Last Mile Delivery: Evolving Markets

Last mile delivery, especially in parcel delivery, is seeing a significant disruption and grabbing a great deal of attention from investors. The parcel delivery market is not only large but also dynamic with growth rates ranging from 7 and 10% in mature markets like the US and 300% in developing market like India.

Last mile’s share in total parcel delivery cost in exceeding 50% which makes it a key step for stakeholders seeking to gain a competitive advantage. At the same time, it is precisely at the last mile that the stakeholders are struggling to cut costs. Size of the market and growth provide enough grounds for studying future development in the last mile delivery domain. Last mile Delivery is seeing technological disruptions from business models that are trying to meet the demand of customers to deliver fast. Some interesting solutions like drone delivery and delivery via autonomous ground vehicles (AGVs) are likely to scale in coming years.

Models Currently Operating to Fulfill Last Mile Delivery

Three operating models have emerged to fulfill last mile deliveries.The first consists of parcel logistics providers. Second, small retailers who use 3rd party platforms or existing courier services with the capacity to offer instant or scheduled delivery. And third, large retailers who maintain their own fleet to handle same-day deliveries. In the long run, parcel logistics providers will be able to operate at the lowest cost while offering integrated logistics solutions right from orders through fulfillment to delivery and return.

Future Trends affecting Last Mile Delivery

Almost 25 percent of consumers are willing to pay significant premiums for the privilege of same-day or instant delivery. This share is likely to increase, given that younger consumers are more inclined to choose same-day and instant delivery over regular delivery. However, the remaining ~ 70 percent of consumers still prefer the cheapest option of home delivery.

Examples include pharmaceuticals and food delivery where customers want a window of delivery within a few hours. By the time the order comes in, it has to be processed and ready to go, to meet that very narrow window.

Crowd Sourcing & On-Demand Delivery

In 2015, venture capital investments in supply chain and logistics start-ups was more than four times higher than in 2014 ($1,202 million versus $388 million), said Pharand, and venture capital dollars invested in the same space in the first quarter of 2016 alone was $1.75 billion.The venture capitalists are interested in companies based on information and technology, not on assets like vehicles. They are focused on companies using analytics and information to figure out how to do the job for less, and leveraging drivers with their own cars as excess capacity. Companies like Uber RUSH for parcels, Postmates, Deliv and even Amazon Flex provide spot-market deliveries by independent drivers.

Traceability and proofs

Smartphone apps have changed the way deliveries were tracked. Delivery services have improved traceability, with proof of delivery and tracking information. Being data-driven is an important factor for traceability if a package is late or gets lost. This is yet to be achieved by a lot of local players.Though the process is not yet standardized across the board, consumers will increasingly demand the industry move in this direction.

Warehouses to the rescue

There were at least 58 Amazon Prime Now hubs in the US last year, for customers demanding same-day instant delivery. The growing trend is for organizations to build or take advantage of this urban warehouse space and have easy access to products for fast customer deliveries.

This is one way to reduce the speed of deliveries or transit time. Amazon has the first-to-market advantage, and most retailers are struggling to catch up. The large big box stores are offering two-day delivery for a minimum order, whereas Amazon is offering two-hour delivery.

Autonomous Vehicles and Drones to dominate

According to McKinsey envisions that AGVs with parcel lockers will replace current forms of regular parcel delivery. This is due to cost advantages of 40 percent and more over today’s conventional last-mile delivery. To emphasize the magnitude involved, the report says: a 40 percent saving in delivery costs would translate into a 15 to 20 percentage point increase in profit margin or a 15 to 20 percent cut in prices. In an industry with margins ranging between 2 percent and 5 percent, this is substantial. With wages likely to continue to rise, the advantage of autonomous delivery forms is expected to increase further. At the same time, last-mile delivery will become significantly more asset intensive. AGVs with lockers enable service providers to create superior value for customers and earn additional rents from new services like overnight pickup and Sunday deliveries.

The future last mile offers tremendous opportunity for existing and new service providers in the field, given the fast expected growth. Trends show stakeholders throughout the supply chain are actively trying to perfect the last mile in order to keep up with greater consumer demands.