All posts by shamsniazai

Parcel delivery: last mile future

Last mile delivery is getting a lot of attention! How so?

The cost of global parcel delivery, excluding pickup, line-haul, and sorting, amounts to ~ EUR 70 billion, with China, Germany, and the United States accounting for more than 40 percent of the market. Moreover, growth in this market is almost 300 percent in developing markets such as India.

The last mile delivery has a high percentage of total parcel delivery cost – often reaching or even exceeding 50 percent – makes it a challenge for those seeking to gain a competitive advantage.

The last mile logistics is seeing disruption from new business models that address customer demand for ever faster delivery, as well as new technologies that are likely to reach market readiness over the next ten years, including drones and autonomous ground vehicles (AGVs).

A growing group of consumers desires faster home delivery, yet most are highly price sensitive

Studies done in China, Germany, and the US with a total of 4,700 respondents show the following: Almost 25 percent of consumers are willing to pay significant premiums for the privilege of same-day or instant delivery. This share is likely to increase, given that younger consumers are more inclined (just over 30 percent) to choose same-day and instant delivery over regular delivery. However, the remaining ~ 70 percent of consumers still prefer the cheapest option of home delivery.

Get ready for a world where autonomous vehicles deliver 80 percent of parcels.

Autonomous vehicles including drones will deliver close to 100 percent of X2C and 80 percent of all items. Only ~ 2 percent will be delivered by bike couriers in the relatively small instant delivery segment.

Traditional delivery will account for the remaining ~ 20 percent of all items: big B2B customers with high drop factors (i.e., the number of parcels dropped per stop/recipient) and often special delivery requirements (e.g., hanging goods) will favor mostly human delivery as we know it today. The same is true for e-grocery delivery, as people will still want crates to be carried up to their apart­ments and returns to be handled directly.

This vision will become reality within the next ten years

The speed at which the outlined last-mile delivery scenarios can be reached will vary, depending on public sentiment, regulation, and labor costs.

Early adoption of these new autonomous delivery models will concentrate in developed countries, where labor costs are high enough to make the return on investment significant. In the developing world, however, labor costs will likely remain low enough to prevent any major technology change impacting the last mile over the next five to ten years.

In any event, regulation will need to change significantly (e.g., liability for damages caused by autonomous vehicles), but such regulatory challenges will be overcome in the next ten years, driven by the influence of the large automobile companies.

At the same time, public opinion concerning autonomous vehicles including drones has already started to shift – with 60 percent of consumers indicating that they are in favor of or at least indifferent to drone delivery.

Therefore, there is very little to suggest that the transformation will not kick in over the next ten years, at least in the developed world.

So what does that mean for any player in the market?

If a company operates in a high-labor-cost country, it better starts thinking about the future of the last mile now, as key foundations in HR, IT, and the investment strategy need to be laid down. Companies that fail to act soon will forfeit their chance to be among the contenders for the last mile in the long term. However, before we jump to conclusions, let us look at our findings in detail.