The Rise of Last Mile Delivery Service Providers
In the supply chain, the “last mile” is considered to be the most expensive, inefficient and pollution generating segment. This is due to the following factors including:
- High incidence of failed deliveries due to “not at home” recipients. This results in extra costs, distance traveled and emissions. While some goods can be left at the front door of the consumer or consignee, others require specialized handling, security or treatment, such as those requiring refrigeration. These goods fall into the attended delivery category and result in the largest number of delivery attempts, a major cause of skyrocketing costs for last mile logistics service providers.
- Consumer deliveries increase the incidence of “empty running”. Multi-drop loads almost by necessity result in an empty leg as they return to the depot.
- Difficulty in executing a profitable, efficient routing plan due to low density. For home deliveries in some regions, the level of consumer density may be poor, leading to increased transit time and additional costs.
The Changing Landscape of Last Mile Delivery
Three primary entities are involved with last mile delivery: customers, merchants and last mile delivery service providers. Each of these entities has their own respective expectations, needs and challenges.
Merchants, including both small and larger retailers face the dilemma of shipping rates and dimensional weight fees. Smaller retailers tend to be primarily concerned with shipping rate costs since they typically lack a large network of distribution centers and the higher shipping volume of larger competitors that is needed to be able to offer less expensive, faster delivery options. Many retailers have looked for innovative means and alternative delivery solutions.
Last mile delivery service providers are challenged to meet the needs, demands and expectations of both customers and merchants. Third party logistics providers (3PLs) are now increasingly offering last mile delivery and compete with courier services. These last mile delivery service providers use technology to improve the efficiency of routing, and rely on software, web portals and industrial grade mobile computers to ensure the seamless flow of real time intelligence across the supply chain. Use of technology solutions has helped providers to successfully manage peak times, routes and costs. Poorly packaged goods is another major concern as this results in damages and costly returns to retailers.
Key Players in the Last Mile Delivery Industry
With the advent of e-commerce and omnichannel retailing, the last mile segment of the transportation & logistics industry has exploded with new options and now includes:
- Established “traditional” delivery companies such as UPS, FedEx, DHL and USPS
- Technology companies including Google, Uber, Instacart and TaskRabbit (several use crowdsourcing for deliveries)
- Niche market delivery services including PostMates as well as restaurant food delivery services
Amazon Increases Its Logistics Capacity
Amazon is now delivering increasingly higher volumes of its own and marketplace orders using Fulfillment by Amazon (FBA). In 2016, Amazon made a substantial investment in order to expand its logistics network. Twenty-three new fulfillment centers were opened in Q3 and Q4 2016, most in North America. The opening of the new fulfillment centers helped to increase Amazon’s total warehouse square footage by 30% for 2016, as compared to a 20% increase in 2015.
In order to generate future growth in the number of sellers and packages going through FBA, Amazon will invest in expanding fulfillment centers, warehouse and logistics capacity in order to handle the volume. Amazon has identified the “last mile” of delivery as a critical area of focus for its logistics network. Increasing its control over the last mile enables Amazon to eliminate cutoff times and avoid split shipments.
One way Amazon is adapting to meet this trend is by hiring contract drivers for last mile deliveries. This enables Amazon to exert more control over its deliveries.
Trend Alert: LTL Carriers Now Handling Last Mile Delivery
Challenged by weak demand for industrial traffic, LTL carriers have begun to turn to last mile delivery in order to build a sustainable revenue channel. To do so, LTL service providers must deal with customers that tend to be more technologically connected and accustomed to real time intelligence. Mid 2016 reports estimate that there are approximately 7000 carriers nationwide that provide last mile delivery services. Within that category, many of these businesses are undercapitalized, less sophisticated operations.
Within this fragmented, crowded market of last mile logistics service providers is a wide range of business types-from Amazon and Uber to small “Mom and Pop” operations. This presents unique challenges and stresses less sophisticated operations that are not currently using the available technology to provide them with a competitive advantage.
For those LTL carriers who plan to provide “white glove service” (customer experience which includes product set up and installation), their companies will need to find drivers who are not only experienced in operating a truck but also skilled in assembling large, complex items and in dealing with customers in personal areas of their residences such as bedrooms and kitchens. Finding drivers with the hard skills and the soft skills (customer service, communication and interaction) can be daunting, especially in times that typically have seasonal variation.
Re-Imagining the Supply Chain
A University of Minnesota study examined the effect of logistics re-organization. Two advancements have demonstrated potential to increase logistics efficiency by decreasing the transportation of empty loads. These issues can have direct impact on last mile logistics.
- Supply Chain Pooling: individual logistics operations are shared between collaborators
- Physical Internet Initiative: enables the creation of standards for packaging to homogenize freight technology
Today, the supply chain is changing to meet the critical need for fast, cost effective, efficient delivery of goods to consumers. Across the supply chain and logistics industry, innovative strategies are being implemented in order to reduce costs, improve efficiency and meet the fast paced demand.
Here are some of the tactics being utilized, either individually or in combination with other means:
- Consolidating and de-consolidating shipments
- Shift freight between truckload and LTL carriers or from LTL to truckload carriers, depending on needs
- Truckloads split up and shipped as partial truckloads or LTL to last mile distribution centers
- Consolidating online orders into truckloads and moving goods closer to final distribution points for de-consolidation and delivery
- Changes in origins and destination pairs
Consider These Factors When Implementing Innovative Strategies for Last Mile Logistics
- Service levels (time windows, delivery frequency and options, maximum lead times)
- Security and type of delivery (attended vs. unattended)
- Geographic area and market penetration (density of the region/market; distance between points of reception; percentage of the number of goods which can be clustered during delivery routes
- Fleet and technology (vehicle size and types, RFID, GPS, SMS, routing software, etc.)
- Environmental impact (pollution, energy cost and waste)
Technology and Last Mile Logistics
U of M experts anticipate that advances in logistics systems will be facilitated by innovative new approaches, technologies and the need for increased efficiency. Today newer technologies enable the sharing of data along the supply chain and between and across businesses. This seamless flow of real time information can be used to drive efficiency, lead to fuller vehicles during transport and may help reduce the trips by individual consumers.
Changes in the ways that consumers and businesses receive goods and services will enable alteration in transportation and logistics. Here are a few of the issues that are impacting the delivery of goods and services:
- Business-to-business systems
- Technologies designed to enable a “sharing” economy
- Same day and last mile delivery services
- 3-D printing
- Internet delivery of data-based goods such as books, music, software and video
Technological innovations are creating new opportunities and opening up new business models for last mile delivery service operations. Here are a few new and potential options:
- Seller insources delivery by using its own network to ship orders (Amazon uses this approach and relies on its own trailer fleet)
- Seller outsources to companies such as Uber and Deliv which rely on crowdsourcing apps
- Last mile delivery service providers may elect to enhance or replace fleets with drones, robots, and/or self-driving vehicles
- Intermediary-arranged delivery arranged via a website or app for customers to order goods from a variety of merchants. Upon receiving the order, the intermediary shops for items at local stores and delivers them at the scheduled time to enable same day service. Intermediaries sometimes specialize on categories such as grocery or restaurant delivery or may offer an array of products. Independent contractors or employees may handle deliveries.
The growth of e-commerce and omnichannel retailing and increased consumer expectations for fast, free delivery have increased the need for last mile logistics providers. The supply chain industry is in a state of flux. New business models, emerging technologies and collaborative measures using crowdsourcing apps and software are being utilized in order to drive down shipping costs, provide more flexible delivery options, enhance customer and merchant satisfaction and increase the efficiency and speed of last mile delivery service.