Whether you realize it or not, last mile logistics is an increasingly powerful force that is reshaping supply chains around the United States. This trend isn’t new but rather stems from a shift towards online shopping and consumption that has been rapidly building momentum over the past two decades. The recent focus on last mile logistics is directly related to consumer demand for faster delivery windows. Not only are delivery windows getting smaller, but their frequency is increasing as even more shoppers complete their purchases online. This is the future of grocery retail, clothing retail, and a majority of all other forms retail shopping. With shopping on mobile devices expected to rise over the coming years, the constraints that are challenging shippers aren’t going anywhere any time soon.
Understanding the current efforts to optimize last mile delivery is essential for understanding how today’s supply chains are shifting. This is important for all industries, not just for shippers or third-party logistics (3PL) providers. Even for individuals that are recipients of packages, such as the end consumer or property managers, it is worthwhile to gain a better understanding of how last mile logistics is shaping the way we ship and the way we shop.
In this article, we’ll break down some basics about last mile logistics. We’ll look at what last mile logistics is, why it’s important, what macro trends are affecting last mile logistics, and what changes are occurring in response to those trends. There are exciting changes happening in last mile logistics, including a greater reliance on automation, incorporation of crowdsourcing into the supply chain, and the innovative application of existing technologies in new ways.
What is Last Mile Logistics?
Last mile logistics refers to the final leg of delivery for packages. Many of us don’t spend too much time thinking about how a package arrives at our door. We simply go online, purchase the product we want with the appropriate shipping method for our needs, and wait for the product to arrive. For the consumer, today’s online shopping is frictionless. This is one of the big appeals of online shopping, but it also obscures the majority of what is happening on the back end.
The supply chain that is responsible for you receiving your package is incredibly complex and is becoming more complex every day. Over time, many areas of this supply chain have been adapted to meet changing demands. The changes occurring to last mile logistics are one example of this drive towards increased efficiency and in response to pressing needs, but there have been many in the past. The current focus on the last mile logistics industry stems, in part, from the maturation of the underlying technologies and efficiencies that support it.
So, last mile logistics is a term coined for the final component of a delivery. While this is necessarily a broad term, let’s get an understanding of what we aren’t referring to in a discussion of last mile logistics. Last mile logistics is referring to the act of delivering a package to a consumer. In other words, last mile logistics is usually synonymous with a residential delivery. Typical business-to-business shipping isn’t included in last mile delivery, although many businesses are now taking advantage of the last mile logistics infrastructure and are beginning to rely on faster shipping methods and smaller shipment sizes that are associated with residential deliveries.
What Trends are Affecting Last Mile Logistics?
You might be wondering what is different now for an emphasis on last mile logistics to become important. This is a worthwhile question because, from the outside, it may not be readily apparent what is different. Quite a bit has changed over the past few years that is contributing to adaptations being made in last mile delivery. First and foremost is the rise in e-commerce. E-commerce has steadily been on the rise, led in particular by online retail giants like Amazon.
This trend is so synonymous with the online retailer that it has been coined “the Amazon effect.” What this refers to is both the explosive growth of online shopping, but also the way that Amazon itself can shape the field. One example that has a direct impact on last mile logistics is Amazon’s Prime program.
Through Amazon Prime, subscribers receive access to free two-day shipping on nearly any item sold on Amazon, at the cost of a yearly subscription. This subscription model has, over time, begun to shape consumer expectations. A consumer shopping online today has an expectation for free shipping, or low-cost shipping, both of which must be fast. While Amazon has been a leader for this model, they are far from the only online retailer that is doing the same. In order to adapt, most online retailers now offer some type of free expedited shipping option, which is usually tied to a certain cart threshold before it is activated.Free shipping continues to be the top incentive to drive more frequent online shoppers (88%), followed by one-day shipping (69%), free returns/exchanges (68%), and easier online returns (58%).
The truth is, Amazon continues to shape the online shopping field. Since Amazon began to introduce same-day shipping options for some urban markets other retailers have begun to do the same. However, the struggle that both Amazon and other retailers are facing is how to meet the growing demand for rapid and even same-day shipping. This isn’t a simple task and requires reorganizing far more than the delivery route for it to work.
On top of that, the last mile of delivery is expensive. Residential delivery fees can be substantial if packages aren’t routed through couriers that offer free residential delivery service, such as the United States Postal Service. This presents a further challenge for retailers looking to offer rapid or same-day delivery in a bid to entice customers. These retailers must remain profitable, yet offer rapid or same-day shipping at low-cost or for free in order to stay competitive.
Ways to Improve Last Mile Logistics
Now that we have a firm understanding of what last mile logistics is and what forces are shaping it, we can begin to explore some of the ways that last mile logistics is changing. These changes are being made to adapt to increases in demand. In general, they revolve around finding ways to increase the efficient flow of goods through shipping networks, and in particular, are centered on optimizing the logistics of moving goods from a final distribution center to the end consumer for fulfillment.
Bringing Distribution Centers Closer to Markets
One way that retailers can get their goods in the hands of their customers even faster than they are already doing is by bringing distribution centers closer to core markets. The reality is that not every online shopper is going to be able to receive items same-day or even within two days, at least not yet. While rural shoppers have greater access to online goods than ever before, they don’t have the same access to expedited shipping options. It just isn’t cost effective to build extensive shipping networks in rural areas. That being said, urban markets offer a rich incentive for businesses to capture a larger portion of sales by offering expedited shipping.
Online retailers are beginning to bring their products closer to end consumers than ever before. Consider this step like staging a product close by, so that it is ready to be picked up and delivered to customers quickly and efficiently. Online retailers like Amazon have already begun doing this near key urban markets, and many other retailers are beginning to follow. Some smaller retailers may consider sharing tenancy in warehouses with other online retailers, reducing costs by only storing what they need for a short period of time. However, in distribution centers near urban markets shelf-space cost is at a premium, so most of the products held in these distribution centers will be there only briefly.
Use Technology in New Ways
There are a couple of different ways that shippers are improving last mile logistics through the use of technology. Shipment tracking and routing software have improved immensely. These improvements allow shippers to route and track shipments more efficiently, while also giving them access to large amounts of data about where their products are going, how long it takes, and what their destinations are. This data gives shippers the ability to further optimize the supply chain over time.
Many shippers are also looking for ways to incorporate technology specifically into the last mile delivery process. Companies, including Amazon, are exploring using unmanned drones to deliver packages. While this is still in the development stage, the potential sounds promising. Drones could more efficiently deliver goods by avoiding traffic congestion, while also reducing fuel costs associated with traditional delivery methods.
In addition to drone technology, some companies are exploring using crowdsourcing as a means to optimize last mile delivery. This works in the same way that other crowdsourcing technologies work. Individuals that aren’t professional delivery drivers opt-in to the program and pick up a package from a distributor before dropping it off at a customers door. Currently, this is seeing more use in densely populated urban areas and is being integrated into other crowdsourcing applications. For example, you may soon see your UberEATS driver delivering your package before scurrying off to deliver food.
Multifamily parcel lockers are one way that shippers are meeting customer demands for faster shipments. One of the challenges that have been highlighted by the recent surge in fast shipping methods is the challenge in securing packages once they have been delivered. Many shippers have begun adopting delivery verification methods, such as having the delivery driver take a picture of where the package was delivered. On the receiving end, more and more consumers are adopting smart security technology that records common areas where packages are delivered, such as on a front porch. However, these methods are only realistic for permanent residences.
One stakeholder that we haven’t talked about much thus far in the discussion of last mile logistics is property managers. Property managers are generally viewed as a middleman between a shipper and the end recipient. With the increased frequency of shipments that is occurring today, property managers have had to adapt and find innovative ways to secure their residents’ packages while also not denying them the convenience they demand from fast shipping methods.
One way that they have been accomplishing this is through parcel lockers. With a parcel locker, packages are logged directly into the locker management system, which notifies residents a package is available, at which point they can pick it up at their convenience. Parcel lockers are capable of being monitored with security cameras and are generally much more secure than simply leaving a package on the doorstep. This product not only contributes to innovative property management solutions, but also helps to attract new residents to a multifamily property.
Residential complexes aren’t the only entities that are finding parcel lockers convenient. Many online retailers are turning to parcel locker services as a means to expedite delivery of their packages. Consider the fact that a delivery driver could deliver many packages to one location, rather than many packages to many different locations. This reduces delivery time and increases efficiency, while also giving consumers the security of knowing their package is safe and can be accessed at their convenience.
Efficiency gains in last mile logistics affect us all in some ways. Most people today are accustomed to frequently receiving packages, and an increasing number are using services that deliver groceries and other household goods within a same-day timeframe. This usage pattern is only expected to increase in the coming years, meaning that the changes occurring to last mile logistics will only continue. Shippers will need to continue to explore innovative ways to improve efficiencies in their delivery services and delivery networks, while still ensuring that costs are kept low so that retailers can continue to offer free or low-cost shipping.
At the same time, other stakeholders in the process, such as property managers, will need to adopt multifamily parcel lockers and other means of securing resident’s packages on a more widespread scale if they hope to cope with an increasing number of deliveries. It’s important to recognize that last mile logistics doesn’t just affect shippers and consumers, but also all of the support systems that are around both groups. This all ties into the supply chain management. The next time you click the order button on your online retailer of choice and choose a free, expedited shipping option, consider the ways that your consumption patterns have shifted and how retailers and logistics providers have adapted to accommodate them.