Amazon is finally inching its way toward direct competition with FedEx and UPS with the relaunch of its Amazon Shipping service, and experts see both benefits and potential downsides for shippers considering the ground delivery offering.

The long-awaited push by the company into last-mile services outside of Amazon.com orders isn't yet a comprehensive answer for how to compete with traditional delivery giants. The ground shipping service for Amazon.com sellers offers delivery in two to five business days in the contiguous U.S. for orders placed on non-Amazon channels, per its website.

However, parcel industry observers say that Amazon Shipping's promise of straightforward rates without tacked-on fees and a speedy claims resolution process could make it an appealing alternative for small businesses.

“We’re always working to develop new, innovative ways to support Amazon’s selling partners, and Amazon Shipping is another option for shipping packages to customers quickly and cost-effectively," spokesperson Olivia Connors said in an emailed statement. "We’ve been providing this service for a while with positive feedback so we’re now making it available to more selling partners.”

Amazon previously offered the service in select cities before pausing it in 2020. But the relaunch marks a new chapter in the company's foray into parcel shipping, which could be far more disruptive for established delivery providers.

"This is not a test, it's not a trial, it's not a 'dip your toe in,'" said Nathan Hughes, president of Shipware. "It is a strategic, scaled rollout of this service in the marketplace."

How Amazon differs from other FedEx, UPS challengers

With pandemic-era capacity constraints a thing of the past, relaunching Amazon Shipping will help the company wring additional profit out of an expensive and expansive network.

"Every single package they bring on board is going to drive revenue that will help to subsidize the cost of their own operation," Marc Wulfraat, president and founder of MWPVL International, a consulting firm that tracks Amazon's logistics footprint.

This massive fulfillment operation is a key reason experts believe the company's emerging shipping service could pose a legitimate threat to FedEx and UPS. The two companies' current dominance in the parcel delivery sector is dictated by their expansive network infrastructure — warehouses, trucks, planes and people working to deliver packages in the U.S. and beyond — creating a barrier to entry few companies can even consider matching, Hughes said.

Amazon is one of the select few who could. The e-commerce giant is already a formidable player in terms of delivery activity, handling 4.8 billion deliveries last year, surpassing FedEx, according to the Pitney Bowes Parcel Shipping Index. In 2019, it handled less than half that amount.

"It's now a major juggernaut that is different than what it was pre-COVID," said Caleb Nelson, chief growth officer and co-founder at logistics software provider Sifted.

Amazon Shipping's possible pros and cons

Amazon has released few details about Amazon Shipping beyond what's on its website, but industry observers say the service appears to be targeting small- and medium-sized businesses in the near term.

The service touts "simple rates," which would be particularly attractive to smaller merchants that often don't have the in-house expertise to understand a nuanced parcel shipping contract with FedEx or UPS.

If rates are as straightforward as Amazon claims they are, then some shippers may be able to accept transit times of up to five days and bring over some of their FedEx and UPS volume, Nelson said. The lack of a residential delivery surcharge is also a significant benefit, he added.

"For an e-commerce business, that's a home run and will substantially reduce the cost," Nelson said.

However, Amazon Shipping could have trouble attracting large-scale, enterprise shippers for several reasons, experts say. Potential concerns they flagged include:

• Losing volume-based discounts from other carriers if they shift packages to Amazon Shipping
• How Amazon handles the service's deliveries compared to Amazon.com orders in periods of tight capacity, such as during the holidays or a Prime Day sales event
• The service is unable to reach the entire U.S. population by itself. The company says it will use the U.S. Postal Service to cover all Amazon Shipping delivery destinations
• Fears of Amazon rolling back the service if interest isn't high enough

Amazon's service could also threaten to siphon volume from UPS at a time when it still relies heavily on the carrier to make some of its deliveries, though it has reduced its reliance on the carrier in recent years.

"They've got to walk a little bit gingerly right now, because they still ship a fair amount of volume through UPS," Wulfraat of MWPVL said.

In the short term, Amazon Shipping is unlikely to be a legitimate competitor to FedEx and UPS due to obstacles attracting enterprise shippers, said Ninaad Acharya, co-founder and CEO of Fulfillment IQ. Instead, the company could grab market share from smaller, e-commerce-focused delivery providers like Pitney Bowes and DHL eCommerce as it builds the foundation to compete against the established delivery giants in the long-term.

"I would never, ever discount anything that Amazon does," Acharya said. "I think a lot of people have learned that the hard way."

​The financially ailing Postal Service wants to draw more commercial shippers into its network to generate more revenue and counteract declining mail volumes.

Shippers with USPS are slated to receive a lot of attention in the next steps of the agency’s 10-year transformation plan under Postmaster General Louis DeJoy.

Priorities for year three of the plan include growing revenue through new shipping services and accelerating local delivery speeds with new facilities, according to the agency's two-year progress report released in April.

It's a big undertaking, considering the agency didn't achieve the plan's 2023 break-even prediction and how long its focus has been on handling mail rather than packages. But DeJoy has expressed confidence that the transformation will enable the Postal Service to more effectively compete against private delivery providers like FedEx and UPS in areas including price.

"I believe we can become the preferred delivery provider in the nation, reclaiming volume we have lost over the years and capturing a significant portion of the future growth in the marketplace," DeJoy said in a keynote address at the National Postal Forum in Charlotte, North Carolina.

New, streamlined services

The Postal Service expects to see $24 billion in net package revenue growth under its Delivering for America strategy, and its best opportunity to take share from FedEx and UPS could come from a plan to consolidate existing services into one offering.

The agency aims to streamline three package shipping options — USPS Retail Ground, Parcel Select Ground and First-Class Package Service — into a new product, USPS Ground Advantage. It's set to launch the service on July 9, pending review from the Postal Regulatory Commission.

The Postal Service said in a news release that the service provides a more affordable way to ship packages up to 70 pounds in two-to-five business days. The agency is proposing for USPS Ground Advantage prices to be 1.4% lower relative to current Parcel Select Ground and First-Class Package Service pricing.

Ground Advantage could pose "a significant challenge" to FedEx and UPS even though the two delivery giants have more customized and flexible shipping services, Joshua Galbraith, business development manager at ShipMatrix, said in a LinkedIn post.

"It is likely that with the introduction of the USPS Ground Advantage service, FedEx and UPS may need to reconsider their pricing strategies to compete with the significant price advantage of USPS," Galbraith said.

Beyond Ground Advantage, the Postal Service expects further package revenue growth will be driven largely by USPS Connect, a wide-ranging offering that includes same-day and next-day delivery. The program, launched in 2022, has a suite of services including Connect Regional and Connect Local.

Connect Regional provides next-day regional delivery by having shippers dropping off packages at facilities close to the final destination. The service has brought in $1.1 billion in revenue by offering direct network access to medium and large-sized shippers, per a Postal Service progress report.

Connect Local, on the other hand, offers same-day and next-day delivery for local businesses within their communities. The service, which is now available nationwide, has shippers bring packages or envelopes to a designated local postal facility for speedy delivery. More than 27,000 customers have registered for the program, the report said, despite a tepid reception in initial tests of its document-focused shipping service.

"The potential of the new suite of services will be maximized when we complete the realignment of our network," the report said.

Facility consolidation aims to speed up deliveries

To keep up with growth in its package delivery services, the Postal Service is overhauling its network for speed and efficiency. The agency has targeted key markets where it can consolidate delivery units — the final facility parcels go through before delivery — into fewer and more centrally located Sorting and Delivery Centers.

"Historically, [delivery units] were opened to meet growing demand, which ultimately created clusters of facilities close to each other, especially in busy metro areas," the agency's report said, adding that it led to operational inefficiencies.

The Postal Service opened its first Sorting and Delivery Center in Athens, Georgia, last fall before launching five additional centers in Florida, New York, Texas and Massachusetts in February, according to the report.

The agency is preparing for further growth of this network, as it has evaluated more than 100 potential new locations nationwide. DeJoy told Supply Chain Dive in 2022 that vacant postal facilities are a prime target to set up new Sorting and Delivery Centers.

Local communities across the U.S. have griped about Postal Service delivery delays in recent months, even despite year-over-year improvements in on-time mail performance overall. The agency says the end result of its buildout will be faster processing and delivery speeds between local retailers and their customers, as the centers will be able to quickly reach 200,000 customers in a local market.

“We must now execute rapidly on our plans to deploy our network," DeJoy said at the National Postal Forum. "This is the only way to achieve the service and cost improvements necessary for us to fulfill our mission to rescue this organization.”

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By FRAYT

According to the National Retail Federation, two-thirds of consumers plan to start their holiday shopping by Thanksgiving. In 2021, 61% of respondents had already pressed start on their holiday shopping by Thanksgiving, compared to 51% a decade prior.

In this article, we’ll explore the causes and effects of these disruptions, and how companies can navigate them successfully with last-mile delivery solutions.

Holiday supply chain issues for retailers

During the holiday season, customers enjoy shopping and celebrating. But for retailers, this time means careful preparation, tight stock control, and dealing with shipping problems — especially the last stages of delivery — the last mile.

Several problems can interrupt holiday shipping. The big holiday shopping rush makes these issues even trickier. Some of these problems are weather-related delays, transport congestion, and unexpected events like recent carrier strikes. Studies show that 85% of retailers worry about running out of stock during big sales events like Black Friday and Cyber Monday.

The domino effect on retailers

When supply chains falter during the holiday season, the repercussions can be critical for retailers. If there are problems with getting stock during the holidays, it's a big headache for store owners. No products on the shelves or stuck in warehouses, late deliveries, or running out of items means unhappy customers. They might not buy, go to another store, or think less of your business. A study by McKinsey & Co. showed that if something is out of stock, 70% of shoppers will pick another store or brand.

Some stores don't have enough items, but others have too much. In 2022, between 30-50% of retailers had more stock than they needed. This happens because of wrong predictions, delays in shipping, and handling both in-store and online orders. Having too much stock means big discounts to sell things fast or paying more to warehouse the extra items. To make a profit during the holidays, stores must manage their stock well without spending more on their own delivery trucks. Enter last-mile delivery partners.

Strategies for Mitigating Supply Chain Disruptions

End-to-End Visibility

Monitoring your shipments from pick up to drop allows retailers to make informed decisions, optimize inventory management, and adapt quickly to disruptions. Partners and carriers that can provide real-time tracking and shareable status updates alleviate the risk of empty shelves and provide peace of mind for retailers and their holiday shoppers. 

Contingency Plans

Creating contingency plans for various scenarios — like middle- and last-mile deliveries — can prepare retailers for unexpected disruptions. These plans can include backup carriers or middle- and last-mile delivery partners for alternative transportation options. For example, if your current carrier gets delayed by holiday weather conditions or sick calls, a partner, like FRAYT, can provide professional, premium drivers and vehicles to help you recover.

Communication and Collaboration

Choosing delivery partners that offer full transparency, as well as an open line of communication is essential. FRAYT offers a network of dedicated delivery drivers and operations professionals who are available to text or call at every stage of your shipment. Accessibility like this allows retailers to tune into their inventory’s status at a moment's notice and adapt to disruptions, no matter the stage of their shipment. 

Supply chain disruptions during the holiday season are inevitable, but retailers can take proactive steps to deplete the risk. By establishing and implementing end-to-end visibility, contingency plans, and transparent partnerships retailers will secure a smoother and more prosperous holiday season for both their business and their customers. 

Deliveries continue to get faster, but further improvements will be hard to realize in an era of shifting consumer preferences and cost mitigation among shippers.

In April, the time between a customer placing an order and final delivery fell to an average of four days, according to project44's "State of Last Mile" report released in May, compared to 5.6 days in April 2022. The company’s supply chain visibility platform tracks more than 1 billion shipments annually.

"Looking farther back on historical delivery times, 2023 is seeing the quickest delivery times that the Last Mile market has seen in years," the report said.

Carson Krieg, project44's head of industry growth and last mile solutions, told Supply Chain Dive that a "healthy average" for end-to-end fulfillment is between four to six days. That raises the question of how much more delivery times can shrink.

"I think there's going to be some mediation to the norm," Krieg said.

What's fueling faster deliveries?

There are many reasons why delivery speeds have improved, according to Krieg.

On the transportation side, parcel carriers no longer have the capacity constraints that challenged their service levels in the early days of the pandemic. Shippers have diversified their carrier mix, tapping into speed advantages new delivery providers may have on certain lanes.

"A two day point for UPS going from Southern California to Northern California may be a next day point for OnTrac," Krieg said.

On the fulfillment side, companies have moved inventory closer to end consumers, most notably Amazon and its shift to a regional network model. Retailers have been pushing for years to better compete with the delivery speeds offered by Amazon's massive warehouse network, said Martin Dresner, professor and chair of the University of Maryland's logistics, business and public policy department. The pandemic accelerated those efforts, particularly for ship-from-store initiatives.

Other major retailers have also been bolstering their fulfillment investments and efforts. Walmart's store-fulfilled delivery sales nearly tripled over a two-year period, with the company seeing more than $1 billion a month in that category. Meanwhile, Target announced a $100-million investment earlier this year to leverage its store footprint for next-day deliveries, building upon its stores-as-hubs strategy.

It’s not just the Amazons and Walmarts of the world speeding up deliveries. American Eagle and Nordstrom have reported quicker timeframes to reach customers on recent earnings calls.

"We are delivering better service to our customers through faster delivery, with overall delivery speed up 9% from last year," Nordstrom CEO Erik Nordstrom said on a May 31 earnings call.

Cost mitigation, consumer wants could slow deliveries

A confluence of factors will likely limit delivery speeds from going much faster, if not slow them down outright.

Retailers have been cautious in recent months about leveraging higher-cost shipping services in an inflationary environment that's biting into their bottom line. In turn, the demand for express deliveries using air cargo networks has waned, with many shippers instead calling for more economical ground transportation.

"We can be in that three to five day click-to-deliver timeline," said Laura Ritchey, COO at e-commerce fulfillment provider Radial. "It gets really expensive to go faster than that."

Companies shifting to more regional fulfillment models like Amazon could lower transit times and shipping costs. But it's a risky venture for companies lacking the robust infrastructure and forecasting capabilities that Amazon has. If demand starts to shift, inventory may be stationed in areas where it isn't as economical or fast to ship out of, said Vijay Ramachandran, Pitney Bowes' vice president of go-to-market enablement and experience.

"The more you segregate your inventory across the country, the more you have to be really buttoned up with demand planning and have a good idea of where your demand is going to surface geographically," Ramachandran said.

Poor forecasting makes it harder to deliver on time, which is likely to lead to unhappy shoppers, even if transit times are still relatively fast. Sixty-two percent of consumers say an accurate estimated delivery date is more important than fast shipping, according to Pitney Bowes BOXpoll market survey data.

But many retailers haven't slowed down their delivery promises to improve accuracy. On-time performance dropped from 83.9% to 80.4% YoY in April, per project44, which attributed much of this decline in its May report to "the aggressive timeframe that some companies promise to deliver within."

Retailers will need to strike a balance between cost mitigation and meeting consumers' expectations in order to improve their delivery offerings for the long run, experts say.

"We're in a post-COVID environment, but it is not the same as where we were pre-COVID,” Ramachandran said. “That shift requires some new assumptions around what's important to consumers.”

UPS and the International Brotherhood of Teamsters' newly ratified labor contract could increase pressure for FedEx and other logistics companies to bump up workers’ wages and benefits, experts say.

The contract, which took effect in August after a monthslong negotiations process, will lead to the average full-time UPS driver making about $170,000 annually in pay and benefits, CEO Carol Tomé said in an earnings call. Previously, they made an average of $145,000 in pay and benefits. Other workers covered by the contract will also see wage increases.

UPS’ increase in pay and benefits creates another challenge for logistics companies pushing to attract and retain workers in a tight labor market. Interest in UPS jobs jumped on Indeed after the deal was announced, Bloomberg reported, at a time when workers have felt empowered to demand better wages and working conditions.

"It is going to be a leverage point, you can guarantee that," said Alan Amling, former VP of corporate strategy for UPS. "Workers are going to be using what they just learned about this Teamster contract with UPS to negotiate higher wages."

Rival FedEx has already laid out plans to increase wages for its employees in October.

The company said in an emailed statement that select U.S.-based employees will be eligible for a pay increase based on a percentage of their base salaries. It did not specify eligibility requirements or the percentage amount.

"These annual merit increases, which take effect in October, are a regular and important component of our overall compensation structure, and in the rapidly evolving talent market, are an essential tool to reward and retain top performers," FedEx said.

Deal stiffens competition for logistics workers

UPS' position as an industry leader in terms of pay and benefits isn't anything new, according to Jeremy Tancredi, a partner in West Monroe’s Operations Excellence practice. The company’s compensation package corresponds with the robust standards and policies it has employees follow, along with the fixed nature of its delivery routes, relative to more flexible competitors.

"They have tighter timelines and constraints, they have standards on their drivers that they have to meet in terms of how long it takes to deliver packages," said Tancredi, a former UPS industrial engineer. "With all those expectations, the driver is going to command a higher pay."

There's also a finite supply of UPS driver jobs and desirable delivery routes, with employees biding their time before securing the preferred route they bid on.

"You had guys on the call list for eight to 10 years before they got a bid job that they really wanted," Tancredi said.

Still, the agreement and its wage increases stiffens competition for labor in the logistics industry, which has already been grappling with climbing wages since the COVID-19 pandemic accelerated demand for delivery services.

Amling, who is now a distinguished fellow at the University of Tennessee’s Global Supply Chain Institute, said the current labor market is comparable to the U.S. housing market: While demand has dropped this year, prices have remained elevated due to tight supply.

"It's going to create inflationary pressure for the industry, and that's something that managers have been dealing with now for a while," Amling said of the UPS contract agreement.

UPS, FedEx trim labor costs amid wage hikes

As wages climb in a period of softer demand, UPS and FedEx are pushing to limit overall labor costs by leaning on automation and streamlining operations.

UPS, for example, leaned on AI and machine learning to match its network capacity to lower volume levels in Q2. This helped the company cut labor hours by nearly 10%.

"Additional labor costs in the back half of the year will be partially offset by the network adjustments we made in the second quarter," Tomé said on the earnings call.

At the same time as FedEx competes to attract and retain workers, the company is aiming to find $1.8 billion in savings through a network overhaul via its DRIVE program.

While FedEx may be hard-pressed to match the wages outlined in the new UPS-Teamsters contract, the company could improve its standing versus UPS through lower operating costs, said Dean Maciuba, managing partner USA for Crossroads Parcel Consulting.

"I don't think FedEx can support increased wages to match UPS — not in a million years," Maciuba said. "I do think they can operate more cost effectively and potentially be more competitive on price while at the same time driving margin."

Two big names in the drone delivery space — Zipline and Alphabet's Wing — unveiled major upgrades to their abilities to service customers in March that may need some help in order to shake up last mile transportation.

While their respective upgrades differ, both have the same goal in mind: Scale up and reach more customers. Wing expects its drone delivery network will be able to handle millions of deliveries by mid-2024, while Zipline aims to operate more flights annually than most airlines by 2025.

For the two companies to achieve that, it will take more than a sizable investment to succeed — just ask Amazon, which has reportedly encountered drone safety challenges and limited delivery activity. They will need to lower operating costs by maximizing their networks' efficiency and get regulators and consumers on their side in order to deliver on the hype of drone technology.

Otherwise, it will take much longer for drones to deliver on the hype and become as ubiquitous in neighborhoods as delivery vans are, experts say.

Increasing density, adjusting regulations to lower costs

Carriers are working to increase density in the last mile delivery space, like having their couriers make as many deliveries as possible on a single route to minimize operating costs.

While drones are generally limited to lightweight payloads, a network can create its own version of density by ensuring its fleet is in constant motion, making pickups and deliveries as often as they can to sustain the business model.

"The worst thing is to have your vehicle, whether it's a drone or a truck, sitting idle," said James Campbell, a professor of supply chain and analytics at the University of Missouri-St. Louis. "The way this makes the most sense is if you can get the huge scale so your drones are flying all the time. You're spreading your fixed costs for the facilities over many, many drones and many, many deliveries."

Although delivery density is a critical part of the equation, it is only one avenue to lower operating costs, Eric Peck, CEO of drone logistics platform Swoop Aero, said in an email. Operators that design faster drones can respond to demand quicker and provide a more valuable offering to customers, which can translate into more profitable services. Increased delivery range can help, too, by unlocking new lines of business for drone companies, such as offshore maritime logistics.

One pilot monitoring multiple aircraft would also help operators maximize the return on their network investments, Peck said. A McKinsey report published in January affirmed this view, saying that with current pilot limitations in place, drone delivery struggles to be competitive with other last mile transportation modes in terms of operating costs.

The cost of a single-package drone delivery in which one person is monitoring the drone is about $13.50, according to the report. If a single drone operator is able to manage 20 drones simultaneously instead of just one at a time, the per-delivery cost plummets to around $1.80.

In the U.S., a waiver is required to operate multiple small drones with only one remote pilot, and operators also need certification in order to make drone deliveries beyond the visual line of sight of a pilot or observer.

For DroneUp, which is helping Walmart advance its goal of making 1 million deliveries a year by drone, being restricted by visual line of sight regulations has limited the delivery radius of its drones to about two miles. Stretching that further would have significant upside — DroneUp COO Anthony Vittone noted that 90% of the country lives within ten miles of a Walmart.

"Every mile that I add to that [drone delivery] radius triples and sometimes even quadruples the number of homes that have access to DroneUp delivery," he said.

Consumer buy-in, habits need to evolve

As delivery activity increases, companies also have to field concerns within the communities they operate in. Vittone said some potential customers may have a fear of the unknown with drone delivery, as is common with many new technologies. To reduce uncertainty, employees field questions from the public at Walmart stores where they operate and also conduct demonstrations.

Drone firms also have to consider potential disruptions their operations could create with the public. Wing, for example, has reportedly encountered noise complaints in Australia. The company said in emailed remarks to Supply Chain Dive that engaging with communities to answer questions and receive feedback is a top priority before launching new services.

"The reality is that drone delivery brings significant benefits — reduced traffic congestion, fewer emissions, expanded opportunities for businesses, and a greater level of convenience for consumers — and these become apparent once drone delivery arrives," Wing said.

If companies can achieve public buy-in, it's easy to see how drones could shake up traditional last mile delivery operations. They have speed as a distinct advantage over other forms of last mile transportation, as they are able to avoid ground traffic in their route to the customer.

But Campbell questioned what items beyond food and emergency medicine are needed in 15 to 30 minutes — a shift in consumer behavior may need to take place, similar to what happened when FedEx first launched express parcel delivery or when Amazon accelerated delivery speeds for online orders.

For drone delivery companies to reach that lofty, game-changing status, they will have to significantly expand their reach and capabilities first. With recent announcements in mind, that may be happening sooner rather than later.

"Things in this space rarely happen before anyone says, but I guess I'm a lot more optimistic than I used to be that this is finally coming," Campbell said.

For a moment, a prototype FedEx robot made the last-mile delivery process compelling enough to be featured on late night television.

"This is the future right here," Jimmy Fallon said in 2019 as the company's autonomous bot, later named Roxo, delivered The Tonight Show host a pizza.

But despite the hype, the path to widespread adoption for sidewalk-roaming robots to deliver goods throughout the U.S. has been anything but straightforward. FedEx canned Roxo less than four years after its flashy debut, per an October statement. Amazon, meanwhile, ended field tests for its own delivery bot after it fell short on meeting customers' needs.

If logistics behemoths struggle to develop a successful formula for their delivery bot operations, can a long-term, sustainable business model ever be realized? Many of the executives, researchers and regulators interviewed by Supply Chain Dive say yes, and that current labor and inflation challenges could help the transportation mode get there sooner.

Still, to be truly successful, insiders say the industry still needs to confront major hurdles around funding, segment diversification and more.

Why delivery bots could gain post-pandemic momentum

Although FedEx and Amazon have taken their leave, the delivery bot sector still has seasoned and growing players. Leaders at these tech companies say using their robots to bring goods to consumers — versus a human courier using a vehicle — can offer advantages that have become more evident in recent years.

Chief among them is the potential to lower costs within the final mile of delivery, considered the most expensive step in the shipping process. With autonomous or remotely operated capabilities, delivery bots are insulated from climbing courier wages that standard providers pass on to the end customer. Additionally, they aren't as exposed to jumps in gas prices that took a toll on carriers — and then their shippers — last year.

"After COVID, you had challenges with labor," said Ali Kashani, co-founder and CEO of delivery bot developer and operator Serve Robotics. "Then you had inflation and the cost of labor going up, and then you have the cost of gas going up. Every one of these things that has happened has become a tailwind for us."

And while bots roaming the sidewalks don't have the range or capacity of gas-powered vehicles, they are well-suited to quickly respond to on-demand deliveries of small payloads originating from nearby businesses.

This has led many bot companies to grow their businesses by focusing on food and convenience deliveries. Serve's robots have completed orders on Uber Eats' platform for Los Angeles customers, and 7-Eleven recently partnered with the company for testing in West Hollywood, California. Plenty of food delivery operations are also taking place at colleges, with Grubhub rolling out partnerships with tech companies Kiwibot and Cartken to serve on-campus demand.

The question is if that is a large enough sandbox for these businesses to mature into self-sustaining operations.

For Coco, whose bots make restaurant deliveries in Los Angeles, food makes sense as the initial order category to focus on, said co-founder and CEO Zach Rash. It's a high-frequency order category with strong local demand and a need to be delivered quickly. However, he noted that over time there will be a need to diversify into other categories in order to maximize the use of its robots.

"You need a lot of scale and you need a lot of density," Rash said of the formula for long-term success in the delivery bot space. "Food is the best way for us to build up to that while making sure that we can maintain profitability on the way there."

Although bots won't become a one-size-fits-all approach to last mile delivery, there are other areas executives say the transportation method could see increased adoption in. Starship Technologies has robots delivering spare parts, testing supplies and samples in industrial campuses mostly in Germany, for example. And one day, industry players could be working directly with parcel vans and trucks to make deliveries, CEO Alastair Westgarth said.

"We're adding a new modality to delivery, not taking over the entire world of delivery," he said.

Complex challenges clash with immediate needs

The amount of deliveries completed by automated vehicles is still "barely measurable" today, acknowledged Cartken CEO Christian Bersch. To gain share from traditional transportation methods, companies operating robots will need funding to expand their service coverage, improve upon their existing technology and ultimately offer lower costs than competitors.

But economic uncertainty has thinned the pool of funds available from venture capital and private equity firms, company executives say. Starship, a major player in the robotics space, cut back its staff and service areas in 2022 in a more difficult environment to secure funding.

"We wanted to make sure that we adjusted to that dynamic and focused on making sure our company's viable forever, so to speak," Westgarth said, adding that Starship prioritized further improving its unit economics.

Although larger, diversified companies may have the financial muscle to scale up their own bot programs, success in the space requires patience as hurdles related to adoption, infrastructure and regulations loom large. This includes current range limitations for these bots, which means reaching new customers in suburban and exurban areas will be difficult. Starship's Westgarth said cities and universities dominate the company's business, with 90% of its focus being in those two categories.

Long-term challenges can clash with near-term needs, as was the case with FedEx. The company said in its October statement that it canceled Roxo to "prioritize several nearer term opportunities" as overall demand for its services was slowing.

Companies exclusively focused on deliveries via bot can’t simply cut the cord, and they still need to grow at a pace that meets investors' expectations. Many executives say they remain cautious about ramping up too aggressively and without enough community buy-in, fearing a backlash similar to what e-scooters saw years ago. 

Bern Grush, executive director of the Urban Robotics Foundation, doesn't buy it.

"You want to tell your investor, 'We don't want to have 20,000 robots'?" said Grush, whose foundation aims to help member municipalities coordinate robot-related policies. "You want to tell your investor, 'We're happy with 12 robots'?...This whole industry needs to deliver a million things an hour."

Delivering to farmers is a tale of two seasons.

Before the growing season, farmers want a reliable pace of deliveries. Speed becomes much more important once the growing season kicks off as threats to their livelihoods, like unplanned pest invasions, emerge, Jack Cox, Farmers Business Network's VP of global fulfillment and logistics, said in an interview.

That need for in-season speed gave Farmers Business Network a good reason to accelerate delivery times on FBN Direct, its direct-to-farm commerce platform selling products like insecticides and seeds to farmers. The company announced in June it has achieved delivery speeds of three days or fewer for most member orders on FBN Direct.

Cox told Supply Chain Dive that the company reached that milestone around August of last year, after it debuted its in-house fleet of straight trucks. Improved inventory replenishment processes this year have helped the company achieve that target "consistently week in and week out," he said.

"It was mostly brought on by launch of the fleet, but it really grew this year with a little refinement around how we thought about our middle mile, our cross docking and our replenishment," said Cox, who has held logistics and transportation roles at Amazon, Target and Wayfair.

Improving shipping speeds to farms requires a different calculus than what's needed for home deliveries. Remote locations, imprecise addresses and sheer size of each order — Cox said the average in-season order weight is 5,000 pounds — creates additional complexities that FBN has had to consider when strengthening its logistics network.

Although a delivery address may lead a driver to a farmer's home, that farmer doesn't want "several thousands of liters of herbicide going into their house, they want it in their shed which is somewhere else on the property," Cox said.

FBN also has to be smart with its inventory positioning throughout its network, as the size of the products it sells can take up a lot of storage space.

"How do you build your local assortment for something that may or may not sell in a given year?" Cox said. "You put some in [nearby locations], but you don't expect to capture all the demand in that local area, because if you were doing that, it would be way too expensive."

Farmers Business Network leverages its hub-and-spoke network model, which includes primary fulfillment centers and smaller satellite buildings in North America, to strike the proper inventory balance and allow for easy replenishment of supply.

More than 84% of growing acreage in the U.S. and 97% in Canada is within 250 miles of a Farmers Business Network logistics center, Cox said. Within these sweet spots, the company particularly leans on its in-house fleet to deliver orders during the growing season.

"When we do have customers on the East Coast where we haven't expanded our network yet, those customers are going to get a 3PL," Cox said. "It's really important to us that our drivers are in their beds every night."

FBN has also improved its "delivery optimization intelligence" to improve shipping speeds, meaning its systems now have awareness of all inventory positions in real time, according to the June announcement. This helps farmers find the fastest delivery alternative from throughout the company's entire network while factoring in more than just inventory proximity.

Farmers Business Network isn't done yet with its network improvements. In the future, FBN wants to deliver even faster when needed and expand its product assortment, Cox said.

"We just want to be a really easy, one-stop shop for everything a farmer needs," he said.