What Is Last Mile Delivery?

Last mile delivery has become a hot topic in the logistics industry over the past few years. While it’s not necessarily new, growing demand for same-day delivery has emphasized the need for efficient final mile shipping processes.

In fact, some experts predict that the last mile industry will grow by nearly $75 billion by 2026. Let’s go over the basics of last mile delivery, including what it is, the challenges surrounding it, and why it matters to logistics professionals.

What is last mile delivery?

“Last mile” refers to the final stage of the delivery process, as the shipment travels to its final destination– whether that’s a retail location or the customer’s doorstep. Also known as final mile, the phrase is commonly associated with food delivery apps, direct-to-consumer (DTC) business models, and same-day delivery services.

For those who aren’t familiar with last mile delivery, think about the last time you ordered groceries from Instacart or Amazon Fresh. From the moment you placed your order to the moment it arrived at your home, it needed to go through several steps in its journey, including packaging at the warehouse, getting loaded into the vehicle, and traveling to the final destination.

As retailers and ecommerce companies increasingly recognize the importance of the final mile, many are beginning to refine their processes to improve speed, cost, and accuracy. However, because of the countless obstacles and challenges that arise in the final stage, it’s getting more difficult to measure up to customer expectations and industry standards.

Top challenges surrounding last mile delivery

Thanks to innovation and investment by shipping giants like Amazon and Walmart, customers have come to expect low (or no) additional costs and quick turnaround times as their purchase makes its way to its final destination. However, the step that logistics professionals know as the “last mile problem” has the highest expectations while also being the hardest to pull off.

High costs, low margins

The last mile is an expensive step in the delivery process, making up 53% of total shipping costs. This disproportionate burden is the result of several factors, from inefficiencies on the road to time spent interacting with customers and delivering packages by hand. Additionally, it’s much more difficult to find opportunities for economies of scale when dropping off a truckload of shipments one-by-one. Consequently, the per package cost of labor and fuel is much higher at this stage.

This inflated expense is exacerbated by the fact that most customers aim to minimize their delivery fees by securing free shipping– therefore putting the financial burden on retailers, who cover an average of 25% of overall costs themselves. With the inability to pass on expenses to consumers, companies face significant consequences for every inefficiency.

Consumer expectations

As we discussed, consumers have grown to expect a lot from the final mile, including low costs, high speeds, and real-time visibility. Some logistics experts blame these high standards on ecommerce giants like Amazon, which popularized free, two-day shipping as early as 2005.

As if raising the bar wasn’t enough, rising competition and commoditization is also sending brand loyalty on the decline– putting more emphasis on shipping accuracy. According to a study on last mile delivery, 84% of shoppers are unlikely to shop with a brand again after a poor delivery experience. After all, why would you want to risk another incident when you can get an exact substitute from another retailer? With this in mind, many retailers are motivated to invest in additional resources to ensure fail-safe delivery.

Failed deliveries and returns

In addition to the high costs that companies incur from each shipment, many also spend a lot of money on deliveries that don’t pan out. In most situations, a failed delivery directly translates to funds down the drain.

As unfortunate as it is, there are plenty of reasons that a delivery would fail. Many are the result of logistical or compliance issues, such as problems related to signature requirements. For example, the customer may be absent or unavailable to sign at the time of delivery, or they aren’t able to find any available slots that align with their schedule. In other instances, the customer may have entered the wrong address, so the delivery can’t be completed.

Even when a shipment doesn’t make it to its destination, the costs can still be just as high– or even higher. According to recent data, the average cost per failed delivery is $17.20.

Just because a delivery makes it to the consumer doesn’t mean you’re in the clear. Returns and exchanges on shipped items can also disproportionately increase retailers’ expenses– especially when shipping is free to the consumer. These costs can add up fast, with ecommerce return rates hovering around 20%. While many of these returns are caused by late delivery, damaged goods, or incorrect items, others may simply be the result of changing preferences or a mistake on the consumer’s part.

Where does last mile fit in the logistics industry?

Last mile may be a challenging and expensive step in the delivery process, but it’s also key to success for retailers and ecommerce businesses. Similarly, for logistics companies involved in the end-to-end delivery process, industry experts say that solving the last mile is crucial to controlling the overall customer experience.

Since it involves the most interaction with the customer, the last mile is an integral step in leaving consumers with the right impression. Unfortunately, it’s also an easy place to lose control of the process and allow inefficiencies to creep in.

That’s why many companies are investing in ways to optimize their shipping process from beginning to end. By adopting innovations like driver crowdsourcing, route planning, and proof of delivery solutions, businesses aim to speed up their services and reduce the possibility of error.

Final thoughts

The low costs and quick turnaround times that shoppers flock to may be feasible for industry powerhouses, but they’re more challenging for smaller retailers to achieve. As these businesses aim to compete with top players, they’re increasingly turning to digital solutions to get ahead.

Want to find out how your company measures up in terms of digitization? Check out our Tech Stack Scorecard.

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