Cutting costs on delivery should be a priority for every e-commerce retailer. Since roughly half of total delivery costs are spent on last mile delivery, that is where e-retailers need to concentrate their efforts. Analyzing what makes last mile delivery operations so expensive and understanding the last mile delivery cost breakdown, is the first step in streamlining last mile delivery operations.
Here are 3 strategies for e-commerce companies that can cut last mile delivery costs today and tomorrow.
How Much of Total Shipping Cost Goes to Last Mile?
When considering that the last mile represents 53% of total shipping costs, it means that cost-cutting measures must be concentrated on last mile delivery. The pressure to reduce costs is further aggravated by customer expectations for free shipping which must be absorbed by retailers.
It’s interesting to consider that getting parcels from a distribution center to the customer’s home in Topeka, Kansas, may be a small part of the physical journey from a factory in Shanghai, but still represents half of the last mile logistic costs and ultimately determines customer satisfaction.
What is the Last Mile Problem?
For classic large fleet logistics, the hub and spoke method of delivery is based on large drop sizes with minimal stops, idle time and handling. Last mile delivery has the exact opposite characteristics with many small drop sizes with multiple stops.
The problem is exacerbated when comparing urban and rural areas. Due to higher density, more city deliveries can be made in a shorter time period resulting in significantly more deliveries per hour. In rural areas, with long distances between drops, fewer deliveries per hour and higher fuel consumption per package.
What Makes Last Mile Delivery So Costly?
As mentioned, the last mile must accommodate multiple stops in all types of environments, each one with its own particular challenges. In cities, the problem could be roadwork and rush hour traffic, while in rural areas there could be dirt roads and natural disasters. Unfortunately, even small delays can add up to big headaches with missed delivery windows, increased fuel costs and low delivery driver productivity.
To be more specific, it’s important to identify some of the main costs associated with last mile delivery such as:
Failed Deliveries
Expectations for same-day and next-day deliveries are making it more difficult than ever to enhance customer satisfaction and maintain brand loyalty.
Fuel Costs
Multiple drop-off points are one of the main characteristics of last mile delivery. Whether it is stop-and-start driving in urban centers or long distances in rural areas fuel costs have always played a major role in delivery costs.
Idling and Downtime
Productivity doesn’t solely depend on the amount of deliveries per one tank of gas, but also on the total number of deliveries per driver. Every effort must be made to maximize the number of deliveries each driver makes per shift.
Out-of-Route Miles
Left to their own devices, delivery drivers will prefer routes they know well and perceive to be best. Unfortunately, many times this does not result in the most efficient route possible resulting in high fuel and labor costs.
Now that we have understood some of the main reasons for the high cost of last mile delivery, let’s take these same parameters to understand how to increase efficiencies and reduce costs.
3 Strategies for Cutting Last Mile Delivery Costs
1. Explore New Logistics Models
The current instability of the supply chain together with shrinking margins and pressure to cut delivery costs means it’s time to explore relationships with new logistics partners. Surging demand and limited capacity have caused the leading last mile delivery service providers, FedEx and UPS to raise rates and limit capacity.
This has resulted in increased demand for regional delivery service providers who can provide last mile delivery at prices 10-40% less with more flexible terms than the national carriers.
Along with more cost effective rates, retailers must also increase drop density where possible to improve fuel and driver efficiency. The only efficient way to determine the best available carrier along with the most efficient way to bundle deliveries to increase drop density, is by using software that can make these calculations as part of a delivery services management solution.
2. Reduce Fuel Costs
Especially during times of rising oil prices, it’s important to everything possible to reduce fuel consumption. The best way to do this is by making sure the maximum number of deliveries are made for every tank of gas.
This requires route optimization that is capable of considering all relevant variables such as the urban or rural delivery, drop density, vehicle efficiency and much more. Despite many customers demanding next-day delivery, extending delivery windows increases flexibility and enables better delivery efficiency.
It’s important to emphasize that these types of complex calculations can only be done using advanced delivery management platforms that use AI analytics together with historical data to suggest the most optimal route possible, even responding in real time to dynamic conditions.
3. Avoid Failed Deliveries
With failed deliveries costing retailers an average of $17.20 per order, every effort must be made to avoid this pitfall. Many times, this loss can be avoided by offering more flexibility, managing expectations and increasing customer communications.
From the time of dispatch until the package is in the customer’s hands, it is essential to have real-time tracking and communications. Not only does this help retailers know the exact location of the delivery at any given time, but more importantly enables sharing of that information with consumers and last mile delivery partners.
Above all, proper management of customer expectations is the key to reducing failed delivery. Today this is enabled by real-time communications via the internet where the customer can check the status of their package at any time and coordinate with the retailer and delivery driver to avoid delivery failure.
Key Takeaways
E-commerce and home delivery continue to grow at a breakneck pace. This places pressure on retailers to cut delivery prices during times when the demand for last mile delivery services is on the rise, while delivery capacity is very limited.
Ensuring timely delivery and customer satisfaction despite supply chain uncertainty and shrinking margins is a real challenge. Add to that the desire to cut delivery costs, and it almost seems out of reach.
Fortunately, implementation of AI analytics and historical data into delivery management platforms can result in the types of efficiencies that can help retailers reduce delivery costs for both the short and longer term. Now is a good time to contact Bringg and find out how your e-commerce operations can cut last mile delivery costs today and tomorrow.
