery and improve the customer experience.

While many new last-mile delivery solutions will continue to be brought to market, we must not forget that the free shipping, 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 process, improve perceived service/value to the consumer, and do all this under the banner of free shipping.

Dean Maciuba is a parcel industry expert and has previously served UPS and FedEx for 37 years across multiple professional positions in sales, marketing, and operations. Today, Maciuba is Director of Consulting Services for Logistics Trends & Insights LLC.