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What are Last-Mile Delivery Costs? 7 Ways to Reduce them & Boost Last Mile Delivery Profit Margins

Savvy customers are expecting same-day delivery of goods as a pre-requisite for ordering online. With the demand for a faster and effective delivery service increasing, companies need to find effective ways to optimize last mile delivery costs.

What are Last Mile Costs?

The last-mile costs refers to the investment that goes in the final step of the delivery process from a distribution center or the facility to the end-user. This step is crucial for achieving customer satisfaction. Implementing a cost-effective and efficient system helps in building brand loyalty. However, if last-mile delivery is not executed efficiently it can result in massive losses in the guise of financial dents, poor brand reputation and bad customer experience.

Over the last few years did your last mile delivery costs shoot up? 

A shift in current consumer behaviour has made several companies around the world try out various means to pamper and impress them, as a result last mile delivery is at the centre stage, so as to churn out happy and delightful customers. Recent growth of e-commerce have further seen a surge in last mile delivery demand. The growing volume of last mile deliveries have made it difficult to keep up with the delivery efficiency. 

The biggest last-mile challenge is to manage costs yet maintain efficiencies. And that’s possible by following some basic practical methods and adapt to shifting consumer demands. Increased shipping costs generally eats up the profit, leaving businesses worried. In order to minimize last mile delivery costs, it is pertinent to understand the parameters that are driving this spike in the cost.

How much does last mile delivery cost?

If not managed efficiently, the cost incurred on executing last mile executing can put a significant dent on your bottomline. Last mile delivery costs can contribute upto 41% of the total supply chain costs and accounts for almost half i.e. 53% of the total cost of shipping. A modern last mile solution can go a long way to help enterprises manage this increasing costs and achieve healthy profit margins.

As per studies, it is seen that the average cost per last mile delivery incurred to organizations in 2018 was USD 10, in an estimated last mile delivery market size of $30.2B in 2018. Unless last mile operations are managed properly and last mile delivery is optimized, the factors driving the cost can hardly be controlled. Company’s profitability can be plagued by last mile delivery cost which is nearly 50% of shipping & supply chain costs. Streamlining the final mile operation and managing warehousing can with resource optimisation and technology intervention can however be a saviour. 

Parameters that drive Last Mile Delivery Costs

1. Same Day Delivery

With cut-throat competition in today’s e-commerce segment, it is tough to keep up with consumers’ expectations. Today’s consumers expect fast (and free) shipping that too same day delivery – this puts the businesses under tremendous pressure to optimize delivery routes and streamline various functions, which can incur additional costs. Surging shipping costs and shrinking profit margins have placed the companies in a tight spot.

2. Free Shipping

Studies suggest that most customers demand free shipping and is even likely to cancel the order if the purchase isn’t accompanied with free shipping. Hence, many companies are into this tightrope walk and often ends up on the receiving end.

3. Failed or Late Deliveries

Disgruntled customers do not hesitate to dump companies if their expectations aren’t met. And by chance if the same-day shipping doesn’t happen as per commitment, they are left frustrated with no option but to shift business elsewhere. With plenty of options available, customers find their match and companies lose out on business.

Even if deliveries arrive on the day as promised, consumers keep guessing as to what time the delivery man will be knocking at the door – this itself jeopardises a customer’s day planning. If the consumer isn’t at home when the package arrives, it leads to failed deliveries. A lot of time is wasted when drivers have to return to different points on their route, which results in enhanced delivery costs.

Last Mile Delivery is always known for its inefficiency

Globally companies are known to be struggling with last mile delivery which is hardly ever completed in one mile, and is largely affected by its drop size and delivery points throughout a distance. The dynamics of delivery points in urban versus rural areas are completely different and should be dealt accordingly. While in rural context the delivery points might be several miles apart, in cities they are nearer but being frequently challenged by constant traffic delays and congestion. Further with growing e-Commerce business globally, the number of deliveries have increased exponentially, which has added to the complexities and contributed to inefficient last mile delivery.

7 Ways How Technology can Reduce Last Mile delivery costs

Logistics processes of the last mile when implemented properly can save a lot of time, money and also optimize carrier operations in the last mile. Some of the key controllable last mile costs are as follows -

1. Ensuring Fleet Visibility

Companies need to ensure transparency and visibility on the movements of fleets available for the delivery of goods. By implementing automated systems and smart technology, company can keep track and maintain a communication channel between the ground staff and the delivery fleet to avoid last minute delays. The visibility of fleet enables companies to keep customers informed about the status, location and timing of their deliveries. Happy customers mean better business.

2. Implementing Real-Time Tracking

Real-time tracking provides complete visibility to customers and solves any internal delivery issues faced by the company. The ability to communicate critical information to guide the delivery fleet efficiently would help in avoiding delays due to traffic or weather conditions. With real-time tracking, companies can provide the estimated time of delivery (ETA) to customers via web or mobile application automatically. It also helps in managing last mile delivery costs and ensuring transparency of delivery at all times. Companies can even monitor the efficiency and performance of drivers. Real-time tracking saves last mile costs by optimizing miles travelled and enhancing driver productivity.

last mile delivery costs

3. Utilize Route Optimization

Route optimization is the process of determining the most cost-efficient route while enabling maximum number of delivery points. Companies need to consider factors like fuel costs, driver productivity, risks, one-way windows, delivery urgency and more, to figure out a viable and efficient route. With highly efficient delivery routes in place, companies can dispatch delivery tasks within seconds.

Additional factors like monitoring the routes that fleet drivers take, identifying the traffic patterns, idling time and driving time enables a company to find efficient routes, thereby cutting down the fuel costs and the delivery time. Real-time route alerts like unexpected traffic situations can be used to re-route the delivery fleet to avoid delays. With such information, dynamic route optimization can be implemented. It can help companies integrate new orders into the delivery schedule. A route planning software will help shift deliveries to other drivers automatically, in case of a vehicle breakdown. Companies will be able to map the shortest path, taking all parameters into consideration. This way, they can save time, cut expenses and increase overall efficiency.

4. Enhancing Customer Engagement

Customers are increasingly demanding transparency on the status of the goods and control over both the delivery location and the timing. When customers have the option to select the desired time window, companies can plan their delivery process better, thereby reducing the risk of first-failed delivery. Customers should be provided with real-time updates of their shipments. These updates can be sent via e-mail, SMS, in-app notifications or a phone call.

5. Maintaining Proof of Delivery

Companies need to maintain proper proof of dispatch and delivery, condition of the goods delivered, customer’s non-availability status and payment details. These proofs can be electronically captured through notes, pictures or videos, and uploaded immediately into the system. Having the ability to maintain data in the real-time will help in resolving customer queries. Electronic proofs eliminate unnecessary paperwork and reduce physical storage space in an office.

Controlling the last-mile delivery costs by optimizing routes, reducing fuel usage and tracking fleet, companies will be able to deliver goods on-time and keep customers satisfied. This will build brand loyalty and drive profitability.

FarEye has been empowering retailers across the globe to achieve high levels of delivery efficiency by optimizing their last mile operations.

6. Utilize real-time data to identify inefficiencies

Analysing data can lead to identify major inconsistencies in your last mile deliveries and is critical in improving specific functions in the supply chains. Tracking information such as number of tasks completed, average time taken per task, distance covered, idle time, miles per task, successful vs failed tasks, and more can help in monitoring the drivers in the field.

Data can be accessed at team level or at an individual driver level. The required data can also be sliced and diced as per various segments, day wise, week wise, month wise or even hourly basis. This helps to identify bottlenecks and inefficiencies in the delivery processes. It also answers pertinent questions such as:

  • Why are some drivers outperforming others? 
  • Are there certain days of the week when deliveries are made faster?
  • Is there a certain hour of the day that’s making deliveries difficult?
  • Is there a way to adjust the drivers’ routes so as to avoid times with heavy traffic, or compensate for seasonal changes?

Customized reports can be created and further studied for improvements. By analyzing these important data, one can make informed decisions that will help improve efficiency and lower costs.

7. Control and minimise the costs of last mile delivery

The impact of last mile delivery costs can be reduced by adopting certain practical steps. One such way is to invest in some latest proven technologies that helps you in optimizing routes, communicate with customers, track driver activities and use real-time data to make informed decisions. 

Study reveals that 55% of consumers won’t even hesitate to switch to a competing brand if faster delivery service is offered to them. Hence, it is seen that 46.8% of retailers plan to invest more in delivery logistics so as to attract more and more customers into their fold.

Get a full-service fleet management platform to improve on-time deliveries and scale last mile operations without compromising customer experience.

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