UPS and its rival FedEx, among more than 191,000 other companies competing within the Couriers and Local Delivery Services industry, are the backbone of the E-Commerce and Online Auctions industry, an industry that has grown 83.3% over the past five years. The 862,745 truck drivers, cargo pilots, warehouse staff and dispatchers are the unsung heroes, manning a system that successfully carries more than 25.0 million packages every day. But the Couriers and Local Delivery Services industry is at a crossroads, as last-mile delivery is proving extremely costly and inefficient for carriers and retailers alike. While this is proving to be a threat to industry operators, it is creating a tremendous opportunity for small and locally owned delivery companies.
When industry professionals refer to the “last mile,” they mean the final delivery of a package to the customer. Despite being the last leg of the trip, this is the least-efficient segment of the delivery process. For example, shipping a package 3,300 miles between a carrier facility in Seattle to a facility in Miami is generally more affordable on a per-mile basis than delivering a package to a customer’s door from Miami’s airport. This works similarly to everyday personal transportation. On a per-mile basis, it is more affordable to travel between two cities than it is to travel within one. For example, in 2017, a flight between Seattle and Miami cost an average of about $300.00, according to the Bureau of Transportation Statistics. Making this trip using a taxi (at the Seattle taxi rate of $2.70 per mile) would cost nearly $9,000. Much like using a taxi, delivering directly to a customer’s door is a specialized service that cannot take advantage of economies of scale. As package delivery demand has increased in recent years, major players in the space have not been able to maintain package delivery yield. This trend points to the inefficiencies that have sprung up as companies struggle with last-mile issues.
UPS, FedEx and thousands of other carriers are puzzled by last-mile delivery. Not only is it inefficient and expensive, but the final stage of the delivery process, the point at which the customer receives the package, is proving to be a cause for concern for deliverers. For example, with the exception of apartment dwellers in large cities, most Americans live in an unguarded house or building complex. Since there is no doorman or concierge, customers often see a “just missed you” or “we’ll be back again” sticker on their doors, signaling that the delivery will be reattempted another time. While this is inconvenient for all parties involved, there is always a direct financial consequence for the delivery company. Reattempting a delivery ensures: a (marginally) heavier truck (which decreases fuel economy); an extra stop along the normal route (which also decreases fuel economy); and an increased chance of delays for other packages (which could threaten the company’s reputation, cause overtime payment or reignite the reattempt cycle all over again).
The fix is not simple and many startups have tried to find the secret formula, only to shutter operations once realizing the financial burden. Startup Doorman raised more than $3.0 million to provide customers with one-hour delivery windows seven days a week until midnight. The company specialized in last-mile delivery and offered a highly personalized service, allowing customers to pick and choose when they wanted their packages delivered. While tapping into consumers’ frustration of not receiving a package on time was an investment-worthy idea on paper, it was not feasible in practice. However, Doorman closed shop in 2017, as customers did not see the appeal of paying upward of $5.00 for shipping, something that the E-Commerce and Online Auctions industry has experienced and adapted to.
Over the next five years, opportunity may arise for small businesses to capitalize on the last-mile challenge. Many retailers are beginning to use their brick-and-mortar stores, which are generally located in highly concentrated population centers, as quasi-fulfillment centers. This is important for small companies, as local delivery has significantly fewer barriers to entry and success than scaling to serve cross-country. It also may provide competitive protection from large companies, which are increasingly seeking to avoid the last mile.
Walmart recently began testing a last-mile strategy that provides a more cost-effective approach for bringing orders to customers. By enlisting store employees to deliver orders from the store to a customer on the employee’s way home from work, Walmart hoped to decrease last-mile costs and its reliance on UPS and FedEx. The company recently expressed their disappointment with the program, indicating that nontraditional methods of last-mile delivery will continue to be tested in the future.
Solutions are also being drawn to increase the likelihood that customers receive their orders. UPS, for example, is testing the smart lock made by Latch, a venture-backed startup founded in 2014. Using Latch’s lock, a UPS driver is able to access a normally locked building and leave a customer’s package in a secure location. Amazon, for its part, offers Key, a service that is also using a smart lock. Key enables a delivery person to drop an order off inside the customer’s house. While UPS, Amazon and other companies have offered possible solutions, the status quo may actually play into the industry’s trouble; if a building had a Latch-made, UPS-partnered smart lock, FedEx would be shut out. Even if FedEx developed its own lock for that building, it would not matter—their delivery driver would still be unable to unlock UPS’ Latch. Creative solutions, perhaps by new companies, must be deployed to ensure all parties, including the customer, find success.
The rise of e-commerce has propelled the Couriers and Local Delivery Services industry to new heights, but the industry contends with daunting challenges, which, if not resolved, could force retailers to look for other avenues of shipment. While large companies, including UPS and FedEx, are able to successfully, efficiently and reliably deliver products from coast to coast, the solutions for the last leg of the process remains elusive. Nevertheless, a lucrative business awaits small companies and technology startups alike, which can fill in the blanks of the delivery process.
Edited and designed by Stephanie Conte.
Industry Impact: Couriers & Local Delivery Services; E-Commerce & Online Auctions