Consultant Insight: The transformation of the last mile

The U.S. domestic parcel market will reach 134 million pieces per day by 2026, a 70% increase from 2020, with e-commerce expecting to drive 90% of the parcel market growth, according to FedEx. Many parcels will need to flow through fragmented last-mile networks. The U.S. domestic parcel market is dominated by three players — FedEx, UPS and the U.S. Postal Service (USPS) — the only last-mile carriers that boast an existing third-party national network. Meanwhile, regional small parcel providers such as LaserShip, LSO, OnTrac and Speedy focus on a few U.S. states, and some local couriers focus on city deliveries. [caption id="attachment_69752" align="alignright" width="298"] Cathy Roberson, Cargo Facts Consulting senior consultant and Air Cargo World columnist[/caption] The COVID-19 pandemic pushed forward retail trends that had already been simmering and, as a result, transformed the last mile. Online ordering skyrocketed as consumers hunkered down at home in hopes that the pandemic would soon pass, which it has not. In turn, last-mile networks stretched and buckled thanks to the growth in e-commerce volumes. As a result, FedEx and UPS introduced the COVID-19 surcharge, now renamed the “peak surcharge,” raised other surcharges, and limited some services to manage the increased demand. In addition, retailers invested in curbside pickup at stores that temporarily closed due to the pandemic, and when stores finally reopened, they experienced little traffic due to COVID-19 concerns. These curbside pickups and “buy online, pickup in store” options have helped mitigate delivery costs. Retailers are also investing in omnichannel strategies, the seamless linking of their websites and physical stores. The last mile also plays an important role in this strategy by connecting it to the middle mile, which is typically the warehouse where orders are fulfilled and sent to stores or directly to consumers. Through warehouse and transportation management systems retailers manage inventory flows by package or pallet, and the transport of inventory as directed by need or order request. Retailers provide last-mile delivery options based on speed — whether same day, next day or longer — and depending on the option, the consumer may pay the shipping cost. For example, many retailers partner with crowdsourced platforms such as DoorDash and Instacart for same-day deliveries. Retailers typically pay a fee to these platforms and charge consumers to recoup some, if not all, of their costs. There are also last-mile options based on location. Consumers can either pick up an item curbside or BOPIS, or pick up an item at a third-party site such as a locker, a UPS or FedEx store, or even at a carrier partner location such as Michael’s for UPS packages or Dollar General for FedEx packages. Of course, there’s also the traditional front-door delivery. A number of other carriers are entering the space to address last-mile cost and capacity needs as well as local and regional needs. Startups such as FrontDoor Collective and AxleHire, 3PLs like FedEx and Geodis, and fulfillment providers such as STORD and ShipHero are building alternative last-mile networks to address retailers’ and other shippers’ needs. Some retailers are also entering the last-mile delivery space, such as Walmart through its GOLocal service, AEO through its AirTerra acquisition and Target through its Shipt subsidiary. To avoid capacity crunch and mitigate costs while offering a number of last-mile delivery options, parcel consultants advise clients to diversify last-mile carriers. However, this will mean managing at least three or more carriers, in addition to managing other transportation providers such as trucking, ocean and air carriers, and perhaps rail. A smart move for retailers and other shippers is to invest in a TMS that offers all modes of transportation, including parcels, and the ability to analyze and compare routes and rates, and manage freight and parcel movements in real time. In 2022, expect the last mile to evolve further by becoming more circular. Yes, 2022 will likely be the year of returns as more consumers expect easy and simple returns processes, similar to their ability to shop anytime, anywhere. Broadly speaking, 30% of e-commerce sales are returned to the retailer. Managing returns is not cheap, and retailers and other shippers will need to manage this process in the most cost-effective yet most customer-focused way possible. Stay tuned for more on returns.

Consultant Insight: The transformation of the last mile

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