Editor's Note: This article is part of a series on perfecting last-mile delivery. All stories in this series can be found here.
It was not so long ago that shipping and handling was a common line item when shopping online, and a five-to-seven-day delivery window was acceptable. Today, shipping and handling – or the logistics cost of transactions – is taken for granted, with many e-tailers instead charging for next-day and two-day deliveries, while longer delivery times offer savings opportunities back to the customer.
It’s a testament to the rising value of logistics for e-commerce: shipping and handling are no longer an option, and clients pay premiums for speed rather than service.
The growth of third-party logistics services is not limited to the parcel delivery industry, either. As fulfillment timelines are scrunched across the board – with consumers buying meals or even cars online – the need for an efficient logistics provider grows, too.
Rising to the challenge, third-party logistics companies (3PLs) and carriers alike are investing more and more in expanding their own logistics network, technology and services. As a result, they, too, have surfaced as key players in perfecting the last mile.
The great last mile problem: delivery density
"The biggest change that everyone's seeing is the shift from this B2B environment to a B2C environment,” says Louis DeJianne, director of marketing for consumer goods, apparel and retail at United Parcel Service (UPS). The shift, while trending for years, has truly accelerated over the past five to ten years as e-commerce was normalized.
Although UPS and FedEx have been in the space for decades, their networks were not necessarily ready for the change, according to Patrick Boyle, a principal at Chainalytics. Typically relying on the United States Postal Service (USPS) for many residential deliveries, the demand for specific-day deliveries has strained that model, as the USPS makes just one stop at a residence per day.
We want to make that final mile delivery as convenient as possible so the end consumer will then buy more from that particular retailer.
Director of Marketing for Consumer Goods, Apparel & Retail, UPS
Meanwhile, “residential delivery is not the way that the carriers have designed their system,” Boyle says. “So what's happening is a crunch on profit margins because what [logistics providers are] trying to do is create delivery density,” to mimic the Postal Service’s. “That's the real last mile problem.”
Providers such as UPS, DHL, FedEx and even Amazon are investing heavily in their logistics network for this reason, as they seek to provide their clients an improved ability to reach consumers within days.
“The only way you're going to get products somewhere overnight or same day at a reasonable cost is if you have that product stored somewhere near the customer,” says Jim Monkmeyer, president of transportation for DHL Supply Chain in North America. “This is where DHL comes in because DHL has a huge footprint of warehouse space nationwide, and really globally.”
How UPS and DHL are rising to the challenge
Density may be how logistics providers are expanding their service network to meet retailers’ more expedited shipping requirements, but fast shipping does not guarantee greater sales for a retailer.
“It's really about three things we talk about: choice, convenience and control – and offering that to the retailer as well as [the end consumer],” UPS’ DeJianne says. “We want to make that final mile delivery as convenient as possible so the end consumer will then buy more from that particular retailer.”
In fact, the industry as a whole is moving in this direction. Omnichannel is now spoken of as a requirement, supply chain visibility as a dream, and agility a competitive requisite. UPS and its competitors can therefore be seen adopting similar initiatives to support their clients. “I think as a total industry, we're all looking at the same things,” DeJianne adds.
UPS and FedEx, for example, are both encouraging buyers to pick up their package at a designated dropoff point, thereby transferring a portion of last mile costs directly on the consumer on the presumption of a discount. Similarly, UPS and DHL have both recently introduced bikes for urban delivery and are exploring electric alternatives, to lower time wasted in congestion as well as fuel costs.
Most importantly, however, both UPS and DHL told Supply Chain Dive they were actively leveraging new technologies and seeking out partners to help perfect the last mile.
“We do have [an engagement] with a company called Deliv, and they handle same-day delivery for retailers," says DeJianne. “All options are on the table … There's always new technologies that come about that we need to continue to evaluate.”
Paving the road to the future
Looking ahead, DHL and UPS seem to agree business flexibility, scalability and new technologies will pave the road for a perfect last mile process, and their investments support it.
Businesses must be flexible and understand their customers, as “every customer doesn't necessarily need it within two days,” per DeJianne. “I think the trend would be towards more individualized type of service, so that you can retain your customer long-term and ensure you continue to grow your business.”
Monkmeyer says that’s where a 3PL’s added value comes into play, as retailers can lease out space without worrying about safety stock or long-term real estate payments. “You know if you're using a third party you have a lot more flexibility in where you keep that inventory and in moving that inventory from one place to another.”
The only way you're going to get products somewhere overnight or same day at a reasonable cost is if you have that product stored somewhere near the customer.
President, Transportation, DHL Supply Chain - North America
However, he adds that the industry has yet to figure out how to increase a logistics presence without necessarily building new warehouses. “Nobody's been able to figure out the crowd-sourcing option on the large scale,” according to Monkmeyer, although he notes many are trying.
On that note, Monkmeyer believes the real change will be driven by new technology. “We're at a point where it's kind of a cross-roads to go to the next step in terms of options. And what are customers willing to accept and what aren't they willing to accept,” he says.
Regardless, he says “the next [technological] step is going to be a big one."
In the meantime, logistics providers will continue to boost their technological and physical capacity. "You can't just look at just one particular thing,” says DeJianne.
“A big part of it is looking at the network holistically and not creating a whole separate process necessarily for how you're shipping those online orders,” or any other last mile operation, according to Monkmeyer.