What Is the Last-Mile Delivery Problem?
Last-mile delivery is the last step in moving your business’ product from your location (or delivery hub) to the customer’s location. The last-mile delivery problem, then, is simply the fact that that last mile is usually the most expensive part of the process — often costing more than half of overall shipping costs.
What makes last mile delivery such a challenge?
Unlike with large-scale shipping and dissemination, you’re not sending a large number of products to a single location.
Instead, your delivery drivers carry a large amount of smaller packages, each with unique destinations.
That is the essence of the last mile problem — more stops mean more complex routes, more idle time, and more time on the road. That means you have to maintain a larger fleet of delivery vehicles and drivers to ship a small number of products.
What businesses are affected by the last mile delivery problem?
By definition, last mile delivery is relevant for businesses that deliver products directly to their consumers.
These businesses include (but aren’t limited to):
- Third-party logistics companies
- Direct-to-consumer retail companies
- Food delivery companies
- Supermarkets offering delivery
- Department stores offering delivery
- Restaurants offering delivery
- Pharmacies offering delivery
Even if your company collaborates with wholesalers or retailers in the supply chain of your product, you might have a website with an ecommerce store.
That means you still have to handle shipping, including last mile delivery, for the orders that come in that way.
How Much Does Last Mile Delivery Cost?
It is by far the most expensive part of the fulfillment chain, costing an average of $10.1 per package delivered. On average, businesses charge the consumer $8.08 to cover these costs, taking the rest from the profit margins of sold products.
Here’s a snapshot from Statista from 2018 (the last time they released data):
Given the vast majority of deliveries are small packages, these numbers reflect small parcels rather than large cargo.
Final mile delivery for larger items, such as refrigerators, ovens, and other electric appliances, can cost up to $50 per package.
But even if you only handle smaller packages, handling last mile deliveries can be expensive, if you don’t have scale on your side. The average salary of a delivery driver is $15.69 per hour. You also need to factor in other costs like warehousing, fuel, and vehicle maintenance.
If you’re taking a $2 hit (at minimum) from every delivery made, you can quickly feel the pain of the last mile delivery problem.
When considering these numbers, it’s clear that drivers need to average multiple deliveries per hour to keep your business growing.
Why Is Last Mile Delivery So Expensive?
Delivering thousands of packages to their final destination every day is a complex logistical challenge. Last mile fulfillment is complicated, and many factors contribute to the overall cost.
1. Lower average speeds = more time on the road, and fewer miles-per-gallon
When your drivers are delivering multiple packages to different locations around a city, they have to use local roads.
Smaller delivery trucks and vans average 6.5 miles per gallon (MPG) at a steady speed of 55 miles per hour. If you handle deliveries in urban areas, 55 mph is not a realistic average speed for your delivery fleet. How low it will drop depends on the local road and traffic situation.
The need to decelerate, stop, and accelerate at rapid intervals has a significant impact on both average speeds and fuel efficiency.
So not only do your drivers have to spend a lot more time on the road to cover the same distance, but it also costs you more in gas.
2. More stops lead to more idling and downtime
Driving and dropping off packages in the city leads to a lot more idling than other stages of shipping. With all the traffic lights, diverse vehicles on the road, and winding streets, it’s impossible to avoid.
On average, a delivery truck uses 0.84 gallons per hour when idling. Plus, you still have to pay your delivery drivers regardless of whether they are standing still or moving.
3. Failed deliveries
When you are distributing goods to delivery hubs or supply chain partners, you don’t have to worry about failed deliveries.
When you are delivering products to the final customer, however, failed deliveries are a massive part of the equation.
There are a number of reasons why this is such a big problem:
- The customer is not expecting a delivery (no prior notification).
- The customer is not home due to late delivery (inefficient planning or unexpected events).
- No options of delivery scheduling (no time windows).
- Mistaken address of the customer.
4. Complex routes lead to more out-of-route miles
With a large number of individual stops, it’s a lot easier for drivers to lose track of the route and rack up unnecessary miles.
Research shows that out-of-route miles can account for up to 10% of the total mileage of a delivery fleet.
5. Returns, refunds, or discounts
The average return rate of ecommerce products is a whopping 20%. If you sell consumer products online, you can expect at least one in five customers to send their purchased product back, either for a refund or for a different item (which you’ll have to deliver for free).
The Real Business Impact of the Last Mile Delivery Problem
If you don’t have an optimized process for last mile delivery, you’re setting your business up to fail in the long term.
You will face significantly higher operational costs, unhappy customers, and many other real business challenges.
Higher operating costs and lower profit margins
Higher rates of failed deliveries and unoptimized delivery routes and schedules lead to significantly higher operating costs.
When just a single failed delivery can cost your business over $17, it’s essential to optimize every step of your order fulfillment process, especially last mile delivery.
Poor customer experience and little brand loyalty
Last mile delivery plays a significant role in the customer satisfaction of anyone who buys a product online.
Customers expect to receive their products on time, in acceptable condition. If you fail to deliver on these expectations, you will alienate customers and suffer from low repeat purchase rates.
84% of shoppers are unlikely to buy from a company again after a bad last mile delivery experience, and 98.1% of consumers say delivery is important for brand loyalty.
Increasingly, consumers expect same-day delivery. And they don’t care how complex the delivery process needs to be to live up to that expectation. They just want the results.
More cancellations and returns
If a customer feels that you are taking too long to deliver the product they purchased, they are much more likely to cancel their order.
There is also a bigger chance that they will end up returning the product after having purchased an equivalent option at a brick and mortar store.