Logistics in cities, the challenge of last-mile delivery

Category |Market Commentary
Author |Karl Chammas

“Every week until 2050, one million people will be added to our cities”, says Geoffrey West, a renowned scientist who studies the behavior and development of cities. Increase in the urban population is going to affect the whole society and, more particularly, the transportation of goods within cities. Accelerating urbanisation greatly impacts consumers’ practices and fuels the development of e-commerce. Deliveries to end customers have thus become a key challenge for urban planners and logistics providers. This challenge is referred to as “last-mile logistics” or the “last-mile problem”, where “last mile” refers to the last leg of whole supply chain process, as goods are sent out from a transportation hub to the end-user.
What challenges are posed by today’s consumers behavior? What is their impact on today’s cities logistical organisation? These are unprecendented shifts that ones needs to analyse in order to identify future trends that will affect commercial real estate.

Consumers’ behavior trending towards an era of high quality and bespoke service

Consumer behavior habits are very much impacted by the fast emergence of new technologies. Consumers are using less traditional channels while digital technology and innovation are rapidly altering consumers’ habits. E-commerce shopping allows customers to instantly compare several offers at the same time without moving from their home or office and home deliver the product to the opposite side of the world.

E-commerce is nowadays a solicited retail channel by business owners as this service helps enhancing revenues, if efficiently managed. As customer relationships are becoming so critical, last-mile distributions turn out to be a vital part of the global supply chain. Consumers’ expectations regarding delivery services have significantly increased: they are more demanding not only in terms of quality of products, but also in terms of level of supply (product differentiation, customization) as well as delivery time (same day delivery service).

Regardless of the sector they operate in (food, retail…), business owners try to explore opportunities by adding e-commerce and home deliveries to their service mix. Companies must therefore re-think and re-design their last leg delivery strategy to ensure that online services are at the same time agile and profitable for this service to be praised by consumers.

Congested infrastructure in cities fuels consumers’ demand for last-mile logistics solutions

Distribution of goods from warehouses located far from the cities outskirts has been increasingly challenging for delivery companies to efficiently deliver to end-customers. The last leg of the supply chain represents the less efficient and most costly part of the whole process, amounting to approximately 28% of the total transportation cost.

The disproportionate expense of the last mile delivery is caused by the difficulty of reaching end-customers, particularly in congested urban areas. The boom in e-commerce makes it even more difficult to distribute the package at a convenient time for both carrier and customer. All packages tend to be delivered at the end of the day, when customers have finally returned home, but also during rush hours period. The growing number of vehicles in urban areas implies increased congestion, while delayed deliveries have a detrimental impact on customer satisfaction. As a result, business owners have restructured their delivery strategy by integrating innovative logistical solutions to tackle this “last-mile” problem. These solutions aim at efficiently linking long-haul transport to short-distance deliveries to the final users.

Lean supply-chain management through “cross-docking centers” implanted in cities outskirts

The aim of smart-city logistics is to decrease the number of empty vehicles in urban areas. Typically, the objective is to develop a consolided logistics network in the Central Business District (CBD) outskirts to allow fully loaded vehicles to do last-mile distributions. Here, the number of distribution centers and their location is essential: delivery speed and transportation costs will be reduced only with a dense netwok of distribution centers located close to end-consumers. To increase the efficiency of the fleet management, logistics providers rely on so-called “cross-docking” warehouses. As pictured below, these warehouses are designed to accomodate the unloading, sorting and reloading of products received from different suppliers and destined to several consolidated destinations within CBDs:

Moreover, cross-docking increases delivery performance by greatly reducing the number of inefficient journeys within congested city centers. Cross-docking distribution centers are thus welcomed by all stakeholders of the supply-chain:

 

Supplemented by Smart Lockers Terminals, cross-docking facilities can efficiently accomodate the inadequate level of congested infrastructure of large cities.

Smart Lockers Terminals increase flexibility and efficiency for both carrier and customer

When it comes to delivery services, customers’ main desire is to control “when” to receive the package. Traditionally, logistics providers pre-define a delivery window, usually forcing customers to get back home or stay on stand-by for a couple of hours until the package is delivered. Unsuccessful deliveries represents a key problem for both the customer and carrier. This service is fast being replaced with more a flexible one that allows consumers to better control when to pick-up the package. Case in point, Smart Lockers Terminals (illustrated below) brings an effective solution to absorb the growth of e-commerce in urban areas: customers can, at their most convenient time, pick up their belongings by logging themselves to these intelligent terminal interconnected with the delivery company’s system.

Although customers must move to the locker to get the package, a dense smart lockers network spread across the city will most probably take the customer a few minutes to access it. In fact, localization is key to this solution’s success. Units must be deployed in convenient and highly frequented public location such as malls, shopping areas, train stations, etc., for customers to consider having their packages delivered to smart lockers instead of home delivery option. Moreover, customers will be able to choose the locker’s location somewhere on their commuting route.

E-commerce, a game changer

While e-commerce service is expected to grow in popularity in the years to come, cross-docking center implanted in strategic location will surely experience firsthand a growing interest for both business owners and logistic providers. Successful companies will be those embracing the rapid pace of logistics innovation to address last-mile delivery challenges with firsthand innovative and cost-effective solutions to ship packages to end customers.