Panel participants:
 Tim Kraus, Logistics and Material Handling Product Manager, Intralox |  CVP of Industry Strategies, Blue Yonder |  VP of Customer Accounts, RXO |  VP of Marketing, Knapp |
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.
Gartner, Inc.