Last-Mile Roundtable: The nitty-gritty on the all-important last mile
Where do parcel and last-mile operations stand today? How will advances in artificial intelligence and visibility technology change the delivery game? And, perhaps most importantly, what can shippers do to ensure their parcel carriers consider them “shippers of choice”? To get some answers, we asked leading experts from companies participating in DC Velocity’s Last-Mile Theater at Modex 2024. Here’s what they had to say.
David Maloney has been a journalist for more than 35 years and is currently the group editorial director for DC Velocity and Supply Chain Quarterly magazines. In this role, he is responsible for the editorial content of both brands of Agile Business Media. Dave joined DC Velocity in April of 2004. Prior to that, he was a senior editor for Modern Materials Handling magazine. Dave also has extensive experience as a broadcast journalist. Before writing for supply chain publications, he was a journalist, television producer and director in Pittsburgh. Dave combines a background of reporting on logistics with his video production experience to bring new opportunities to DC Velocity readers, including web videos highlighting top distribution and logistics facilities, webcasts and other cross-media projects. He continues to live and work in the Pittsburgh area.
Q:How would you describe the current state of the last-mile and parcel markets?
Kevin Reader: Today we consider last-mile logistics to be the movement of goods from a transportation hub to the final delivery destination. Quantified precisely, the last-mile market is valued at around $131.5B (2021) at a CAGR 8.13%, from 2021–2031, and will reach around $288.9B by 2031. Last-mile delivery accounts for more than 53% of total shipping cost, according to FarEye.com, and is most widely used in the food, e-commerce, retail, and pharmaceutical industries. Current drivers of these costs include increased use of the internet and expansion of the e-commerce industry in general. We expect that the courier, express, and parcel market is really (or will become) a subset of this market.
Tim Kraus: Demands for fast deliveries and increased service levels (such as delivering inside a garage or car trunk instead of at the door) increase complexity and further justify the need to find ways to reduce costs wherever possible in last-mile operations. This has led to innovations in the automation of last-mile sortation facilities to quickly get parcels in the building, sorted, and back out as fast as possible.
Chirag Modi: Four major parcel carriers in North America (USPS, UPS, FedEx, and Amazon) are moving forward with their infrastructure improvements with an aggressive, forward-looking view. Amazon is already the largest parcel delivery carrier and continues to widen the gap. UPS is the next biggest in this space.
Throughout the industry, there is an acute need for improved economics in the last- or final-mile space. While drone and robot deliveries are gaining traction, industrywide change remains elusive. Without Amazon aggressively changing consumer behavior with respect to store or locker pickups (much like what they did with Prime, two-day free shipping, lockers, and other innovations), there is little [prospect] for cost improvements in this space.
Q:E-commerce grew this year but slowed somewhat as shoppers returned to stores. What will it take to get e-commerce shipping back on the high-growth track?
Fernando Rabel: Following a 17.1% growth rate surge in 2021, the global e-commerce market is expected to sustain a minimum growth rate of 8% in the coming years. In the United States, the third quarter of 2023 witnessed a 7.8% increase in e-commerce sales compared to the same quarter in 2022. We are back on trend for long-term growth.
Chirag Modi: As expected, e-commerce has slowed this year in comparison to during Covid-19. The biggest difference is that a good portion of those e-commerce sales are now being fulfilled out of stores. There is a feeling of saturation with store pickups versus e-tailers like Amazon. Both brick-and-mortar stores and e-tailers have had to adapt to new realities of physical store presence and have learned to co-exist. There will be intense market share competition between Wal-Mart, Amazon, Target, and a few top retailers, but it will be a zero-sum game when we look at growth in the entire e-commerce channel for some time to come.
Tim Kraus: One could surmise that faster deliveries and lower prices would both encourage e-commerce growth again. One way to improve both metrics is by investing in automated last-mile processing to quickly get parcels in, sorted, and back out quickly.
Q: How can technologies improve the visibility of goods in transit?
Kevin Reader: Courier, express, and parcel services (CEP) players are well positioned to control the core steps in the transportation process—capacity management, route optimization, planning, and sorting. Physical control of these parcels also gives these companies control of the associated data, but there are a few technology companies, such as Knapp, that have innovation underway in these areas.
Chirag Modi: Technologies are changing dramatically every day. Cloud computing has changed the real-time data availability exponentially in terms of quality, affordability, and quantity. As a result, the amount of data we collect on this planet now doubles every five years.
More technologies are being added to make sense of the data being collected. And control towers are now a standard industry term and soon will be a standard offering with current solutions like transportation management and will [enable] a real-time feedback loop into the supply chain planning and inventory management process (versus batch processes).
Tim Kraus: Every time a package is scanned, it creates another data point that could be used to help track the parcel’s progress before the final home delivery. Automated sortation solutions in last-mile facilities require scanning and inherently bring that extra data point. So, compared to a facility that is not automated, this can be an important data point to improve visibility that is essentially free.
Q: When will we start to see electric delivery vehicles significantly impacting last-mile operations?
Fernando Rabel: In the second half of 2024, we will start to see EVs make a significant impact in last-mile deliveries. Over the next six to nine months, RXO will have a fully electric operation in New York City and 15 to 20% of our hub markets will have at least one EV making deliveries. With the federal and state investments in charging infrastructure, more affordable and available vehicles, and customers looking to decrease their carbon footprint, EV deliveries will continue to grow throughout the year.
Kevin Reader: We are already seeing this trend, and we can expect that it will continue. Look for a more robust effort by the commercial vehicle (CV) players between 2025 and 2030 in the areas of last-mile delivery, since they are well positioned to operate autonomous delivery fleets and they have routing expertise.
Why do we think that the CEP market lacks the maturity and vision today? There are essentially two reasons. The first is that over the last several years, only 5% targeted new technology for M&A efforts, and the second is that their new patent activity has been quite low in the area of last-mile technology.
Chirag Modi: Quality and affordability will drive the adoption of these vehicles. Right now, they are a novelty and scoring some points on customer perception. Without fast-charging infrastructure outside of densely populated urban areas and federal subsidies, adoption at scale will be slow to take off. We anticipate by 2030 the industry and infrastructure will be in a better position to put the flywheel effect into motion for EV delivery.
Q: How might artificial intelligence influence the design of software for managing deliveries?
Chirag Modi: Generative AI technology is improving constantly. More and more companies (including Blue Yonder) are exploring options to do this in a responsible manner. At the pace at which physical infrastructures, digital infrastructures, and deregulatory environments are changing, it is imperative to work in a collaborative environment to design any solution with AI. In addition, the type of talent available in the market to build these solutions using AI is currently limited. These combined factors are influencing and limiting the current use of AI.
Kevin Reader: This is quite a broad subject. Let’s just consider one business case where customer expectations are rising, resources are less available, and the cost to deliver and routing (i.e. last-mile cost) is volatile and high. This is an ideal example for an AI application that is constantly evaluating these factors (among others), reducing cost to serve and optimizing performance, while still meeting customer expectations—and doing so in real time.
Q: What can shippers do to be “shippers of choice” with their parcel carriers?
Fernando Rabel: To be a shipper of choice, a shipper must adhere to the volume estimates the parcel carrier based its pricing on, provide great communication so the parcel carrier understands when business requirements change, and provide easy access to facilities for the parcel drivers.
Chirag Modi: The basics have not changed, and mainstays such as quality of service, affordability, and continuous innovation/improvement remain. Service providers have always been judged based on these three factors. At the same time, the weight of each of these varies from one client to another (e.g., low-margin/low-growth industries may put more emphasis on cost and service, while high-growth industries might place a higher priority on innovative services).
Q: How can third-party service providers help shippers meet customer demands?
Fernando Rabel: Third-party logistics service providers (3PLs) enhance shippers’ ability to meet customer demands through their expertise in logistics management and advanced technology use. They offer cost-effective, scalable services, leveraging their networks for efficient shipping and compliance. 3PLs ensure timely and reliable deliveries, improving customer service with real-time tracking and effective return management.
They also adeptly handle risk management and contribute to sustainability efforts. By optimizing shipping strategies, managing inventory, and mitigating supply chain disruptions, 3PLs provide shippers with the flexibility and efficiency needed to adapt to market changes and maintain customer satisfaction.
Tim Kraus: Investing in automated solutions can help third-party providers minimize delivery time, for one. Automated solutions can also minimize dependence on temporary labor, which can be a huge operational risk. An automated solution also helps to minimize human error, which can lead to missed delivery promises, which diminishes customer satisfaction. Finally, an automated solution can reduce the cost per package in last-mile logistics.
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."