Last Mile Delivery - Is it time to Share?

There's a growing market in the last mile for same-day and next-day delivery fueled by increasingly demanding customer expectations. Non-traditional delivery providers, like Uber and Amazon, are building innovative solutions and could be well positioned to be market disruptors in the battle for the last mile. Uber has a first mover advantage via their existing ride-sharing platform; a deep and re-purposable delivery fleet with optimized routing algorithms combined with the ability to raise enormous capital. And then you have Amazon, with their ability to move into adjacent businesses, their relentless focus on the customer, and their willingness to get into new markets at razor thin margins.

Many traditional delivery providers are sitting in the middle of a transformational change to retail but cannot take full advantage of it. If traditional delivery providers want to own the business to consumer rapid delivery market - which may become the ENTIRE retail delivery market (remember in 2005 when free 5-day shipping seemed so amazing!) - they need to innovate and leverage share economy business models. The value proposition for retailers is easier: Amazon will bankrupt you unless you get your product to consumers faster and cheaper.

Stakeholder Challenges and Expectations

The last mile delivery problem involves three main stakeholders (customers, retailers, and delivery providers), each with their own set of challenges and expectations.

Customers increasingly expect more from retailers in terms of speed, flexibility, reliability and predictability of deliveries. Next-day and same-day are becoming the new norms. Many customers prefer to receive deliveries at the time and place that they want – which could include same-day, next-day, weekends, or delivery hours outside of a traditional carrier’s delivery times.

The overwhelming majority of retailers simply do not have the scale or logistics infrastructure to meet their customer's delivery expectations at the price that customers are willing to pay. For many retailers, offering fast, low-cost, and flexible delivery results in a loss and not offering results in cart abandonment.

When it comes to overnight or several days delivery, large delivery providers have built an almost unbreachable moat with their infrastructure and highly optimized processes. The capital intensive hub-and-spoke model with overnight sorting and fixed delivery routes make for an incredibly high barrier of entry into the market. The model, however, is woefully inadequate for same-day delivery which requires flexible (not fixed) intraday pickups and deliveries. With the growth of e-commerce, and increasing customer demands for convenient and faster delivery times, delivery providers need to place a greater emphasis on flexible and robust local delivery networks.

A Sharing Economy concept for the Last Mile

The sharing economy is an economic model where individuals can borrow or rent assets owned by someone else. The model works best when the price of the asset is high and the asset is not fully utilized all of the time. Uber and Airbnb are two of the most well-known sharing economy businesses that have revolutionized the transportation and hotel industries.

Could delivery providers leverage a share economy business model to facilitate same-day and next-day delivery at scale?

The ability to offer narrow delivery windows and convenient delivery options requires orders to be pooled across retailers in order to increase scale, improve route density and thus reduce the overall cost of delivery. Applying a hub-and-spoke model to rapid delivery means that orders from multiple retailers would be consolidated at delivery provider's local urban hubs and then delivered to highly localized neighborhood mini-spokes. A crowd-sourced fleet of on-demand couriers could make final mile deliveries from the mini-spokes at a time and place that is convenient for the customer. Couriers could make deliveries via low or no emission vehicles (cars, bicycles, electric cargo bikes) that are more suitable for navigating busy urban streets and neighborhoods than delivery trucks. Consumers could expect improved accuracy, consistency, and flexibility in delivery times and mis-deliveries would become a relic of the past.

The spokes could be existing local stores or neighbors that have excess capacity during certain hours of the day that can be shared. The logistics infrastructure is similar to the hub and spoke model that parcel carriers already depend on, except this is a highly localized version which allows for same-day and next-day deliveries. The distribution network would look like this:

A couple of points:

  • Due to the hub-and-spoke model, this would not be suitable for same-hour or two-hour delivery. If you need a six pack of beer and chips quickly, a courier is going to need to pick up and deliver to you directly.

  • Any local business that has excess capacity during certain hours could share that capacity. For example, a business that closes at 5pm could share their unused space after 5pm for a delivery provider to provide evening deliveries. Or a restaurant that doesn’t open until 5pm, could share their unused capacity in the morning.

  • Private residences with a secure place to keep parcels could share that space which could be ideal for retirees, homemakers, students, and people who work from home. It’s an easy way to earn some additional income simply by staying at home.

  • The spokes would be highly localized and allow for parcels to be delivered to the consumer, say within about a 15-20 minute bike ride.

  • Delivery providers would deliver in bulk from multiple retailers to these mini-spokes who would receive and store the parcels temporarily.

  • Parcels from multiple retailers and carriers could be consolidated at the mini-spokes so that customers could receive a single consolidated delivery from multiple retailers.

  • This model would only be feasible in large cities.

Same-day delivery is widely recognized as the next evolutionary step in parcel delivery which requires a highly localized delivery network. Building out a robust same-day delivery network from scratch with fixed assets would be an extremely costly and inflexible option. By leveraging the sharing economy, a delivery provider can take an asset-light approach that allows them to reconfigure their network without large capital investments. Local mini-spokes enable a new value chain where delivery providers reduce the number of stops along a route while increasing the number of parcels per stop which has traditionally been a key to their profitability.

Whether or not a sufficient number of businesses or people would want to sign up as mini-spokes is an open question and it’s a leap to get the scale to make it work for time-definite delivery. Regardless, shared logistics infrastructure and networks need to be explored as it simply won’t be feasible for each delivery provider to run separate networks and their own facilities. It can also be argued that traditional delivery providers have no other choice if they want to compete in the last mile logistics required for modern retail.