Customer Demand for Faster Service Reshapes Last-Mile Delivery

For many years, business-to-business logistics shaped the ways that products moved around the world. Now, consumer demands may make a bigger difference than ever before. 

Shipment pricing, transportation mode, and delivery reliability influenced which brand-name logistics provider got the deal. Then, e-commerce showed up. During those early days, it borrowed some of the delivery practices used in B2B, and the veteran logistics companies, with names we're all familiar with, got a lion's share of that business, too.

Today's business-to-consumer dynamics, however, are in a sweet spot of change. A significant disruption could be ahead as consumer demands, different delivery options and new competition with new business models reshape last-mile drop-off, particularly in the parcel segment, McKinsey & Co. points out in a report released in September, Parcel Delivery: The Future of the Last Mile.

Perhaps, since we're all consumers who have day jobs, this will all come full-circle and compel supply chain and logistics professionals to re-examine their own delivery expectations on B2B packages. Best practices are likely outcomes from various (successful and failed) experimental last-mile delivery strategies that will surface in the next decade, so shouldn't B2B logistics operations also reap the rewards?

Here's how I'm thinking.

McKinsey cites three things that will affect last-mile consumer deliveries in the near-term:

  • Consumers want faster home delivery, but remain price sensitive.
  • Autonomous vehicles (and this includes autonomous ground vehicles (AGV) with parcel lockers and drones) will deliver 80% of parcels in the near future.
  • Consumer sentiment and regulation approvals for autonomous vehicles will determine how fast things shift, but these things could start turning from visionary ideas to reality with the next 10 years.

Part of what is driving this is shift stems from different expectations and ways to get products to consumer faster. Business to consumer is now being talked about as X2C, anything to consumer, meaning the concept is expanding far beyond getting a package from a brick and mortar or digital shop to customer's home or office.

Still the parcel delivery market is nothing to sneeze at. The cost of global parcel delivery, excluding pickup, line-haul, and sorting, amounts to approximately 70 billion euros, with China, Germany, and the United States accounting for more than 40 percent of the market, according to McKinsey. The dynamic market is also saw growth rates in 2015 ranging between 7% and 10% in mature markets, such as Germany or the US, and almost 300 percent in developing markets such as India, the report states.

And, now that the B2C segment has exceeded more than 50% of parcel deliveries in some countries, the last-mile delivery to the consumer is being fine-tuned as demands for faster and more reliable service increase. That's opening the way for new competition in a space where, as McKinsey points out, logistics “incumbents,” who often have labor cost and other competitive disadvantages, are struggling.

So if drones and AGVs are going to be dropping off a greater number of packages possibly within the next decade, and more consumers will be willing to pay a little extra for same-day or instant delivery, won't we get used to that level of service? Won't we want to see something similar in our workplaces?

Of course, delivering a book is different than delivering a palette of smartphone, but maybe the cost of moving goods around a factory-kanban-distribution campus will be eventually offset by some of the new technologies?

As things move in cycles, maybe it's time to watch and figure out how the X2C space will likely shape your company's future deliveries.

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