Last mile delivery explained: Definition, cost, and how to get it right

[Updated post from March 9, 2021]

Every phase of e-commerce fulfillment and delivery is important, but there's one stage that receives more attention than any other – the last mile of delivery.

As order fulfillment grows more streamlined, last mile delivery continues to throw up barriers that prevent customers from experiencing a satisfying delivery process. A slow, expensive, and inefficient last mile is an ongoing challenge for direct to consumer brands – especially as consumer expectations for fast and effective service continue to increase. 

With 83% of customers now expecting a guaranteed delivery date and 80% a specified delivery time slot, this leaves very little room for error in your last mile logistics.  These rising expectations are causing a boom in the last mile delivery market, with an estimated growth of 15.62% between 2022 and 2027.

In this post, we're going to explore the infamous ‘last mile problem' in e-commerce, and what brands can do to optimize the last mile delivery experience for their customers.

Last mile delivery definition

Last mile delivery refers to the final stage of the delivery process when a finished customer order is transported from a fulfillment center to the final destination, usually a residential address.

Put simply, the purpose of the last mile delivery process is to get orders to the final delivery destination as quickly as possible. Delivery is one of the most important touchpoints in the e-commerce customer journey, meaning that the last mile is key to ensuring customer satisfaction and ongoing brand loyalty. 

However, last mile logistics is considered the most difficult stage of the fulfillment and delivery process. Getting the product to the doorstep in a timely, efficient, and most importantly cost-effective manner is a tough prospect for supply chain partners.

How does last mile delivery work?

The process of last mile delivery can vary depending on the nature of the product. Here are some common steps that are involved in the last mile delivery process:

1. The customer places an order online, which is processed by the brand's OMS system.
2. The items required for the order are picked and packed for delivery.
3. The order is dispatched for delivery from the warehouse or transportation hub.
4. The driver uses a GPS or route optimization system to set up a delivery route with multiple delivery points, taking into account traffic, speed limits, and other factors that could affect delivery time.
5. The delivery driver arrives at the customer's address and delivers the order to the customer. They may obtain a signature for confirmation or take a photo of the delivered item as proof of delivery.
6. If the customer isn't satisfied with their order, they may request a return or exchange. If return pick-ups are offered, delivery personnel will pick up the item and transport it back to the warehouse or fulfillment center for return processing.

What is the last mile delivery problem?

The ‘last mile delivery problem' is a common phrase in third-party logistics that reflects the immense challenges that logistics partners face during this phase of the shipping process.

Earlier stages of e-commerce fulfillment, such as order processing, picking, and packing, can reduce costs by handling orders in bulk and creating standardized procedures. The introduction of technological innovations to fulfillment centers, such as software automation and robotics, has helped to streamline these workflows and achieve rapid order fulfillment with lower labor costs.

However, a last mile delivery service cannot rely on these economies of scale. This results in the last mile as the least efficient – and the most expensive – stage of fulfillment.

The challenges of last mile for logistics companies?

Last mile delivery cost

The final mile of delivery has long been the most expensive part of the fulfillment and shipping process. The last mile can cost as much as 50% of a business's total supply chain spend!

So, why is last mile delivery so expensive?

Consider that last mile delivery logistics require a business to get a single package to a single address - all within a rapid timeframe. This requires:

• Labor (delivery driver services)
• Fuel expenses
• Maintenance of delivery vehicles
• Multi-stop route planning (depending on truck capacity)
• Rescheduling (in the case of failed deliveries)
• Idling and downtime between destinations

When we take these requirements into account, it's easy to see why the cost of last mile delivery quickly adds up. Unfortunately, these expenses are impossible to avoid if customers are going to receive their orders promptly.

Inefficient delivery patterns

As we've already mentioned, last mile deliveries are the point where large-scale fulfillment activities come to an end. Unlike retail distribution services, where a large volume of goods is going to one or two distribution centers, individual e-commerce orders require a tailored delivery route to reach their final destination.

This means that last mile carriers have to manage complex route planning with multiple delivery points. Depending on whether a delivery route is taking place within a metro or rural area, destinations may be very close together or several miles apart. Together, these conditions make it very difficult for brands and their last mile carrier to streamline delivery logistics.

High carbon emissions

Thanks to frequent stopping, idling, and traffic congestion that reduces fuel efficiency, the last mile of delivery is one of the most carbon-intensive stages of e-commerce fulfillment. While there is a growing trend of turning to greener forms of transportation, such as electric delivery vehicles or smaller trucks, this has a knock-on effect on the cost of the last leg of delivery.

Risk of failed deliveries

A hidden cost of last mile delivery is the difficulties that delivery personnel can face when they deliver packages. Delivery drivers often encounter diverse drop-off locations, from apartments to P.O. boxes or houses with long driveways, which slows down parcel drop-offs and creates more room for error. Nearly 75% of consumers say they've encountered delivery failures when shopping online, which seriously impacts the customer experience.

Missed, late, or even lost deliveries are extremely costly to businesses - and not just to their reputation. Rescheduled deliveries, product replacements, and refunds to irate customers quickly add up and can take the margins out of ecommerce sales.

Growing return rates

Returns are notoriously commonplace in e-commerce, with roughly 30% of all online purchases being returned. If a brand is footing the bill for return shipping, this adds significantly to the cost of last mile deliveries. A package has to retrace its journey back to the fulfillment center in a fast enough timeframe to get it ready for resale, which can seriously hurt your bottom line.

Consumer expectations

Thanks to the likes of Amazon Prime making rapid delivery the norm in online shopping, last mile delivery expectations are sky-high. The State of Shipping Report 2022 found that 62% of online shoppers expect orders with free shipping to arrive in 3 business days or less.
In addition to delivery speeds like same day delivery, consumers also expect greater use of technology throughout the last mile fulfillment experience. This includes white glove services like real-time order tracking, scheduling delivery times, return pick-ups, and more:

To ensure customer satisfaction, businesses are having to pull out the stops and invest in elaborate last mile services that differentiate their brand from the competition. This is causing total shipping costs - and especially last mile delivery costs - to keep climbing.

The impact of poor last mile delivery services

Higher operating costs

If you aren't managing the last mile delivery process effectively, shipping costs can escalate rapidly. The impact of unoptimized delivery routes, fuel costs, and failed deliveries all add up to create a major hit to your profit margins - to the point where you could start making losses.

Poor customer experiences

The hard truth is that accurate, on-time delivery is no longer a selling point for brands; it's the bare minimum that customers expect when shopping online. If you can't deliver (literally) then the chances of a customer shopping with your brand again are slim to none.

E-commerce marketing has come to revolve not around the quality of a specific product, but the quality of the experience. Phrases like ‘fast free shipping' and ‘easy returns' matter just as much as product offerings to consumers (if not more!) If delivery is delayed or missed entirely, customers are going to feel neglected and not valued by that brand. This is why 85% of online shoppers say that a poor delivery experience would prevent them from ordering from that online retailer in the future

Lost sales opportunities

If your last mile delivery services are slow, you're going to have a hard time attracting customers to shop with you in the first place.

With consumers now accustomed to offerings like same day delivery, they have become more sensitive to 'slow' home delivery. If they can find another vendor that offers the same or similar item within a faster delivery timeframe, they'll likely opt for a competitor.

In short, instant (or near to instant) gratification is now the benchmark in e-commerce. If last-mile logistics are slowing you down, customer acquisition is likely to take a hit.

How to optimize last mile logistics

For all the reasons listed above, businesses must work with logistics providers who are continuously improving their last mile delivery capabilities. To partner with a 3PL that can offer rapid delivery from fulfillment center to doorstep, here are some key services to look for:

Multiple warehouse locations

Using a centralized fulfillment strategy can cause real headaches where final mile delivery is concerned. The reason is simple; if all customer orders are dispatched from a single facility, this puts you close to some customers – but a long way from others.

Long transit times to your customers mean:

• More expensive shipping
• Slower delivery timeframes
• More complex delivery routing

This is a common problem for growing businesses who've chosen to fulfill orders close to their initial customer hub. But as order volumes increase nationwide, delivery destinations start to diversify and challenge the efficiency of centralized fulfillment.

By partnering with a 3PL with a nationwide network of facilities in strategic locations, you can allocate customer orders to whichever facility is closest to the end customer. This massively reduces shipping time and costs for faster delivery.

BOPIS

BOPIS (Buy Online, Pick Up In-Store) allows customers to pick-up their order from the nearest storefront rather than waiting for it to arrive on their doorstep. In-store pick-up has risen in popularity with shoppers, due to being a faster and cheaper option than home delivery. During the 2022 Black Friday week, a full quarter (25%) of online shoppers opted to receive their order via in-store pick-up, twice the level seen in 2021.

Being able to route a certain percentage of your orders to one location is one of the best ways to reduce last mile delivery costs and timeframes. If you can also fulfill BOPIS orders inside the storefront instead of a fulfillment center, this reduces your delivery costs even further.

Real-time order tracking

The success of companies such as UberEats and DoorDash isn't due to convenience alone. What changed the game was consumers being able to track the progress of their food order as it's made, picked up, and delivered to their front door.

Real-time tracking gives your customer greater insight into the last mile delivery process. It also helps to alleviate the anxiety of WISMO (‘where is my order?') and take pressure off your customer service team.

If an order has gone astray or been redirected to the wrong address, real-time order tracking also helps to identify this quickly – before it impacts the customer experience.

Optimized route planning

Indirect routes are responsible for huge slowdowns during the last mile, as well as increased fuel costs and idling. Optimizing delivery routes for your fleet eliminates travel time and helps customers receive their parcels faster.

Instead of finding whatever is the shortest route between points A and B, optimized route planning uses many criteria. This includes driver schedules, the number of deliveries, and total time available to generate the most efficient delivery schedule. Optimized routes allow you to estimate delivery times with much greater accuracy – meaning better customer service and more positive delivery experiences.

Using local delivery services

Carriers like FedEx and UPS offer nation-wide parcel coverage, but can prove very expensive to use for short distances like last mile delivery. A cost-effective alternative is to transfer parcels to regional or local delivery services for the last leg of the delivery process, which are cheaper than national carriers and serve a defined area.

Need help with last mile delivery?

With their superior fulfillment infrastructure and large delivery fleets, partnering with a well-resourced 3PL provider is a cost-effective way to streamline your last mile delivery service. You'll also gain access to logistics experts who can identify flaws in your last mile delivery strategy that are adding more time onto delivery, which helps to improve customer satisfaction and brand loyalty.

With a nationwide network of 25 facilities and extensive multi-node transportation strategies, Ryder is well-versed in supply chain management and shipping logistics for emerging and established e-commerce businesses. Contact us today to find out how we can remove friction from the last mile delivery experience.