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Outbound Shipping and the cost of Last Mile Delivery

E-commerce sales have been growing by double-digits for years now and this year, with the pandemic, we are seeing large increases in e-commerce sales across the board. Firms that do not adapt will be left behind. While established e-commerce giants, like Amazon, have made incredible strides in final mile logistics, small and mid-sized firms can still take advantage of this growing market, provided they meet the challenges in final mile delivery.

In our traditional distribution model, goods were manufactured, shipped to a distribution center, then a retail outlet. From there, consumers either picked up the item in store or the retail outlet would deliver goods to the consumer’s home or business address. In almost all cases, any delivery to home or office was handled by the retailer themselves.

The growth of e-commerce has thrown a wrench in this traditional model, often moving responsibility for that final delivery back to the manufacturer. In addition, technologically savvy consumers are demanding a higher level of visibility for that final fulfillment. These new consumer preferences and expectations create new challenges and opportunities for manufacturers, retailers, and transportation providers.

This growth in e-commerce and the growing need for visibility has forced us all to examine, invent, and optimize what is often referred to as Final Mile, Last Mile, Direct-to-Consumer (DTC), or Business to Consumer (B2C) logistics processes. To be clear, all four of these describe transportation of goods from a distribution hub to the final delivery destination — the door of the customer. The goal of final mile delivery logistics is to deliver the packages as affordably, quickly, and accurately as possible. Manufacturers, wholesalers, retailers, and transportation providers must navigate more uncertainties than ever before, but they are also positioned to experience higher levels of growth, profitability, and consumer loyalty if they can respond effectively to this e-commerce boom.

So as manufacturers, retailers and transportation providers design their final mile delivery processes, each must minimize costs, ensure transparency & visibility, and improve infrastructure.

Minimizing Final Mile Costs

The Coronavirus pandemic has accelerated the need for omnichannel distribution and a higher e-commerce presence. What many are growing to understand is that the final mile of your product’s delivery accounts for up to 53% of the total shipping costs. Statista calculated final mile delivery in 2018 at $10.10 per package delivered. On average, businesses charge the consumer $8.08 to cover these costs, taking the rest from the profit margins of sold products.

The traditional method of shipping large bulk orders to a local retailer limited the individual touch points. This dissemination process allows you to send many products to a single location. But, in a Final Mile process, your delivery drivers carry many smaller packages, each with unique destinations. This inherent inefficiency drives up costs. That is the essence of the final mile problem — more stops mean more complex routes, more idle time, and more time on the road. That means you must maintain a larger fleet of delivery vehicles and drivers to ship your products.

Delivering thousands of packages to their final destination every day is a complex logistical challenge. Final Mile fulfillment is complicated, and many factors contribute to the overall cost:

  1. Lower average speeds = more time on the road, and fewer miles-per-gallon With congestion on local roads, numerous stops at short intervals between stops, and lower MPG figures, drivers must spend a lot more time on the road to cover the same distance and costs you more in gas.

  2. More stops lead to more idling and downtime Many courier drivers are paid by the hour and navigating on local roads with numerous traffic signals, traffic, and multiple stops drives up costs. The average courier van consumes 0.84 gallons per hour while idling at a light, making a delivery, or when stuck in traffic.

  3. Failed deliveries When you are distributing goods to delivery hubs or supply chain partners, you do not have to worry about failed deliveries but when you are delivering products to the final customer, failed deliveries are a massive part of the equation. A single failed delivery costs $17.78, on average, and an astounding 5% of all final mile deliveries fail.

  4. Complex routes lead to more out-of-route miles With many individual stops, it is a lot easier for drivers to lose track of the route and rack up unnecessary miles. Research shows that out-of-route miles can account for up to 10% of the total mileage of a delivery fleet.

  5. Returns, refunds, or discounts The average return rate of e-commerce products is a whopping 20%. If you sell consumer products online, you can expect at least one in five customers to send their purchased product back, either for a refund or for a different item (which you will have to deliver again and oftentimes for free).

To combat these challenges, firms need a robust Transportation Management System (TMS) capable of developing routing for your drivers to minimize the miles run, avoid known traffic hotspots, identify delivery windows, and dynamically adjust to changes. Route optimization can help you more efficiently manage your delivery fleet, increase your delivery capacity, and minimize failed deliveries — turning final mile delivery from a problem into a business asset.

Last Mile Delivery is not to be taken lightly or be entered into without considerable thought about how you manage your processes, who you partner with, and what capital you are prepared to support. RCSG stands ready to work with you through this process and develop a strong plan for your firm.


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