The future of last mile delivery
The movement of goods from a transport hub to a delivery address, commonly known as ‘the last mile’, is often the part of the supply chain that is placed under the most scrutiny. This single movement accounts for around 50 percent of the overall delivery cost, sometimes more, but is fraught with difficulties from recipients not being available to sign, to parcels getting lost and deliveries failing.
What makes the last mile so difficult to manage however, is the sheer volume of packages that are now being shipped. In mature markets such as Germany or the US volumes could double over the next 10 years. In the US this could mean delivery of 25 billion parcels a year by 2025. This growth is being driven largely by e-commerce, but not completely. 50 percent of the market for last mile delivery is still business to business.
For many, the last mile has now become a key battleground for achieving competitive advantage. If companies can find a way to reduce the 50 percent delivery cost that the last mile encompasses, it will give them a significant edge. With this desire comes new technologies and solutions that could offer a more reliable service.
What does the future of last mile delivery look like?
Predicting the future is never simple, but a consensus seems to be growing that in the next 10 years last mile deliveries will look almost completely different. A report published by McKinsey & Company predicted that autonomous vehicles will deliver 80 percent of parcels either through AGVs (autonomous goods vehicles) or drones. McKinsey & Company argue that the majority of last mile delivery cost is the cost of labour (for drivers). Therefore, the savings autonomous vehicles would bring could be substantial. A 40 percent savings in delivery cost for example, could translate into a 15 to 20 percentage point increase in profit margin.
Despite this, it seems inevitable that with the potential savings AGVs would bring that the market would want to push in this direction, but it is worth pointing out that there is really no telling when this kind of technology might be available. Driverless systems currently work much more like an intelligent cruise control and still require human input. 10 years is plenty of time to iron out some of the kinks in the technology, but exactly when this may happen is still open to debate.
What solution improvements can be implemented now?
Talk about AGVs and drones is certainly valuable, but without any indication when this technology will be available, it is little help for companies searching for competitive advantage. The issues of last mile deliveries are already creating a great deal of cost, so waiting for up-to 10 years to address them is not a good strategy.
Instead it is worth thinking about what is currently available. For example, last mile deliveries by bike is an option that many companies are already looking towards. This works well in urban areas where travel distances are short, as bikes are around the same speed as petrol vehicles in these areas whilst costing significantly less. Crowd sourcing and the sharing economy is another idea that has a lot of potential. Apps like Uber, but for parcel delivery are yet to really take off, but the advantages are certainly great if they do. Being able to get access to cheap deliveries when they are needed and deal with demand spikes quickly, could be a good way of decreasing long term costs.
Neither of these solutions however, deal with one of the key problems of last mile deliveries, which is delivery failure. Last mile deliveries prove to be very costly because often they are unsuccessful and have to be repeated. This is especially challenging in the business to business sector where failed deliveries have to be repeated at cost to either the customer or the delivery company. Either way, eliminating this cost would prove to be a significant competitive advantage.
Could lockers be the ideal solution?
Electronic delivery lockers offer what could be the ideal solution. At its most basic a locker works by accepting a delivery on a recipient’s behalf and storing it until it is ready to be picked up. As we have seen above this can be a big advantage and can reduce the amount of failed deliveries. This saving can then be passed onto the customer for competitive advantage or increase the overall profit margin.
Delivery lockers may well prove to be the best solution for the fast moving consumer market. Immediate trends identified in a report by Barclays show deliveries direct to consumer’s addresses are becoming less popular whilst Click and Collect volumes are increasing. Click and Collect lockers have numerous advantages over other services. Read more about this in our upcoming piece ‘Why Click and Collect Lockers are good for your business’.
With delivery volumes ever increasing, the future of last mile deliveries will be a keenly debated topic for years to come. Technology like AGVs and drones may yet change the way we view the last mile, but currently, delivery lockers offer the best and most cost-effective solution.
ByBox has our own locker technology, which works with our smart Konnect software to offer a complete last mile solution. Please contact us for more information.