As e-commerce continues to grow in popularity — up 14.8 percent in the first quarter 2020 over the same period in 2019 — retailers making their wares available online are correspondingly struggling to manage the costs associated with last mile delivery. This final leg of an order’s journey, in which the parcel arrives at the buyer’s doorstep, has become increasingly complex as more shipments are delivered daily to more shoppers.
Customers have also become accustomed to free delivery in less time than ever before; two-day shipping is now transitioning to one-day, same-day or even same hour in some markets. Further, the markets themselves are vastly different. Last mile delivery challenges (and solutions) look very different in the densely populated Manhattan borough of New York City (1.629 million residents) than they do in sparsely populated Manhattan, Montana (1,520 citizens).
The sum total of those kinds of pressures equates to high last mile delivery costs. Research has found that last mile delivery expenses comprise 53 percent of the total cost of shipping. Further, they represent up to 41 percent of total supply chain costs. That’s a high percentage for any organization — large, mid-sized or small — to absorb. Therefore, to better optimize those costs and increase delivery efficiencies, more shippers are currently leveraging one (or more) of three key strategies in last mile delivery of e-commerce orders: cross-docking, third-party logistics (3PLs), and store-based fulfillment.
Cross-Docked Delivery Routing
Cross-docking has been around for a long time as a strategy to bypass warehouse storage of inventory. Instead, a pallet of product from a manufacturer arriving at the receiving dock would be transferred immediately to the shipping dock and loaded onto an outbound trailer heading for a store. This same concept has been adapted for e-commerce deliveries by larger retailers. Mimicking the sorting hubs of large, national carriers — such as FedEx, UPS or USPS — these cross-dock facilities are typically owned by the retailer. Specific parcel cross-docking facilities within their regional networks receive packages from larger, more centralized distribution or fulfillment centers, sort them into discrete delivery areas (by zip code, neighborhood, city block, etc.), and load them on outbound last mile delivery vehicles. These vehicles and their drivers then transport and deliver the parcels to their final destinations. This reduces delivery times and increases shipping efficiencies.
3PL Delivery Service
Well entrenched in warehousing and transportation, many large 3PLs have added last mile delivery service offerings to support e-commerce retail customers. Additionally, a number of small, local and regional 3PLs focused solely on last mile delivery of e-commerce parcels have entered the market. These smaller 3PLs may contract to work exclusively for large online retailers or work independently for multiple small to mid-sized e-commerce and omni-channel sellers. Both types offer cost savings and efficiencies by providing dedicated last mile delivery services, allowing retailers to focus on order fulfillment. As e-commerce continues to grow in popularity globally, so too are predictions for the 3PL market, which is projected to reach $1.2 trillion by 2025, a 7.5 percent compound annual growth rate (CAGR) over the next five years. Another reason for this anticipated growth? In addition to providing outsourced delivery services, 3PLs also often offer retailers value-added services, such as inventory storage, picking, packing, kitting, and gift wrapping or packaging.
Omni-channel retailers with physical stores are increasingly using those locations to fulfill e-commerce orders on a regional basis. If an item is in-stock 10 miles away from the buyer, it can be shipped faster and at lower cost than sending the same item from a fulfillment center 150 miles away. Largely a software-driven exercise, these retailers are also using advanced data analytics to pinpoint customer trends and purchasing habits within specific areas, then routing additional inventory when replenishing those stores specifically for filling online orders. That further reduces last mile delivery times and expenses, as well as minimizes out-of-stocks.
Looking Ahead: Autonomous Delivery Solutions
It wouldn’t be a post about last mile delivery without mentioning some of the autonomous solutions retailers are expected to deploy in the future — such as drones, self-driving cars and robots. Variations of these three next generation technologies are in pilot tests worldwide, with some of the greatest progress occurring in European countries. Of the three solutions, I suspect that drone-based deliveries will be the first to see widespread use within the next five years, particularly for deliveries in more rural locations. That’s because those residences are spread far apart, making it less efficient and taking more time for a driver to reach.
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Satyen Pathak, Account Executive, firstname.lastname@example.org
As an SME in material handling, Satyen has an extensive background in creating solutions for the retail/e-comm, Parcel, Post, and baggage handling market verticals. He has worn several hats including Product Management, Applications Engineer, Technical support and most recently as an Account Executive with DCS. Satyen has conducted numerous educational speaking engagements and has sat on committees for MHI providing directional insight for the industry.