Parcel Carriers Confront Last-Mile Delivery Challenges

Last-Mile Delivery Challenges

Two-day shipping is now the U.S. shipping industry standard. Customers expect their e-commerce orders to move faster than ever, even when they’re traveling across the country.

As it turns out, shipping packages across the country isn’t all that hard. UPS and FedEx have built dense delivery networks for both air and ground shipments. Amazon warehouses aren’t far behind. Many shipments arrive at a fulfillment center near their final destinations within a day.

The challenge is moving those packages from warehouse shelves to customers’ doorsteps or receiving centers.

Last-mile delivery is a key challenge as parcel carriers seek to speed up transportation of goods.

Traditionally, carriers relied on daily residential deliveries from the U.S. Postal Service but today, that’s not nearly fast enough. At the same time, people are moving back to urban centers, and it’s becoming more difficult for delivery trucks to reach downtown destinations.

This aspect of the industry is seeing fascinating innovations. FedEx and UPS are using customer data to develop increasingly efficient routes. Amazon is experimenting with drones, UPS with bicycle couriers and many big-box retailers with ship-from-store deals.

None of these solutions has proven itself sustainable yet, and new market competitors continue entering. Many shippers may end up adopting several of these methods as they piece together last-mile delivery strategies. But in order to remain relevant, parel carriers will certainly need to incorporate new technologies into their last-mile business.

New Last-Mile Technologies

New technologies could turn last-mile delivery into same-day or even same-hour delivery.

If you’ve read about one last-mile innovation, it’s probably Amazon Prime Air. This is Amazon’s proposal (in private trials in the United Kingdom) to use drone delivery for packages in urban centers in 30 minutes or less. If it succeeds—and Amazon’s projects tend to—it could dramatically scale the instant delivery models of DoorDash and PostMates.

In domestic drone news, the U.S. Department of Transportation in May selected 10 participants for a Federal Aviation Administration program to develop drone regulations. These companies and their partners will develop drone pilot programs, monitored by regulators who will later draft drone rules.

FedEx was the only shipping carrier selected for the program. Amazon Prime Air’s proposal was not chosen.

In partnership with the Memphis-Shelby County Airport Authority, FedEx will be working on package delivery by drone. Three other proposals from the city of San Diego, Innovation and Entrepreneurship Investment Authority and the North Carolina Department of Transportation, also mention package delivery among their goals.

In addition to drones, UPS has rolled out electric bike delivery service in five European countries and as of last fall, in Pittsburgh. Bike couriers focus on delivering Next Day Air packages by 10:30 a.m. They can move more parcels faster than the package walkers they replace, reducing costs for carriers and increasing delivery volume.

Much has been made of third-party courier services, or what users might consider “Uber for packages.” These contractors can fill in some important delivery gaps, especially for residential customers ordering small parcels. But they usually can’t move large packages or bulk shipments for commercial or industrial clients.

Related: ‘The Amazon Effect’ and Changing Consumer Behavior

Demand for Faster Deliveries

Study after study has shown that consumers expect faster delivery times with every passing year.

Amazon Prime set a standard with free two-day shipping, but customers are still willing to pay premiums for same- and next-day service, so much that analysts with Research and Markets expect same-day delivery to be a $987 million market by 2019.

However, there’s no reason to believe that customer expectations will stop evolving. As same-day and next-day delivery make up more of the delivery market, they too may become industry standards. And customers may want to pay less over time.

Big-box retailers have been able to enter the same-day delivery market through ship-from-store or pick-up-in-store programs, proving popular for those with large networks.

To keep up with ever-changing consumer demands, carriers will need to offer a range of delivery options. Bikes, drones, parcel lockers and ship-from-store are all part of the last-mile equation. None will solve the riddle entirely on its own.

Key to making last-mile delivery affordable—whether those deliveries are made on foot, by truck or by drone—is dense delivery networks. If only one package needs to be delivered on a certain block, the profits from that single package may be wiped out by the cost of labor and fuel to deliver it. But if ten customers live on that block, those costs are spread more efficiently.

Most sellers can’t just refuse delivery to customers in a certain ZIP code over another. Denser networks are essential for keeping last-mile costs low. Traditional carriers and perhaps Amazon already have those networks in place, giving them a continued advantage over startups that enter the last-mile space.

As for shippers, those who deeply understand their company’s needs will be best able to adopt these new technologies selectively for maximum effect.

What Parcel Shippers Can Do to Keep Up

Shippers can stay ahead of the curve by understanding how their carrier confronts last-mile delivery challenges. If they implement new services successfully or use new technologies to fulfill old needs like UPS is doing with bikes for Next Day Air, carriers’ costs should shrink. Shippers need to make sure those savings are passed on to them.

The key to securing these savings is negotiating a good contract. Reveel’s consultants specialize in just that.

They can review your company’s shipping data to make sure your carrier is applying savings to your account, and if they’re not, they can help you identify areas to target in your next negotiation. And, as carriers introduce new services, Reveel can help you understand how you can take advantage of them without paying a premium for the service you deserve.

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