New entrants are redefining the last-mile landscape that has traditionally been the realm of FedEx, UPS, and the US Postal Service (USPS). The booming growth in e-commerce and the high costs associated with the last mile are attracting new participants to a market struggling to keep pace with consumer expectations.
The COVID-19 pandemic accelerated e-commerce’s growth trend by three years, according to Brie Carere, executive vice president and chief marketing and communications officer for FedEx. In doing so, it also exposed the need for shippers to diversify their last-mile provider mix.
US e-commerce sales increased 32.4 percent in 2020, representing 14 percent of total retail sales, up from 14.9 percent year-over-year growth and an 11 percent share of total retail sales in 2019, according to data from the US Census Bureau. According to market research firm Adobe Analytics, US e-commerce sales are expected to grow another 4.6 percent to 14.4 percent this year.
Shippers looking to avoid a repeat of 2020 are adding additional providers to their last-mile delivery mix, including third-party logistics providers (3PLs). Many 3PLs view the last mile as a natural extension of their services, and some are establishing technology and carrier partnerships to compete with traditional last-mile operators.
For example, California-based AxleHire, an asset-light last-mile delivery provider that recently received $20 million in Series B funding, has partnerships with Deliverr, Quiet Logistics, SEKO Logistics, and Geodis, in which AxleHire provides the 3PLs with additional capacity and access to its proprietary route optimization tool.
Similar technology partnerships include SEKO’s relationship with delivery and fulfillment platform Bringg. The partnership, announced last year, provides SEKO Logistics with capabilities to arrange crowdsourced fleets for last-mile delivery via Bringg’s online platform. Bringg also provides a client online platform that enables SEKO’s clients to manage and track shipments, communicate with drivers, make payments, and rate drivers on service.
Technology provider Logistyx is adding 3PLs such as Tagg Logistics and Rockpoint Logistics to its list of customers that have traditionally been retailers. Logistyx, a parcel shipping management system provider, acts as a transportation management system (TMS) and has over 550 last-mile delivery providers that shippers can tap into in the US and Europe.
Besides a partnership with AxleHire, Geodis is also integrated with online marketplaces Shopify and Amazon. Geodis fulfills online orders and provides data flow between Shopify’s online storefront and the seller’s supply chain including tracking and management of last-mile deliveries.
Geodis also provides fulfillment solutions for Amazon’s third-party marketplace sellers and added drop-shipping services last year as a delivery option for Amazon customers.
3PLs are also acquiring parcel expertise. In 2020, Transplace acquired parcel technology company ScanData and integrated its technology into Transplace’s TMS. Shortly thereafter, GlobalTranz acquired Cerasis, a freight broker that acts in the market as a TMS and managed transportation provider with modal strengths in parcel, less-than-truckload, and last-mile services.
Reducing last-mile costs
By partnering with technology providers such as AxleHire and Bringg, 3PLs are addressing demand for faster deliveries while also reducing costs associated with the last mile by optimizing routes, reducing the number of failed deliveries, and shifting “free delivery” offered by shippers to more flexible delivery options such as parcel lockers and buy online, pick up in store. According to consulting firm Cap Gemini, the last mile accounts for 53 percent of the total shipping and transportation cost of a given item.
FedEx and UPS have also made technology investments in their last-mile networks, but they still rely on high shipping costs, including surcharges, to offset their costs and manage capacity.
The USPS, which recently unveiled a 10-year plan that includes major upgrades to its last-mile network, introduced temporary surcharges for the first time in 2020 to manage capacity and raise revenue, according to a statement from the postal operator. This year, the USPS added a surcharge for large parcels for the first time.
The number of 3PLs expanding their services into the last-mile segment will likely grow as shippers look for additional capacity and to reduce their last-mile costs. According to the 2019 Third-Party Logistics Study, conducted by Penn State University, technology consulting firm Infosys, logistics provider Penske, and consulting firm Korn Ferry, 72 percent of 3PL users surveyed agreed that the use of 3PLs has contributed to reducing overall logistics costs. Shippers may expect similar results from 3PLs regarding last-mile costs and capacity requirements as more 3PLs expand into last-mile services.