No Match Found
Increased demand for home delivery from the recent Covid lockdown looks set to stay as shopping habits shift further online. For the first time in its 500 year history Royal Mail recently announced parcel revenues have overtaken letters after seeing unprecedented volume growth this year, with people spending significantly more time at home and unable to go shopping in-store. This growth in home delivery has continued with Black Friday sales and the peak Christmas shopping period increasingly being done online. The PwC golden quarter research shows for Black Friday in 2019 in-store shopping was already as low as 23% of sales, with this decreasing in 2020 due to the impact of Covid. This growth in online shopping is following the trend set with Singles Day in China seeing Alibaba report $51bn of sales in a day, rising 26% on the previous year.
As last mile carriers continue to respond to both Covid and the consumer’s shift in shopping habits, there are three key market trends that are changing the last mile delivery sector:
Customers want reliable, fast, responsive and flexible delivery times that fit around their lifestyles and schedules
Retailers and technology companies are investing significantly in solutions to provide last mile offerings since barriers to entry are deemed low
An increased focus by regulatory bodies on environmental policies, such as emissions targets and other “green” friendly regulations
Those three factors, combined with volume growth and market pressures have accelerated the need for traditional last mile carriers to transform and digitise their operations to remain competitive.
With so much data and new technologies available, being able to interpret the data, maintain flexibility and complete proof of concepts quickly to learn and fail fast is imperative.
Customer demands are changing and speed is of the essence to remain competitive. Volume continues to grow as shoppers move from the high street to online. There is also a move, led by Amazon, towards free or subscription based next day delivery. While consumers are still highly price sensitive on delivery options, there are now over 15 million UK shoppers who have signed up to Amazon Prime. This subscription not only brings additional revenue in from the service fee but also drives spending, with Amazon Prime members spending 230% more than non prime members in 2019. Consumers are not just looking for faster delivery times but they are also pushing for increased flexibility and visibility; they want to be able to select the timing and location of each delivery and be able to track that delivery all the way through the supply chain.
Technology is driving new and innovative ways of being able to deliver to customers. From drones to automated vehicles, technology giants are looking to take a share of the growing last mile market. While carriers have previously invested in in-house technology to enhance their delivery model (increasing efficiency, optimising routes, and providing traceability) they will need to accelerate this to remain competitive with the specialist technology companies. Traditional vehicles and methods of delivery in both urban and rural areas will be outdated within 5 to 10 years based on the predictions by the top automotive companies for the timelines for autonomous vehicles.
Environmental awareness is growing and with that consumers and governments are increasingly focused on sustainability, making purchasing or policy decisions based on the potential environmental impact. Boris Johnson’s recent 10 point plan laid out measures to scale up the nation’s climate ambition. Major cities are setting timelines for going fully “green”. London continues to expand and improve its environmental policies; this year in April the Ultra Low Emissions Zone (ULEZ) came into force in central London and will expand to an area as far as the North and South circular roads from October 2021. These types of policies are not just confined to the capital, Bristol City Council has approved a ban on all diesel cars in the city centre during the day from 2021. This ever-changing regulatory landscape will only continue to expand across the UK; fundamentally changing carrier networks, delivery methods and vehicle requirements as plans accelerate to stop the sale of petrol and diesel vehicles.
With such a dynamic environment how can last mile carriers remain competitive and keep up with customers, technology and policies?
Companies are harvesting more and more data on their supply chain and their customer’s habits. Using Artificial Intelligence (AI) to comb through big data can have a myriad of benefits. The insight gained can improve everything from vehicle routing, to inventory optimisation and vehicle fill. With the Internet of Things (IoT) being applied to more areas of a company’s assets, AI can be used to make sense of the live data and drive significant cost reductions and efficiencies in real time. The key being in the ability to interpret the data to implement changes! Carriers need to focus on creating the capability to dynamically plan routes, enabling optimisation live as orders are received, matching the customer requirements for delivery with the lowest cost delivery options.
Taking on the new market entrants (in the form of tech companies) may be a challenge too big to face alone. Collaborating with competitors to maximise deliveries through greater drop density, improving vehicle fill and utilisation can help carriers remain competitive but will need to find a way to make the commercial arrangement beneficial and fair for both parties. Collaboration between carriers and retailers could offer a route to near immediate delivery by using predictive analytics based on customers previous purchase history, combined with targeted deals could mean products are ready for delivery before the customer even knows they wanted it. Greater collaboration could see customers provided with a far more accurate options for delivery based on local availability of stock, courier availability and location. Companies willing to collaborate can be rewarded with greater profit margins and further growth opportunities.
Reducing the cost of each delivery remains a key aim for carriers and retailers, after years of looking for efficiency gains, driving further efficiencies in the current last mile model will need collaboration, AI, IoT and dynamic planning to improve service and save cost. However, this may not be enough to prevent losing market share unless more innovative measures are made to remain competitive.
While carriers focus on transforming their business models by lowering costs, dealing with legacy systems, and often complex labour arrangements with unions, newer entrants can focus on investing in alternative technological delivery models and more flexible labour arrangements giving them a distinct cost and speed to market advantage.
The Uberisation of last mile delivery and the gig economy is growing, enabling higher flexibility on drivers, therefore reducing the fixed cost of a large driver base with a fixed fleet. This flexibility can allow the newer last mile providers to match peaks and troughs in demand and match costs in a more agile way.
Currently, deliveries still rely on humans for the last mile, but autonomous delivery methods are being widely developed and tested, and are due to change the landscape for last mile delivery. With drivers being one of the biggest costs for carriers, the benefits to the bottom line of moving to autonomous delivery is so large that the investment in these technologies is increasing every year. The use of small automated vehicles to deliver parcels in urban areas might be closer than you think. A mobile delivery locker self-driving to your door with your package is likely to take over urban city deliveries. Outside of the main cities, drone deliveries for remote areas and smaller parcels are already being trialled for the Isle of Mull in Scotland, with larger cargo drones set to impact transport options further up the supply chain. The regulation and implementation of these technologies presents a challenge to be overcome, but with governments committing to go green, it’s only a matter of time until they become more commonplace.
As the last mile market grows, companies are having to flex to meet demand, as seen by Tesco needing to expand its home delivery by 3,000 delivery drivers to meet Covid 19 demands.
Last mile carriers will have to overcome the HR challenges of a large driver base while new entrants can focus on flexible labour models and making autonomous vehicles hit our pavements, roads and airways.
With so many factors impacting the last mile sector, what are the next steps to take to transform businesses?
Consultant, PwC United Kingdom
Tel: +44 (0) 7483 400231