In the realm of logistics and e-commerce, few things are as crucial—and as expensive—as last-mile delivery. While it’s often a small portion of the total distance a product travels throughout its journey, it accounts for more than half of total shipping and delivery costs.
Given that last-mile delivery heavily influences customer satisfaction, companies must find ways to deliver exceptional service while improving efficiency and maintaining costs.
But why is last-mile delivery so expensive? And more importantly, how can businesses minimize these costs? Let’s dive in.
In this article:
- What is Last-Mile Delivery?
- What Contributes to Last-Mile Delivery Costs?
- Why is Last-Mile Delivery So Expensive?
- How to Lower Last-Mile Delivery Costs
- Frequently Asked Questions
What is Last-Mile Delivery?
As the name suggests, last-mile delivery refers to the last leg of the delivery process, where the package is moved from the local distribution center to the recipient’s address or a nearby pickup location.
This part of the logistics chain is often the most challenging because it involves many small, individual deliveries over short distances, unlike the earlier stages where goods might be moved in bulk over longer distances.
What Contributes to Last-Mile Delivery Costs?
To understand how the unique challenges associated with last-mile delivery result in significant costs, it’s helpful to first review the various costs involved in last-mile delivery. These costs typically include:
- Vehicle costs: Maintenance, depreciation, and other associated vehicle costs can contribute to the overall expenses.
- Fuel costs: Fuel is an ongoing expense for last-mile delivery operations, making fuel efficiency a key factor in controlling costs.
- Labor costs: This includes not only the wages of the delivery personnel but also benefits, training, and other associated labor costs.
- Technology costs: Investment in technology solutions like route optimization software, tracking systems, and customer communication platforms can influence last-mile delivery costs.
- Storage costs: These costs include short-term storage at distribution centers and can also include assets such as pickup lockers, where goods are temporarily stored securely until customers pick them up at a predetermined time.
- Administrative costs: This includes processes such as route planning, order tracking, and dispatch that occur behind the scenes.Why is Last-Mile Delivery So Expensive?
Why is Last-Mile Delivery So Expensive?
Unlike the bulk transportation stages, where large quantities of goods are moved, last-mile delivery involves many small, individualized deliveries spread out over vast areas. This creates unique challenges associated with last-mile delivery that can increase costs.
A number of factors contribute to the complexity and high costs associated with last-mile delivery, including:
- Frequent stops: Frequent stops with short distances between them increase the time and fuel utilization per delivery.
- Long distances: The physical distance from the distribution hub to the customer’s location impacts fuel and time costs.
- Geography: Delivery areas with challenging geographies or remote locations can significantly increase last-mile delivery costs.
- Urban congestion: Deliveries in densely populated urban areas face traffic congestion, limited parking, and complex navigation challenges, all adding to time and cost.
- Missed delivery windows: Missed deliveries due to recipients not being present significantly contribute to additional costs. Every missed delivery usually means a re-delivery attempt, doubling or even tripling the expenses for that package.
- Seasonality: Peak delivery periods, like the holiday season, can increase costs due to higher demand, overtime wages, and potential outsourcing.
- Parcel size and weight: Larger or heavier items can increase fuel costs and may require special equipment or additional personnel for handling.
- Regulatory compliance: Complying with local regulations can contribute to last-mile delivery costs. For example, some areas have regulations concerning emissions, and companies must ensure their vehicles are in compliance and maintain the required documentation.
- Same-day and next-day deliveries: Same-day or next-day delivery services usually have higher costs due to the speed and efficiency required.
How to Lower Last-Mile Delivery Costs
While many factors make it challenging, there are several strategies you can implement to lower last-mile delivery costs. In some cases, upfront investments—such as adopting new technology like route optimization software or investing in more fuel-efficient vehicles—add to costs in the short term but can help improve efficiency and lower costs over time.
Below are some of the most effective strategies and best practices for optimizing last-mile delivery and lowering costs.
- Optimize route planning: Modern AI- and machine-learning-driven route planning tools like the Wise Systems delivery automation platform analyze traffic patterns, delivery destinations, and other variables to optimize routes, enabling drivers to make more deliveries in less time while using less fuel.
- Leverage data analytics: Besides route planning, data analytics can improve other processes. Use data-driven insights to forecast demand, understand delivery bottlenecks, and continuously refine the delivery process. For instance, identifying recurrent missed deliveries in a specific area can lead to the introduction of a package locker in that locality.
- Centralize delivery hubs: By strategically placing micro-fulfillment centers or local distribution hubs closer to areas with high customer density, businesses can significantly reduce the distance and time taken for the last mile.
- Improve customer communication: Regular SMS or app-based notifications about the package’s status and estimated delivery time can ensure that recipients are available to receive their deliveries.
- Introduce package lockers: Located in centralized and accessible locations, lockers allow customers to pick up their deliveries at their convenience, eliminating the challenges of dynamic delivery windows and missed deliveries.
- Equip drivers with the right technology: Technology solutions designed for drivers, such as the Driver App from Wise Systems, offer benefits such as improved communication with drivers, reduced paperwork, and navigation to help drivers stay on time. These apps can also collect valuable data that can help improve fleet performance and efficiency over time.
Last-mile delivery is both complex and costly. However, numerous strategies can help lower costs through data-driven insights and improved efficiency. Lowering last-mile delivery costs requires a multi-faceted approach incorporating several of these strategies.
The Wise Systems delivery automation platform offers a solution for every stage, from optimized route planning to automated dispatch, enhanced communication, and robust planning tools to help you deliver the balance between operational efficiency and customer expectations. Request a demo today to learn how Wise Systems can help you streamline your last-mile delivery operations and lower costs.
Frequently Asked Questions
What is last-mile delivery, and why is it difficult?
Last-mile delivery refers to the final step of the delivery process when a package is moved from a distribution center to its final destination, usually the end customer’s residence.
It’s considered the most challenging and expensive part of the delivery process because it involves navigating urban environments, traveling long distances to deliver packages to customers in remote locations, making frequent stops, dealing with traffic, ensuring accurate and timely deliveries to individual locations, and handling variable demands.
What is the main problem with last-mile delivery?
The main problem with last-mile delivery is its complexity and associated costs. Due to the decentralized nature of delivering packages to multiple individual locations, costs can escalate.
Other challenges include traffic congestion, difficulty accessing certain addresses, missed delivery windows, and ensuring timely and secure deliveries.
How can I reduce my last-mile cost?
To reduce last-mile costs, consider implementing strategies such as:
- Optimizing routes: Use advanced route planning software to find the most efficient delivery paths.
- Implementing technology: Use tracking and management software to monitor deliveries and adjust to changing variables.
- Consolidating deliveries: Group deliveries going to nearby locations to reduce trips.
- Using local hubs: Establish local distribution points or lockers where customers can pick up their packages.
- Offering flexible delivery windows: Offer customers a range of delivery times, which can reduce failed delivery attempts.
What percentage of the total costs are last-mile?
Last-mile delivery accounts for more than half of the total delivery cost. However, the specific percentage can vary depending on geographic location, vehicle types, fuel costs, density of the delivery area, and other factors. Implementing strategies that address some of these variables can help lower last-mile delivery costs.