One of the most critical factors for many businesses is ensuring that their products are delivered to customers as quickly and efficiently as possible. This can be not easy, especially if you are shipping products over long distances.
Generally, people often think of delivery costs as being a set cost for the entire shipping process. In reality, delivery is broken up into multiple phases – from getting the product to your doorstep to actually delivering it.
Understanding the factors influencing these phases is crucial for making informed decisions about warehouse and distribution center locations and strategic partnerships with 3rd party carriers. That is why, in this article, we will break down exactly what the last mile means and how that plays into the other parts of delivering an item from one place to another.
What is the Last Mile and Why Does it Matter to You?
First off, let’s start by defining what exactly “last mile” means in terms of logistics. The last mile refers to the final leg of delivery – any part of a journey that happens after goods have been transported over long distances, often hundreds or thousands, to their destination city or country and then need to be delivered locally from there on out. This can be a big issue for businesses, especially if they’re not prepared to handle it.
The last mile is often considered one of the most expensive parts of shipping because it’s where costs are incurred from fuel and labor – and sometimes even paying for an individual to drive long distances. It might seem like this problem doesn’t affect you that much, but it can make a pretty big difference.
What is the definition of last mile delivery costs?
As we have noted above, for most businesses, the cost of delivering goods to their customers is a significant expense. The cost of last mile delivery depends on quite a few factors – the distance between your business and your customer, logistics, and the exact place from which the order is placed.
To put it simply – last mile delivery is like large-scale shipping without mass distribution. Instead of carrying one large package to a single destination, your drivers carry smaller packages to many addresses. That means each delivery will include more stops with less distance traveled. That means you will need a larger fleet to handle the smaller number of deliveries and drivers for most of the routes.
Last mile delivery costs are often calculated as a percentage of the total cost incurred by delivery. Going back to our example, your last mile costs would be 12% if you deliver a package with an overall shipping fee of $100 and the last mile delivery is only going 100 miles. Still, it might be closer to 50% if that same package’s price was $1000 and the last mile delivery is only going 100 miles. That brings us to the most critical question of this article:
What is the Exact Percentage of Delivery Costs That are Last Mile?
A short and more straight to the point answer would be – the percentage of delivery costs that are last mile can make up to 53% of the total delivery costs and account for up to 41% of the supply chain costs. So, about 50% of shipping and supply chain costs are spent on the final mile.
Now, for the more precise – and lengthier – answer: as we mentioned earlier, in many fulfillment chains, the last mile is the most expensive. For example, in 2019, it cost $10 on average to send an item delivered within the last mile from a warehouse location to your house or office. Businesses cover this cost by charging you about $8 for the delivery service and make their money back through profit margins on each item sold.
How much does it cost to deliver each time? One study shows that on average, in 2018, $10.10 was spent per last mile delivery made. At a global level, last-mile delivery markets are valued at $30.2 billion and projected to be worth $55.2 billion by 2025.
Now – how does that affect your company, and why should you care? According to one study, an optimized last mile delivery process could help companies maintain 26% of revenue in just three years. If the company fails to do this, it will see more than a quarter of its profits disappear due to the lack of cost-effectiveness. As such, you need to find ways to bring down costs that are eroding your profit.
It’s essential to identify what has been driving up costs before we dive into how last mile delivery can be streamlined, lessening the percentage of delivery costs it takes up.
What Makes Up the Last Mile Delivery Costs?
Since last-mile delivery costs make up a significant percentage of the total delivery operations, what they are and where that cost comes from is important to consider. So, let us go over some of the steps that factor into those costs:
Customers are becoming more demanding, so businesses have to be flexible. When it comes to delivery, the customer’s expectations change over time, affecting the business needs.
Logistics companies worldwide face enormous pressure to deliver packages on time, which can mean more stress on last mile delivery, and this high demand often leads to increased overall costs.
Another possible issue is that the customers have also come to expect the companies to pay for shipping costs. Today, the industry estimate is that 61% of customers would cancel their order if it were not for the free shipping option. Similarly, 93% of shoppers are motivated to spend more to qualify for the free shipping feature.
Due to such demands, companies are compelled to cover shipment costs by reducing their profit margins.
The Complexity of Last-mile Delivery
The last mile delivery process can be the most challenging aspect to consider. For instance, in rural areas, there are fewer deliveries and drivers are required to place items at the end of a long driveway or dirt road. So, in theory, an urban area would benefit from having closer delivery points. However, congestion and traffic slowdowns end up canceling out that benefit.
With the growth in e-commerce, the volume of deliveries has increased exponentially. This increase has made last mile operations less efficient and more complex.
Why are Last Mile Delivery Costs Increasing?
E-commerce companies’ profits are threatened by the growing cost of last-mile delivery. Consequences for not reducing these costs include lost revenue and increased customer dissatisfaction. Here are some examples of issues that can increase last mile delivery costs:
Providing Free Shipping For Customers
Consumers are expecting low delivery costs with quick deliveries. Logistics companies find it challenging to accomplish on-time deliveries at zero cost of shipping while still fulfilling customer expectations of delivery times.
Missed or Late Delivery
Same-day delivery has the potential to enhance customer experience, but there is still a lot of room for improvement. For instance, customers may not know the exact time at which their order will be delivered. So many of these orders are ‘missed deliveries’ when they do not arrive on time, and no one is home to receive them. A missed delivery is an issue for companies because they spend so much time, energy, and resources to achieve it. This, in turn, raises the costs of deliveries.
Low Population Density Causing Poor Routing Plans
Lower population density leads to increased transit times and additional costs. These increase barriers for delivering products efficiently in last-mile deliveries, lessening the company’s profits due to increased fuel costs, longer delivery and idle time, unoptimized delivery routes, and higher transportation costs.
Unpredictability in Scheduled Deliveries
New delivery routes, route maintenance, and traffic congestion can impact the reliability of last-mile deliveries. The unpredictability of the last mile can lead to an increase in delivery delays, making your logistics operations more costly.
The Percentage of Total Delivery Costs That Goes Towards the Last Mile
So, bearing in mind all that we have mentioned so far, we can conclude that the percentage of total delivery costs that go towards the last mile can vary greatly depending on the situation. However, typically, it is up to fifty percent.
As this is quite a substantial amount to invest in only one part of the delivery process, choosing the right logistics company to aid you with cutting down the costs is imperative. Luckily, RedBird Logistics Services specialize in such matters. With over thirty years of experience and a worldwide network of high-quality distribution facilities, they can help you cut down the costs to the minimum while still keeping the high-quality service that your customers deserve!