Last-mile delivery is the most important and expensive part of the supply chain and logistics. As much as 28% of shipping expenses can be attributed to last-mile delivery costs. Although it’s extremely important to invest in last-mile operations as it directly impacts customer experience, there is always a need to optimize costs, especially at a time when it’s becoming imperative to ensure free of cost and same-day deliveries.
What is last mile delivery cost?
The expenses incurred by a logistics company in the last mile of the shipping journey, also known as the last leg of a product delivery journey wherein the parcel finally reaches the doorstep of a consumer, are called last-mile delivery costs.
How much does last mile delivery cost?
As consumers are now increasingly relying on the means of e-commerce for all possible shopping requirements, especially since COVID 19, speedy fulfillment of deliveries have become more of an expectation than just a good-to-have ancillary service.
In order to maintain relevance and to stay on top of their games, as a result, businesses are now doing whatever they can to increase parcel volume and expedite deliveries- while delighting customers. However, in the pursuit of all of this, the biggest expense and challenge still remains the ever-increasing last mile delivery costs.
As per the reports of research conducted by Capgemini, last-mile delivery costs were found to account for as much as 41% of the total costs involved in overall supply chain costs. The reason why last mile delivery costs tend to be so high is that the last leg of a shipment typically involves human intervention since it will be a human being, as a delivery-person, who will actualize the process. The situation gets even trickier when other real-time factors like traffic congestion, multiple stops, customer unavailability, and high customer expectations are further involved.
What are the major drivers of last mile delivery costs?
As already established, last mile fulfillment is expensive as well as complicated. Multiple factors and variables that contribute to this overall cost include-
1. Free shipping and returns
In 2020 alone, as per a report published earlier this year, online returns were estimated to cost as much as a whopping $550 billion! As compared to the 8% returns of traditional retail, the number dramatically changes to 25% when it comes to online purchases. Hence, even if 1 in 5 customers raise a return or exchange request, logistic companies need to accept the request for free, which, in the bigger picture, adds to the last mile costs.
2. Poor address quality
A problem usually faced with deliveries intended in rural areas where the zip code and street network is not as sophisticated as urban areas, poor address quality adds to the last mile costs. Besides, even the delivery points along a particular route in a rural setting might be miles apart, resulting in reduced efficiency of the delivery person and only a couple of packages getting dropped off as against several in an urban setting. All of this, when combined, cause spiraled last mile costs.
3. Excess fuel consumption
Unscrutinized fuel costs can also add up to contribute majorly to last mile delivery costs. Fuel prices being volatile and subject to fluctuations make for a serious costing concern for last mile operation of logistic companies. Ironically, the fuel costs tend to increase in sparsely populated as well as heavily populated locations. In sparse locations, since the driver will have to cover a long distance to attempt a delivery, the cost subsequently rises; likewise in densely populated areas, as the driver might have to make multiple stops, idling of the personnel will logically result in increased last mile costs.
4. Lack of end-to-end logistics control and visibility
As an online business owner, if you are not empowered with transparency or end-to-end visibility, you probably are creating the perfect recipe for not only increased last mile delivery costs but also unsatisfied customers.
For example, if you are not aware of errors in your supply chain due to a lack of E2E visibility yourself, you will not be able to take mitigative measures on your end, resulting in angry customer calls. Negative reviews or a bad delivery experience also means lower returning customers and even loser new customer acquisition.
5. Increasing Risks
Supply chain theft is estimated at $35-40 billion per year in the US. These thefts and pilferages can take place due to various reasons, for example, dishonesty of the delivery personnel, a porch pirate (a person who steals packages off of a customer’s porch or front door area), or even damage due to weather conditions. To address this problem businesses need to have granular-level visibility of logistics operations.
6. Rigid delivery workflows
A delivery seems rather simple and straightforward when looked at holistically; the on-ground reality, however, is not as simple as it may appear. Rigid delivery workflows translate to failed deliveries and shipping inaccuracy. A single failed delivery can cost a logistic company a whopping $17.78 on average and that, when compounded over time with each failed delivery, could make up for quite a huge number. A failed delivery could occur due to multiple situations like customer unavailability, no scheduled time window, or a wrong address. However, this can be solved with simple measures like offering a customer the flexibility to change delivery location, enabling them to pick their own delivery time, and notifying a customer beforehand about a package on the way. Doing so will result in first attempt delivery success and hence, significantly reduced last mile delivery costs.
What is the last mile delivery cost structure?
As already mentioned, last-mile delivery costs are found to account for as much as 41% of the total costs involved in overall supply chain costs. But again, as a logistic stakeholder, you might be wondering, what constitutes this 41 percent and where do the true costs of last mile delivery lie.
To break it down for better understanding, the following are the main components of a typical last mile delivery cost structure:
- Delivery equipments & vehicles
- Hiring 3PL partners
- Reverse logistics
- Empty miles
How to reduce last mile delivery costs?
The rate at which e-commerce has grown and continues to grow is a testimony to the fact that e-commerce is here to stay. The growth, however, has also led to a manifold increase in the number of deliveries for logistic carrier companies and thereby an offsetting exponential increase in complexity and delivery inefficiencies.
However, here are a few ways to achieve cost-effective last mile deliveries-
1. Real-time dynamic routing
Automated routes and dynamic route planning is one of the most important facets to focus on in pursuit of reducing last mile delivery costs. As against manual route planning, dynamic and automated route planning can account for last minute on-road interruptions like traffic congestion or a broken road by being able to offer alternative routes. This does not only mean increased efficiency and a lower number of failed deliveries, but also, lower fuel consumption, lower idling time, and a reduced delivery time. Real-time dynamic routing also saves costs by enhancing driver productivity via route optimization.
Introducing automation to the overall process of last mile deliveries can help unlock a potentially profitable and positive delivery experience. Automation helps in various ways as it increases efficiency by incorporating advanced data management and analysis tools. Automation can-
- Help overcome communication barriers between the consumer and the logistic company through real-time notifications
- Set the right delivery expectations for the end consumer
- Save time and money by improving route optimization
- Enable live driver monitoring
- Rescue room for human error
- Identify trends and analyze to determine problem areas
3. Risk Mitigation
Logistic companies need to actively take measures to mitigate risks associated with pilferage and thefts, especially in poorly connected areas. Leveraging means of AI and machine learning solutions can help analyze route performance basis historical data and thereby reduce the occurrence of thefts and pilferages. Risk can also be mitigated by using geolocation to track your drives against data-dependent tracking which can be unreliable in low-connectivity areas.
For example, let us assume your driver needs to cover a distance between point A and point B without making any predefined stops. Now, while on the way, if they do happen to stop, you, as a logistic stakeholder, can get a notification on your system and you can instantly get in touch with the driver to proactively determine the reason for the stoppage; hence reducing risks, delays and obviously, the last mile costs.
4. Predictive Intelligence
Predictive Intelligence could prove to be a highly rewarding way of optimizing last mile delivery costs. As a byproduct of each attempted/successful delivery, logistics companies are left with hundreds of gigabytes of structured and unstructured data every day. By the means of AI and predictive intelligence, companies can use this data to their benefit by harnessing it and analyzing trends to make better operational decisions.
For example, a customer named John might have ordered 5 items in a period of 6 months to their location XYZ. Now, per each attempted/successful delivery to John, the logistic final mile carrier will yield 5 route trends. With AI-based predictive intelligence solutions, basis the recorded historical data, logistic companies can analyze all previous routes and identify the most relevant or optimal route for future deliveries.
5. Machine Learning
The inefficiency of postal systems in some locations makes it necessary to create an intelligent and sustainable system that can help with the identification of geolocations to ease the movement of goods and services. Geocoding, an AI-based machine learning computational process can help convert addresses into geographical coordinates which can be relied on as more accurate and useful location data for logistics operations.
Apart from eliminating the issues of double deliveries, late deliveries, and excessive cost of delivering items, geocoding or geolocations can also help track your drivers even when they are in areas of no internet connectivity.
6. Real-Time Alerts and Notifications
Enhancing customer engagement via real-time alerts and notifications can be another way to reduce last mile delivery costs. For example, if a customer receives real-time updates of their package via SMS and they are unavailable to receive the package on that particular day, you basically empower them to reschedule the delivery window, thereby reducing the costs associated with a failed delivery.
7. End-to-end Logistics Tracking
As discussed earlier, a lack of end-to-end tracking or end-to-end real-time visibility tends to exponentially spiral the last mile delivery costs. Logistic companies need to positively ensure complete end-to-end transparency and visibility on the movements of fleets in the pursuit of delivering goods. This process needs to start right at the stage of product procurement and go all the way until the product is finally delivered. E2E tracking can be implemented via automated systems and smart technology to maintain a constant flow of communication between the ground staff and the delivery fleet. This not only helps avoid last-minute delays but also keeps the customer in the loop and informed about the status of their packages. E2E tracking, in short, is a win-win for all.
How FarEye can help?
Each of the aforementioned problems and solutions thereof for reducing last mile costs, in one line, require businesses to efficiently move goods in order to meet the ultimate customer’s expectations. By partnering with FarEye, striking this balance becomes easy owing to the wide range of modular tools offered by us, including route optimization, efficient customer communication, real-time tracking and ETA, proof of delivery, and delivery network analytics.
Signup for a quick demo here to know how FarEye can help your businesses build a robust supply chain and logistics infrastructure.