The longest mile is the “last mile” home
by Yasir Aheer, Varun Rao and Rahul Rao
Summary:
Increase in urban population, rising density and higher consumer demand for home deliveries are putting greater pressure on the urban infrastructure and the environment.
Customers are not willing to pay a delivery fee, forcing retailers and logistics partners to shoulder the cost.
Last-mile delivery is a strategic battleground for efficiency and cost reduction across the delivery industry.
It is exciting to see a vibrant ecosystem of players working hard to make our lives easier with environmentally sustainable and cheap last-mile delivery solutions.
Being passionate long distance hikers, we dread the seemingly endless last mile. There is a lot of truth in the adage, “the longest mile is the last mile home”. The saying is also true for the delivery industry, so much so that it has its own term: “last-mile delivery”. As the name implies, the last-mile is the final leg in a product’s delivery to its destination: the journey from the local warehouse or the distribution centre to the customer’s hands.
There has never been a more opportune time for change and disruption for the last-mile delivery. E-commerce has risen significantly over the past decade with sales ratios tripling in the five years between 2015 to 2019. By 2030, demand for last-mile delivery is projected to grow by 78% globally.
Greater urban population, rising density and higher demand on last-mile delivery will put pressure on urban infrastructure and the environment. The number of delivery vehicles is expected to grow by 36% in the next ten years, causing commute time increases by 21% and in CO2 emissions by 6 million tonnes (Figure 1).
The COVID-19 pandemic is one of the biggest disruptions of our generation. Restrictions imposed to fight the spread has made home delivery a necessity rather than a luxury. It is possible that consumer behaviour will change forever, accelerating these trends further. The pandemic may even lead us to an era we call Globalisation 2.0, a topic we explore in more detail here, upending current supply chains and adding further strain and uncertainty to the logistics and delivery industry.
With the rise of e-commerce and ubiquity of free shipping, customers are reluctant to pay a delivery fee, forcing retailers and logistics partners to shoulder the cost. According to a 2016 study from McKinsey & Company, 70% of consumers look for the cheapest, if not free, option for home deliveries.
As a result, logistics companies have tried to squeeze efficiencies through scale and automation across the end-to-end delivery journey in an effort to reduce shipping costs. However, last-mile delivery remains their Achilles heel. Last-mile delivery costs are substantial as a share of the total cost of shipping — some estimates put it at around 53% of the overall costs.
As such, last-mile delivery is a strategic battleground for efficiency and cost reduction across the delivery industry. There are three primary elements that contribute to delivery costs: fuel, vehicle & equipment and labour. Since the scale of delivery (parcels per delivery) gets significantly smaller by the last-mile, labour represents a substantial portion of the overall delivery cost on a per-parcel basis.
Figure 2 illustrates some cost reduction opportunities within the last-mile along with their relative impacts. Going electric may have environmental benefits relative to the internal combustion engine (ICE), however fuel efficiency in the form of electric vehicles (EV) offer limited cost reduction opportunities.
The largest benefits are clearly realised by reducing labour costs (Figure 2). One approach to reducing labour cost per parcel is by taking the optimum route. Dispatch management softwares, such as LogiNext MILE, can devise efficient routes for each delivery run through automated route planning and route optimisation tools, reducing the time spent per parcel. LogiNext claims that their products can reduce costs by up to 20% by optimising delivery routes and maximising resource capacity.
Other start-ups are attempting to automate the last-mile delivery altogether through autonomous delivery vehicles (ADV) or drones. Take Starship Technologies as an example. Launched in 2014 by Skype co-founders Janus Friis and Ahti Heinla, the company has developed an autonomous robot for last-mile deliveries. Starship Technologies claims that they can make local delivery faster, smarter and more cost-efficiently utilising autonomous robots, mobile technology and partnerships with local businesses. For now the company has been focused on the food delivery sector and has deployed their robots at several university campuses across the USA.
Nuro is another company developing automated robots to solve last-mile challenges. The company’s second generation autonomous delivery vehicle (ADV), Nuro R2, has a top speed of 40 km/h and a 31kWh battery. At 2.74m long and 1.1m wide, R2 is significantly smaller than an ordinary car and has a payload capacity of 190kg. Early this year the US Department of Transportation (DOT) and the National Highway Traffic Safety Administration (NHTSA) approved a regulatory exemption for Nuro R2. According to the co-founder, Dave Ferguson, Nuro is the first company to be granted approval for a self-driving vehicle exemption, which could make it an important moment for Nuro and a milestone for the industry.
The battle for last-mile delivery is not restricted to land vehicles alone. The team at Matternet has reimagined how the last-mile is traveled by taking to the skies through autonomous delivery drones. As part of their solution, the company deploys drone stations for point-to-point delivery. Recently, UPS and CVS have announced an expansion of their partnership with Matternet to deliver prescription drugs to Florida's massive retirement community.
Matternet has also teamed up with Mercedes-Benz for an “integrated last-mile” solution, where man and machine work together. As part of the initial concept, the delivery van carries parcels to houses that don’t have Matternet stations, while drones autonomously deliver packages to near-by premises with stations installed.
Final thoughts
The delivery of goods is a fundamental feature of modern life. Projected increases in last-mile delivery will put strain on underlying infrastructure such as road, rail and air. Physical upgrades of infrastructure is not always a feasible option, as we explored in a recent earlier article on smart cities. Environmentally sustainable, automated, intelligent and cost effective solutions are essential to support the demands of the not too distant future. It is exciting to see a vibrant ecosystem of players working hard to make our lives easier with environmentally sustainable and cheap last-mile delivery solutions.
At the end we will leave you with a fitting song from the talented Doris Day: “The longest mile is the last mile home.”
Co-authors:
Disclaimer: This article is based on our personal opinion and does not reflect or represent any organisation that we might be associated with.