Unlocking billions of lost capital in last mile logistics

Author Gaurav Bajaj

Logistics is a fast-moving and competitive sector where those that fail to adapt, fail to survive. While the battle lines for survival are often drawn in the last mile, the challenges for the logistics sector start in the burgeoning e-commerce market.

We’re seeing tremendous and continuous expansion in this sector. E-commerce is reportedly growing at rates of between 7 to 10% in mature markets and closer to 300% in the emerging markets. The industry shows no signs of stopping with e-commerce sales projected to hit $4.5 trillion in 2021.

As a result of this sustained increase in e-commerce orders, the parcel industry is now predicted to grow by 9% annually to more than $343bn by the end of 2020. From air freight to trucking to ocean, parcels are flooding various transport markets, affecting shippers and delivery firms the world over.

Mounting customer expectations exacerbate the situation. When Amazon Prime was launched in 2005 its free two-day shipping service was widely regarded as a luxury. Now, a two-day delivery window is demanded by one-in-five customers and more than 100 million individuals subscribe to the Amazon Prime service.

Further research reveals two-thirds of consumers choose one retailer over another due to superior delivery options, and half are likely to abandon their shopping cart if free delivery isn’t an option. However, 50% are also willing to pay for a more convenient delivery option where, for example, a precise delivery window is available.

An increasingly complex landscape is emerging for the logistics industry thanks to the exponential growth of the e-commerce industry. It is imperative that businesses start to invest in new technologies now to support high parcel volume growth, expedite deliveries in specific time slots and also delight customers with free and speedy shipping.

E-commerce giants are investing in machine learning to compete in the logistics arena. They hope these solutions will provide their businesses with an opportunity to combine automation and personalisation to improve the customer experience.

However, progress has been slow because, while businesses have begun to develop new technologies and supply chain models, many are failing to address the needs of the last mile.

This is an oversight of many e-commerce firms. First/last mile logistics takes up to 57% of all transportation costs. This represents £66 billion of trapped capital based on figures from Honeywell and McKinsey.

As such, the inefficiencies of the last mile must be addressed to help meet customer demands for fast deliveries, while simultaneously boosting the bottom line and brand reputation for e-commerce and logistics businesses.

The Last Mile Challenge

Last mile delivery is becoming an increasingly complex problem involving a heterogeneous mixture of resources and tasks.

Let's look at a common scenario to explain this point. To fulfil customer deliveries, an operations and fleet manager needs to assign resources (delivery mechanism) to specific tasks (delivery of products).

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