The “last mile” of delivery—that final leg from warehouse to customer doorstep—often represents the biggest chunk of the logistics cost pie. In an age of rising customer expectations and fierce competition, keeping last-mile expenses under control is crucial for businesses to thrive. But fear not, there are several strategic tactics you can employ to transform your last mile into a profit driver.

Let’s dig into it together!

Understanding the Last-Mile Cost Landscape

The last mile of delivery, which refers to the final stage of transporting goods from a distribution center to the customer’s doorstep, is often the most expensive and time-consuming part of the supply chain. In fact, it can account for up to 53% of the total delivery cost. This is due to a number of factors, including:

• The complexity of urban environments: Delivering to individual addresses in congested cities is much more challenging than shipping goods between bulk distribution centers.
• The need for speed: Customers increasingly demand fast delivery times, which often requires using more expensive transportation options such as vans or cars.
• The rise of e-commerce: The growth of online shopping has led to a surge in demand for last-mile delivery services, putting further pressure on costs.

For businesses, understanding the last-mile cost landscape is essential for optimizing their supply chains and improving their bottom line. Here are a few key factors to consider:

• The cost of transportation: This includes the cost of fuel, labor, and vehicles.
• The cost of warehousing: This includes the cost of storing goods and picking them for delivery.
• The cost of packaging: This includes the cost of boxes, labels, and other materials.
• The cost of returns: This includes the cost of processing and shipping returned goods.
• The size and weight of your goods: Heavier and bulkier goods are more expensive to ship.
• The distance your goods need to travel: The further your goods need to travel, the more expensive they will be to ship.
• The type of delivery service you use: Some delivery services are more expensive than others.

By considering all of these factors, you can get a better understanding of the last-mile cost landscape and develop strategies to reduce your costs. Those factor are also the reason behind your question, “Why are last mile costs so high?”

How Much Does Last-Mile Delivery Cost?

Last mile costs are very high. That’s a fact we all agree. That is also the reason this article was created. But, have you ever found out what the actual average last-mile delivery cost is in the market today?

While pinpointing an exact figure is challenging due to the multitude of influencing factors, studies paint a clear picture: last-mile delivery represents a significant portion of overall logistics costs. Here’s a breakdown from reliable sources: 2023 Last-Mile Delivery Cost Estimates.

• Percentage of total supply chain costs: 41% to 53%

This range, highlighted by Routific, emphasizes the significant impact last-mile expenses can have on your bottom line.

• Cost per package: $10 to $50

This Shopify estimate provides a general range. However, keep in mind that heavier items naturally skew towards the higher end. This likely pushed the average cost closer to the upper end of the range.

• Failed deliveries: $17.20 per instance

This Onfleet data point underscores the importance of optimizing routes to minimize failed attempts.

Even though these are just estimates, and your specific costs in 2023 will likely vary depending on your specific circumstances, you can gain greater control over your last-mile expenses and turn them into a profit driver for your business by understanding these cost drivers and implementing the optimization strategies mentioned before.

Strategies to Reduce Last-Mile Delivery Cost

Apart from the reasonable reasons for high last mile costs, there are actually ways you can overcome this problem. These strategies can be broadly categorized into three main areas: optimizing delivery routes, using alternative delivery methods, and leveraging technology.

By implementing these strategies, businesses can reduce their last-mile delivery costs and improve their profitability.

1. Optimizing Routes for Efficiency

You can embrace technology to optimize routes for efficiency. Route optimization software uses algorithms to plan the most efficient delivery paths, considering factors like traffic, distance, and delivery windows. Studies show this can reduce route length by up to 20%, saving fuel and driver time.

Besides that, you can try to micromanage your deliveries. Real-time tracking solutions help monitor driver activity and adjust routes dynamically based on traffic changes or unexpected delays. This ensures optimal route adherence and minimizes wasted time.

Also, consider grouping orders destined for the same area for multi-stop deliveries. This reduces the number of individual trips and fuel consumption. With just these three efforts, you can reduce quite a lot of the costs you usually have to pay. Especially if later you find combined technology that supports this strategy on a more massive scale.

2. Empowering Customers for Choice

First thing first, provide your customers with a choice between faster (but potentially more expensive) options and slower, more economical ones. This caters to diverse needs and allows customers to prioritize cost or speed.

Allow them too to pick up their orders at physical stores, eliminating delivery costs altogether. This can be particularly effective for bulky or less time-sensitive items. Viewed from a broader perspective, this option is also a wise middle ground for both parties. To attract this habit, you can start with attractive promotions, instead of just offering 0 cost for the delivery.

If needed, you can try to partner with locker networks. Utilize secure parcel lockers where customers can pick up their packages at their convenience. This reduces delivery attempts and driver wait times.

3. Optimizing Operations for Smoothness

Match your vehicle choices to delivery needs. Consider fuel-efficient options like electric vehicles for urban areas and larger vans for bulk deliveries. Instead of saving at the beginning for a bad ending, what if you invest in driver training? Equip your drivers with the skills and knowledge to navigate routes efficiently, avoid unnecessary stops, and optimize delivery processes. This can significantly improve delivery speed and reduce costs.

Those are the three main strategies that you can try to reduce last mile delivery costs. In each point, you can dissect in more detail what you can do.

But remember! A successful last-mile strategy isn’t just about cost reduction; it’s about creating a seamless and positive customer experience. By implementing these strategies, you can streamline your operations, reduce expenses, and turn your last mile into a true profit driver, all while keeping your customers happy.