The Future of Last Mile Delivery
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Apr 04, 2023
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Cloudy with a chance of disruption
We’re living through a period of profound disruption in the consumer economy, with consumers moving online at unprecedented rates. Likewise, the move to e-commerce has resulted in disruption for the logistics industry, with legacy providers scrambling to keep up and a new generation of digital carriers coming forward to fill the gap in last-mile logistics.
We expect the disruption to continue and accelerate. So, gazing into our crystal ball, here are some of the challenges and trends we see shaping the future of last-mile logistics.
The only things that are certain are death and taxes
It’s pretty much-accepted wisdom in the logistics industry that shippers are not very good at forecasting their volumes, especially during peak season. And by not very good, we mean bad. With the added uncertainty of the pandemic, double-digit e-commerce growth, disruptive market competition, the upstream supply chain, and the labor market, there has probably never been a time when consumer demand and the ability to fulfill demand were less predictable.
Unpredictability is currently the defining characteristic of our industry, and we don’t see that changing any time soon. As a result, the t for a carrier to react quickly will be the differentiator that matters. Asset-light carriers that can readily flex operations to scale up or down based on daily demand will provide shippers a distinct advantage.
Consumer expectations will grow
The Amazon experience has raised consumer expectations about convenience, speed, and responsiveness. A survey by Digital Commerce 360 found that 98% of consumers believe delivery is a crucial part of their brand loyalty. In addition, a McKinsey study found consumers, especially millennials, are prepared to pay a 30% premium for same-day delivery and even more for guaranteed delivery.
As digital retail growth accelerates and consumer expectations grow, brands will compete for advantage through the last mile delivery experience. Brands will seek to turn the last mile into a differentiated experience and a lever for brand growth. The focus will shift from cost and delivery metrics to value and customer delight. Shippers will find that once they push through and provide extended service levels, those new levels will quickly become the new expectation for consumers.
Sold out capacity
The major national carriers put a lid on the capacity for the 2021 holiday season. So did some regional carriers. But, with projected annual double-digit growth in e-commerce over the next few years and no end in sight to labor shortages, we expect capacity bottlenecks to become less seasonal and more the norm, especially for asset-heavy legacy carriers.
Retailers will increasingly turn to last-mile carriers to meet growing demand. Some shippers are already moving inventory closer to end customers, reducing their reliance on legacy shippers’ national networks, and we think this trend will accelerate. As a result, we’re entering a period where last-mile carriers’ market share will increase, and the most agile and scalable last-mile carriers will see bottom-line growth exceeding the market average.
Green is the new black
Consumers are increasingly favoring sustainable delivery practices. According to Deloitte’s 2021 Holiday Survey, 63% of consumers prefer shopping at retailers that adopt sustainable practices. Given this growing consumer sentiment, shippers and carriers will prioritize opportunities to minimize their environmental impact and build a greener supply chain.
The key to sustainability is aggregation which increases delivery density. Density allows carriers to push final sortation/distribution points closer to the end customer, resulting in faster, more reliable, and more sustainable delivery.
We expect to see growth in:
- Micro hubs – small, mobile, truck, or container-sized hubs positioned closer to the end consumer to reduce delivery time, delivery distance, fuel consumption, and traffic.
- Green vehicles – shortening delivery distance opens the door for alternative vehicles like electric bikes and haulers.
- Green zones – cities will experiment with green zones where shippers/carriers are incentivized or required to use green delivery methods.
These and other initiatives will reduce the carbon footprint for the last mile. Consumers will demand sustainability, and the industry will respond.
What about tech?
A recent report from Facts and Factors estimates that market size and share for the delivery robots’ market is expected to reach 55 Billion USD by 2026, up from 17.13 Billion USD in 2020, a 20.4% annual growth rate. Autonomous vehicles will likely drive growth in delivery options for local retailers in some markets, allowing them to compete with larger national chains. Still, we have concerns about the viability/scalability of this technology for last-mile delivery, at least in the near term. We have the same concerns about delivery drones. At this point, we think the driver/vehicle model is the best way to get a package from point A to point B, and we don’t believe that will change for most parcels in the next year or two.
Of course, the vehicle may not be a van or car. However, as mentioned above, we see vehicles like electric bikes and haulers as a viable option today in dense urban environments. Therefore, we expect to see the use of these types of vehicles increase over the next few years.
Mining the data
Predictive analytics will take on a super-sized role in delivering efficient last-mile services in a world where unpredictability is the new norm. As a result, carriers accumulate mountains of data with each shipment and delivery. Without giving away anything proprietary, we think the new generation of digital carriers will harness predictive and AI technologies to mine data to better predict volume, making last-mile deliveries more efficient and sustainable.
The ability to master data and predictive technologies will be the key for carriers to unravel the unpredictability of e-commerce and deliver a consistent, customer-pleasing experience.