Market throws last-mile providers a change-up as consumers, retailers pivot
The pandemic supercharged last-mile delivery as stuck-at-home consumers ordered everything from treadmills to computers and furniture for their homes. Now with Covid subsiding, pocketbooks thinner, and inflation rising, is last-mile growth hitting a wall?
Gary Frantz is a contributing editor for DC Velocity and its sister publication CSCMP's Supply Chain Quarterly, and a veteran communications executive with more than 30 years of experience in the transportation and logistics industries. He's served as communications director and strategic media relations counselor for companies including XPO Logistics, Con-way, Menlo Logistics, GT Nexus, Circle International Group, and Consolidated Freightways. Gary is currently principal of GNF Communications LLC, a consultancy providing freelance writing, editorial and media strategy services. He's a proud graduate of the Journalism program at California State University–Chico.
During the pandemic, fitness equipment for the home, computers and monitors, and furniture for newly established home offices filled the trucks of last-mile delivery providers. That, along with consumers relegated to their homes and undertaking all types of home improvement projects, drove last-mile volume growth at a 40% annual pace as over-the-threshold, “big and bulky” deliveries surged.
Fast forward a year. Consumers are still ordering goods for home delivery and installation, but often after visiting a brick-and-mortar store versus going online and filling a digital shopping cart. And while by some accounts, orders of fitness equipment and electronics have “flattened,” consumers have tossed the market a change-up, ordering goods for delivery to hybrid offices, being more selective about what they’re buying for the home, and scaling back on discretionary purchases as inflation raises the costs of virtually everything.
“What [the last-mile market] did in 2020 and ’21 was not reality,” nor was it sustainable, notes Satish Jindel, chief executive officer of shipping analytics firm ShipMatrix. “With [government stimulus payments,] everyone believed there was a Santa. But Santa is real only for children,” he quipped.
Instead, consumers are shifting much, though not all, of their spending back to services, Jindel says, adding: “People want and need human interaction, which is why you find people [doing more] eating out, spending more on travel and entertainment, and going back to the gym” while dialing back on buying big and bulky goods for the home or office.
RESIDENTIAL ON A ROLL
Estes Express Lines, as a less-than-truckload (LTL) carrier, has performed residential deliveries for years, notes Billy Hupp, the company’s executive vice president and chief operating officer. But it has been in the last five years that the company has formalized last-mile home delivery as a discrete service, investing in specialized equipment, driver training, and a complementary agent network in locations where Estes doesn’t have a significant presence.
During the pandemic, “we delivered more 65-inch TVs than the world could ever use,” joked Hupp. Estes does not itself do the “white glove” in-home delivery and installation service, instead deploying a network of agent-partners to provide those deliveries with two-person teams. The majority of Estes’ home deliveries are “to the threshold” service. “We do help get it in the house or put something in a garage or the backyard, as an accommodation if the customer requests it,” he clarifies. A dedicated customer service team for residential is there to help as well, while Estes’ tech platform provides real-time ETA updates texted to the consumer’s phone.
Like other providers, the company has seen a shift in the types of products going to homes in the past year. Where there once was a preponderance of electronics, fitness equipment, and office furniture, now it’s goods like pavers for a driveway. Patio furniture and backyard play structures. Outdoor grills. Tools and materials for home improvement projects, where the customer orders online and Estes delivers it to the home on behalf of the retailer.
Nationwide, Estes operates from 220 terminals, with a fleet of some 7,500 tractors and 30,000 trailers. As the residential business has grown, so has Estes’ investment in it. Today, Estes deploys some 2,000 lift-gate–equipped units, a combination of straight trucks and 28-foot pup trailers, and 1,000 electric pallet jacks. The carrier has also upped its game on mobile technologies and customer-facing apps that improve visibility and communication. An added benefit of these investments has been driver satisfaction, says Hupp. “Adding lift gates and providing pallet jacks is a real advantage that improves driver’s daily work experience and makes for a better customer experience as well,” he says.
He cites the company’s LTL network, which provides often-needed flexibility and capacity, as another advantage. “When a residential delivery agent gets swamped, we can swing some of that freight into LTL and vice versa,” he notes. And while the overall last-mile home delivery market has flattened somewhat, it remains an in-demand service that will continue to grow. “We’re here to stay,” he says. “We’ve equipped ourselves to be multifaceted in our approach so we can be more flexible, and that’s a competitive advantage.”
THE TOUGHEST JOB IN TRUCKING
The last-mile, big-and-bulky over-the-threshold business is one of the hardest jobs in trucking from a driver’s standpoint, observes Jeff Abeson, vice president of business development for Ryder. “You’re driving a very large vehicle in residential areas. You’re carrying heavy stuff into people’s homes, goods they’ve spent a lot of money on,” he explains. “And then you’re assembling it and sometimes taking away the old goods that are being replaced.”
Ryder operates a national network of 82 locations that serve as hubs for last-mile home deliveries. And while the market has shown signs of softening, “we are still seeing an incredible amount of volume” of last-mile business, Abeson notes. Companies are still dealing with back orders of goods, balancing and repositioning inventories, and managing through the residual supply chain effects of earlier port delays and rail congestion.
Where future demand is headed is tough to predict. Yet the fact of the matter is that the business of hard goods delivered into the home, in Abeson’s view, has not really slowed. “It’s hard to get your head wrapped around that [post pandemic] … since while many are back in an office, many more people are still working from home.” And because they’re spending so much time in the same space, that’s where they’re making their investments.
The majority of Ryder’s last-mile business is over-the-threshold, in-home deliveries, often with installation, Abeson notes. The infrastructure supporting that service is challenging. It requires systems, physical warehouse capacity, labor resources, and specialized equipment. Variability is constant in a business where “your forecast really is only as good as your customer’s forecast,” he says, adding that Ryder works diligently with its customers to flex capacity to match demand.
The biggest focus for Ryder, Abeson says, is continued material investments in technology evolving around the end consumer. “It could be as simple as scheduling a delivery and putting an appointment automatically on [the customer’s] calendar, then sending them text updates. It gives the customer confidence we’ve scheduled them and are following up,” he says. Such technologies “reduce inefficiency because we’re more predictable and we’re delivering the first time more often.” Speed to the customer also is high on the list. To enable quick deliveries, Ryder’s customers are forward-stocking fast-moving SKUs (stock-keeping units) at Ryder facilities. “We are all being conditioned in that way” to expect fast deliveries, he says.
One continuing wrench in the works, a holdover from the pandemic: supply chain delays creating partial orders. “You bought a table and six chairs, but only the table is in the warehouse,” Abeson explains. “You’re not interested in just getting the table. You want the whole order at one time. So, from an operator’s perspective, we have to account for how that affects warehouse space and labor, driver labor, and scheduling. “Many of our customers’ supply chains continue to be challenged in this way, but we just have to manage it and support our customers.”
FLAT VOLUMES, CHANGING MIX
Fernando Rabel, interim president of last mile for RXO, a digital truck brokerage that was spun off from XPO as an independent company this fall, sees two immediate effects on last mile from the post-pandemic environment. “First, the increase in operating costs has been significant and impactful. Second, high inflation has impacted the overall market for furniture and appliances.”
And while RXO’s delivery volumes remain relatively flat compared with a two-year average, “we believe we are well positioned to maintain our lead while capturing even more share within this $16 billion industry.”
From a product perspective, “we’re seeing the typical cyclicality one would expect, with appliances more resilient than bedding, furniture, and fitness equipment,” Rabel says. He cites one metric that points to continued strong growth in last mile: “By 2025, heavy and bulky penetration is expected to increase to nearly 30% of all e-commerce. We expect in the long term that this tailwind will drive continued demand for last-mile services,” he says.
He notes that RXO Last Mile covers 159 markets, with its network putting it within 125 miles of 90% of the U.S. population. The company handled more than 11 million deliveries last year.
NO MORE WHITE BOARDS AND SPREADSHEETS
Dennis Moon, chief operating officer for Roadie, a company that utilizes a crowdsourced network of drivers to make same-day deliveries and which is now part of UPS, says that shipper supply chains continue to evolve in an effort to “get product closer to the customer. That’s everyone’s holy grail.” He cites as an advantage “the scalability of our platform and its flexibility to move up and down with a customer’s volumes.” His product mix has shifted as well. “We are seeing a lot of lift in the medical area—everything from crutches to wheelchairs. Prescription and medical deliveries are one of our largest growth areas.”
The company also is doing more shipment consolidation to gain density. Before, one of Roadie’s “on the way” drivers might make one pickup and deliver it. Now through sophisticated technology, they are doing more batching and consolidating, which is good for drivers, who can make more money, and good for shippers, who benefit from a better rate.
Technology advances and innovation also are driving more responsive operations and customer service for last-mile carriers. End-user consumers want an Uber-like experience that gives them flexible delivery options, up-to-the-minute visibility into shipment status, and an immediate feedback loop post-delivery. New cloud-based, low-cost systems are rising to the challenge, bringing sophisticated tools that once were the domain of the large players to smaller operators.
Krishna Vattipalli is chief executive of software developer Fleet Enable, which provides a full-cycle platform and workstreams that help last-mile fleets wean themselves from manual workflows and drive better processes. “Many small to mid-sized operators are using at least four different systems,” including spreadsheets and even white boards, to plan and run their business, he says. Fleet Enable provides a single-source solution for last-mile delivery fleets, optimizing 16 workflows in the lifecycle of an order, including appointment scheduling, route and capacity optimization, visibility tracking and alerts, asset forecasting, payroll, and billing and invoicing.
Even with companies bringing workers back to the office, there are still many working from home or on a hybrid schedule. That’s extending demand for big-and-bulky last-mile service into B-to-B (business-to-business) markets, complementing B-to-C (business-to-consumer) deliveries. That, along with a continued demand for speed and convenience, is one reason last-mile delivery will continue to grow, Vattipalli believes. “Technology these days is no longer a differentiator; it is a basic requirement,” he says. “Carriers need to be smart about their investments in technology. That will help them achieve better margins and give them an edge to negotiate better with shippers.”
Most of the apparel sold in North America is manufactured in Asia, meaning the finished goods travel long distances to reach end markets, with all the associated greenhouse gas emissions. On top of that, apparel manufacturing itself requires a significant amount of energy, water, and raw materials like cotton. Overall, the production of apparel is responsible for about 2% of the world’s total greenhouse gas emissions, according to a report titled
Taking Stock of Progress Against the Roadmap to Net Zeroby the Apparel Impact Institute. Founded in 2017, the Apparel Impact Institute is an organization dedicated to identifying, funding, and then scaling solutions aimed at reducing the carbon emissions and other environmental impacts of the apparel and textile industries.
The author of this annual study is researcher and consultant Michael Sadowski. He wrote the first report in 2021 as well as the latest edition, which was released earlier this year. Sadowski, who is also executive director of the environmental nonprofit
The Circulate Initiative, recently joined DC Velocity Group Editorial Director David Maloney on an episode of the “Logistics Matters” podcast to discuss the key findings of the research, what companies are doing to reduce emissions, and the progress they’ve made since the first report was issued.
A: While companies in the apparel industry can set their own sustainability targets, we realized there was a need to give them a blueprint for actually reducing emissions. And so, we produced the first report back in 2021, where we laid out the emissions from the sector, based on the best estimates [we could make using] data from various sources. It gives companies and the sector a blueprint for what we collectively need to do to drive toward the ambitious reduction [target] of staying within a 1.5 degrees Celsius pathway. That was the first report, and then we committed to refresh the analysis on an annual basis. The second report was published last year, and the third report came out in May of this year.
Q: What were some of the key findings of your research?
A: We found that about half of the emissions in the sector come from Tier Two, which is essentially textile production. That includes the knitting, weaving, dyeing, and finishing of fabric, which together account for over half of the total emissions. That was a really important finding, and it allows us to focus our attention on the interventions that can drive those emissions down.
Raw material production accounts for another quarter of emissions. That includes cotton farming, extracting gas and oil from the ground to make synthetics, and things like that. So we now have a really keen understanding of the source of our industry’s emissions.
Q: Your report mentions that the apparel industry is responsible for about 2% of global emissions. Is that an accurate statistic?
A: That’s our best estimate of the total emissions [generated by] the apparel sector. Some other reports on the industry have apparel at up to 8% of global emissions. And there is a commonly misquoted number in the media that it’s 10%. From my perspective, I think the best estimate is somewhere under 2%.
We know that globally, humankind needs to reduce emissions by roughly half by 2030 and reach net zero by 2050 to hit international goals. [Reaching that target will require the involvement of] every facet of the global economy and every aspect of the apparel sector—transportation, material production, manufacturing, cotton farming. Through our work and that of others, I think the apparel sector understands what has to happen. We have highlighted examples of how companies are taking action to reduce emissions in the roadmap reports.
Q: What are some of those actions the industry can take to reduce emissions?
A: I think one of the positive developments since we wrote the first report is that we’re seeing companies really focus on the most impactful areas. We see companies diving deep on thermal energy, for example. With respect to Tier Two, we [focus] a lot of attention on things like ocean freight versus air. There’s a rule of thumb I’ve heard that indicates air freight is about 10 times the cost [of ocean] and also produces 10 times more greenhouse gas emissions.
There is money available to invest in sustainability efforts. It’s really exciting to see the funding that’s coming through for AI [artificial intelligence] and to see that individual companies, such as H&M and Lululemon, are investing in real solutions in their supply chains. I think a lot of concrete actions are being taken.
And yet we know that reducing emissions by half on an absolute basis by 2030 is a monumental undertaking. So I don’t want to be overly optimistic, because I think we have a lot of work to do. But I do think we’ve got some amazing progress happening.
Q: You mentioned several companies that are starting to address their emissions. Is that a result of their being more aware of the emissions they generate? Have you seen progress made since the first report came out in 2021?
A: Yes. When we published the first roadmap back in 2021, our statistics showed that only about 12 companies had met the criteria [for setting] science-based targets. In 2024, the number of apparel, textile, and footwear companies that have set targets or have commitments to set targets is close to 500. It’s an enormous increase. I think they see the urgency more than other sectors do.
We have companies that have been working at sustainability for quite a long time. I think the apparel sector has developed a keen understanding of the impacts of climate change. You can see the impacts of flooding, drought, heat, and other things happening in places like Bangladesh and Pakistan and India. If you’re a brand or a manufacturer and you have operations and supply chains in these places, I think you understand what the future will look like if we don’t significantly reduce emissions.
Q: There are different categories of emission levels, depending on the role within the supply chain. Scope 1 are “direct” emissions under the reporting company’s control. For apparel, this might be the production of raw materials or the manufacturing of the finished product. Scope 2 covers “indirect” emissions from purchased energy, such as electricity used in these processes. Scope 3 emissions are harder to track, as they include emissions from supply chain partners both upstream and downstream.
Now companies are finding there are legislative efforts around the world that could soon require them to track and report on all these emissions, including emissions produced by their partners’ supply chains. Does this mean that companies now need to be more aware of not only what greenhouse gas emissions they produce, but also what their partners produce?
A: That’s right. Just to put this into context, if you’re a brand like an Adidas or a Gap, you still have to consider the Scope 3 emissions. In particular, there are the so-called “purchased goods and services,” which refers to all of the embedded emissions in your products, from farming cotton to knitting yarn to making fabric. Those “purchased goods and services” generally account for well above 80% of the total emissions associated with a product. It’s by far the most significant portion of your emissions.
Leading companies have begun measuring and taking action on Scope 3 emissions because of regulatory developments in Europe and, to some extent now, in California. I do think this is just a further tailwind for the work that the industry is doing.
I also think it will definitely ratchet up the quality requirements of Scope 3 data, which is not yet where we’d all like it to be. Companies are working to improve that data, but I think the regulatory push will make the quality side increasingly important.
Q: Overall, do you think the work being done by the Apparel Impact Institute will help reduce greenhouse gas emissions within the industry?
A: When we started this back in 2020, we were at a place where companies were setting targets and knew their intended destination, but what they needed was a blueprint for how to get there. And so, the roadmap [provided] this blueprint and identified six key things that the sector needed to do—from using more sustainable materials to deploying renewable electricity in the supply chain.
Decarbonizing any sector, whether it’s transportation, chemicals, or automotive, requires investment. The Apparel Impact Institute is bringing collective investment, which is so critical. I’m really optimistic about what they’re doing. They have taken a data-driven, evidence-based approach, so they know where the emissions are and they know what the needed interventions are. And they’ve got the industry behind them in doing that.
The global air cargo market’s hot summer of double-digit demand growth continued in August with average spot rates showing their largest year-on-year jump with a 24% increase, according to the latest weekly analysis by Xeneta.
Xeneta cited two reasons to explain the increase. First, Global average air cargo spot rates reached $2.68 per kg in August due to continuing supply and demand imbalance. That came as August's global cargo supply grew at its slowest ratio in 2024 to-date at 2% year-on-year, while global cargo demand continued its double-digit growth, rising +11%.
The second reason for higher rates was an ocean-to-air shift in freight volumes due to Red Sea disruptions and e-commerce demand.
Those factors could soon be amplified as e-commerce shows continued strong growth approaching the hotly anticipated winter peak season. E-commerce and low-value goods exports from China in the first seven months of 2024 increased 30% year-on-year, including shipments to Europe and the US rising 38% and 30% growth respectively, Xeneta said.
“Typically, air cargo market performance in August tends to follow the July trend. But another month of double-digit demand growth and the strongest rate growths of the year means there was definitely no summer slack season in 2024,” Niall van de Wouw, Xeneta’s chief airfreight officer, said in a release.
“Rates we saw bottoming out in late July started picking up again in mid-August. This is too short a period to call a season. This has been a busy summer, and now we’re at the threshold of Q4, it will be interesting to see what will happen and if all the anticipation of a red-hot peak season materializes,” van de Wouw said.
The report cites data showing that there are approximately 1.7 million workers missing from the post-pandemic workforce and that 38% of small firms are unable to fill open positions. At the same time, the “skills gap” in the workforce is accelerating as automation and AI create significant shifts in how work is performed.
That information comes from the “2024 Labor Day Report” released by Littler’s Workplace Policy Institute (WPI), the firm’s government relations and public policy arm.
“We continue to see a labor shortage and an urgent need to upskill the current workforce to adapt to the new world of work,” said Michael Lotito, Littler shareholder and co-chair of WPI. “As corporate executives and business leaders look to the future, they are focused on realizing the many benefits of AI to streamline operations and guide strategic decision-making, while cultivating a talent pipeline that can support this growth.”
But while the need is clear, solutions may be complicated by public policy changes such as the upcoming U.S. general election and the proliferation of employment-related legislation at the state and local levels amid Congressional gridlock.
“We are heading into a contentious election that has already proven to be unpredictable and is poised to create even more uncertainty for employers, no matter the outcome,” Shannon Meade, WPI’s executive director, said in a release. “At the same time, the growing patchwork of state and local requirements across the U.S. is exacerbating compliance challenges for companies. That, coupled with looming changes following several Supreme Court decisions that have the potential to upend rulemaking, gives C-suite executives much to contend with in planning their workforce-related strategies.”
Stax Engineering, the venture-backed startup that provides smokestack emissions reduction services for maritime ships, will service all vessels from Toyota Motor North America Inc. visiting the Toyota Berth at the Port of Long Beach, according to a new five-year deal announced today.
Beginning in 2025 to coincide with new California Air Resources Board (CARB) standards, STAX will become the first and only emissions control provider to service roll-on/roll-off (ro-ros) vessels in the state of California, the company said.
Stax has rapidly grown since its launch in the first quarter of this year, supported in part by a $40 million funding round from investors, announced in July. It now holds exclusive service agreements at California ports including Los Angeles, Long Beach, Hueneme, Benicia, Richmond, and Oakland. The firm has also partnered with individual companies like NYK Line, Hyundai GLOVIS, Equilon Enterprises LLC d/b/a Shell Oil Products US (Shell), and now Toyota.
Stax says it offers an alternative to shore power with land- and barge-based, mobile emissions capture and control technology for shipping terminal and fleet operators without the need for retrofits.
In the case of this latest deal, the Toyota Long Beach Vehicle Distribution Center imports about 200,000 vehicles each year on ro-ro vessels. Stax will keep those ships green with its flexible exhaust capture system, which attaches to all vessel classes without modification to remove 99% of emitted particulate matter (PM) and 95% of emitted oxides of nitrogen (NOx). Over the lifetime of this new agreement with Toyota, Stax estimated the service will account for approximately 3,700 hours and more than 47 tons of emissions controlled.
“We set out to provide an emissions capture and control solution that was reliable, easily accessible, and cost-effective. As we begin to service Toyota, we’re confident that we can meet the needs of the full breadth of the maritime industry, furthering our impact on the local air quality, public health, and environment,” Mike Walker, CEO of Stax, said in a release. “Continuing to establish strong partnerships will help build momentum for and trust in our technology as we expand beyond the state of California.”
That result showed that driver wages across the industry continue to increase post-pandemic, despite a challenging freight market for motor carriers. The data comes from ATA’s “Driver Compensation Study,” which asked 120 fleets, more than 150,000 employee drivers, and 14,000 independent contractors about their wage and benefit information.
Drilling into specific categories, linehaul less-than-truckload (LTL) drivers earned a median annual amount of $94,525 in 2023, while local LTL drivers earned a median of $80,680. The median annual compensation for drivers at private carriers has risen 12% since 2021, reaching $95,114 in 2023. And leased-on independent contractors for truckload carriers were paid an annual median amount of $186,016 in 2023.
The results also showed how the demographics of the industry are changing, as carriers offered smaller referral and fewer sign-on bonuses for new drivers in 2023 compared to 2021 but more frequently offered tenure bonuses to their current drivers and with a greater median value.
"While our last study, conducted in 2021, illustrated how drivers benefitted from the strongest freight environment in a generation, this latest report shows professional drivers' earnings are still rising—even in a weaker freight economy," ATA Chief Economist Bob Costello said in a release. "By offering greater tenure bonuses to their current driver force, many fleets appear to be shifting their workforce priorities from recruitment to retention."