Last Mile Logistics and eCommerce Growth
The hefty burst in eCommerce has brought with it a change in transportation management and supply chain analytics. Consumers are demanding more reliability and efficiency from their companies, requesting same-day deliveries and on-the-go package tracking. This eCommerce consumer demand has, in turn, changed the landscape of last-mile logistics for logistics departments.
Understanding Last Mile Logistics
Last mile logistics is the term used in transportation planning to describe the phase of the supply chain that moves units from a transportation hub to the final destination (usually the consumer).
Basically, it’s the last leg of the shipping trip. The goods have already been brought to their final warehouse spot, from which they will be picked and packaged directly to the customer’s doorstep.
Last mile logistics is an enormous business and a critical part of management for transportation companies. ATKearney revealed that in 2016, companies spent between $55 to $65 billion on picking, packing, and last mile delivery. In fact, McKinsey and Co reported that 50% of UPS’ $35 billion U.S. domestic parcel deliveries are direct-to-customer for eCommerce orders.
The Relationship Of Last Mile Logistics and eCommerce
The eCommerce market is currently at $370 billion, according to Forrester. eCommerce sales account for approximately 8.5% of total retail sales. By 2022, however, eCommerce is expected to make up 16% of the entire U.S. retail landscape, valued around $1 trillion. This severe growth is transforming the way logistics operations function.
At the launch of eCommerce, consumers were fine paying high shipping prices and waiting days—if not weeks—for their goods to come in. The Internet was still new, and the idea of buying online was still fresh. No precedent had been set. Now, though, eCommerce has nuzzled into the heart of the American shopping experience. As shopping online has grown more commonplace, consumers have begun to demand more with the transportation of their online purchases.
eCommerce is growing at a startling rate, and transportation companies are having to learn how to keep up. This has pushed logistics to new heights beyond the traditional hub and spoke models. Last mile logistics have been forced to become more innovative, modern, and tech-driven.
Price And Speed: Changes In Last Mile Logistics
There are two vying aspects of last mile logistics: price and speed. Consumers want fast home delivery, but they’re still price sensitive. Thus, changes in last-mile logistics have worked to balance these two factors in order to best meet the clients’ needs.
Companies have begun using strong last mile delivery services as a key differentiator from their competitors (think Amazon.) Vendors are working to figure out how to balance transportation quality, reliability, efficiency, and cost as a way to beat out their competition. And this last mile logistics competition has generated immense changes in the shipping industry—and more is to be expected.
McKinsey & Company found that 25% of people in America, China, and Germany are willing to pay a premium for same-day delivery and 5% would pay for reliable, timed delivery. However, 70% still prefer the cheapest option for home delivery, no matter the length of time it takes to get there.
Although the price is still the key criterion, this is expected to change in upcoming years. Price will no longer be enough—thanks to the aforementioned logistics competition. Same-day delivery has grown in recent years, especially with the need for “instant gratification” with the Millennial generation. An increase in the transport of groceries and perishables has also begun to call for same-day or quick-service delivery in order to preserve freshness.
Furthermore, companies have begun offering free shipping returns. This is causing a unique process of reverse last mile logistics that’s proved a new challenge for the industry.
Solutions For Last Mile Logistics
Because of this balance of price and speed, last mile logistics are considering three key solutions:
• Regional housing
• Smart automation
Note that crowdsourcing is not expected to grow. Think of last mile crowdsourcing as Uber for transport. Drivers sign up for the service, and they can deliver packages on their own schedule. While this seems like a good idea, privacy and regulation concerns have halted widespread shipping crowdsourcing.
If people want next-day or same-day delivery, the goods have to be physically close in proximity. We can’t yet change how fast our trucks or planes move. In this way, it’s absolutely necessary to find ways to place product assortment closer to the demand.
This calls for improved forecasting processes as well as an increase in the number of warehouses across America. It has also begun to boost the need for bike couriers, which is the fastest way to deliver in urban areas.
The challenge with this becomes needing warehouses in every city and town in order to be able to offer speedy delivery to everyone. This would include rural areas with few people and large travel zones, which could cause idle unproductive product sitting in warehouses. This is where automation will likely take over.
Autonomous vehicles are increasing in frequency as a way to meet the demands of customers nationwide. It’s expected that autonomous vehicles will be responsible for 80% of all parcel delivery in the next fifteen years. However, it won’t necessarily look like what you might expect it to look like. This won’t “kill” the trucking industry or force lost jobs—in fact, we believe it will improve the industry.
Drones – Drones will be able to deliver 24 hours a day, 7 days a week. They can fly even to rural areas where there is currently a longer delivery time. Drones require some supervision, which can be indirect and remote from centralized hubs.
Despite the strength of opportunities for drones, the public is apprehensive about these kinds of deliveries. Consensus has found that people don’t like autonomous vehicles flying overhead, carrying potentially heavy packages that could be dropped on citizens underneath. However, tech transport companies do not have this concern, so education will be key moving forward with drones.
AGVs – Autonomous ground vehicles have lockers that carry packages directly to the customer’s doorstep. These AGVs drive themselves on a pre-set route, and customers are notified of the exact arrival time. Customers like how they know when to be home to unlock their AGV locker and take out their package. These vehicles can be completely autonomous aside from a central supervisor, who can operate and track 10 AGVs at a time.
Droids – Droids are similar to AGVS, but they tend to deliver one parcel at a time. They are slow and less efficient, but a single supervisor could watch up to 50-100 at a time.
Semiautonomous ground vehicles – Right now, traditional delivery is still the fastest, most prominent, and most widely accepted type of delivery. Thus, a likely first push will be the semiautonomous truck. These vehicles can drive themselves for the majority of the trip, assisted by a driver who can be doing paperwork, filling out numbers, scanning, or even sleeping.
There are still some concerns with these vehicles, as the public is frightened by the thought of large trucks without a driver. Nevertheless, these semiautonomous trucks are proven safe and will be taking to the roads in the next 8 to 10 years.
Learn more about this type of automation with our article: How Autonomous Trucking Will Affect The Trucking Industry.
Implementation Of Last Mile Logistics Changes
With technology becoming more reliable and affordable, opportunities for meeting the needs of the customer in the last mile are growing exponentially. Big transformations are expected to happen in the next 10 to 15 years.
But there are still some challenges. There are currently no regulations with regards to artificial intelligence delivery, and the public is skeptical of change—especially on the roads and in the air.
The Bottom Line
These changes will take place. It’s just a matter of where and when. Where will your brand be when these changes are widespread? Will you be at the forefront of transportation?
Consider developing a strategy now to fit the changing industry, environment, and company. What are your competitors doing? How can you use these new advances to improve your last mile logistics?
LTX is working diligently to create plans for our clients to understand how to implement these changes for their companies. You want fast, reliable, cost-effective delivery for your customers. It’s our job as your transportation partner to make sure you have the best solutions for your last mile logistics. Contact us now to get the conversation started about your last mile needs.