The growth of e-commerce and retailers’ investments in multichannel strategies are resulting in the need for additional last-mile network alternatives. National last-mile providers such as FedEx, UPS and the U.S. Postal Service, struggled to deliver on time during the early days of the COVID-19 pandemic due to the rapid shift of online ordering. They have since focused on righting their networks. For UPS, in particular, that has meant focusing on profitable growth instead of volume.
In 2020, total retail sales increased 3.4%, with e-commerce representing 14% of total sales and growing 32.4% year-over-year, according to the U.S. Census Bureau. The sudden shift toward online ordering in 2020 disrupted and overloaded national last-mile providers’ networks, resulting in delays and capacity management measures, including the introduction of COVID-related surcharges and expansion of the definition of “peak season.” Across the U.S., equipment limitations and increased difficulties in attracting, hiring and retailing new talent have impacted every carrier.
UPS and USPS have introduced new strategies aimed at boosting profitability. FedEx is also focused on that metric, and continues to increase collaboration between its business units for faster, more efficient deliveries.
While the national providers stress profitability and capacity management, shipping costs, speed and on-time deliveries remain significant concerns for shippers. As such, the market is witnessing new options in the last-mile market.
Most of these options only operate close to consumers, enabling faster deliveries if the seller has a place of supply within the service area. For example, crowd-sourced online platforms such as Instacart and DoorDash have diversified from just providing grocery and restaurant meal deliveries to partnering with such retailers as Macy’s, Best Buy, Walmart and more to offer same-day deliveries of a variety of goods.
In addition, a host of fulfillment providers focused on e-commerce and multichannel retailers such as STORD, ShipHero and ShipBob are introducing last-mile networks as a means to provide additional capacity. These network offerings typically include partnerships with regional carriers and local couriers to provide faster deliveries.
There are also startups such as The FrontDoor Collective, which is based on a franchise business model and offers a micro-last-mile delivery network that covers 90% of residences and businesses in the U.S. and Canada.
Retailers are also jumping into the last-mile market, such as Walmart and its Go Local initiative, and Home Depot’s last-mile technology platform and crowd-sourced delivery service known as Spark.
Target’s last-mile delivery service subsidiary, Shipt, is also a crowdsourced delivery player and provides services for Target and other retailers such as Costco, Bed Bath & Beyond and Petco.
Don’t forget the regional small-parcel providers. LSO, Spee-Dee, UDS, LaserShip, OnTrac and GLS,have been around for years, offering regional last-mile delivery services for shippers. But they didn’t really come into their own until shippers turned to them as a means of locking in capacity ahead of the peak holiday season in 2020. Since then, more shippers have incorporated them into their last-mile delivery mix to ensure capacity in particular regions.
This renewed interest in small-parcel regional providers is also ushering in consolidation with the recent LaserShip acquisition of OnTrac, which could potentially rival FedEx, UPS and perhaps USPS.
Outlook:
Gone are the days when shippers’ last-mile strategies only included FedEx, UPS and USPS. Today, shippers need a diversified approach to ensure capacity, delivery speed options and affordable shipping costs. Last-mile providers are rapidly expanding the number of markets they serve, and shippers need to embrace strategies to access those carriers’ services and create visibility needed to manage orders from shipment to delivery.
Daniel Weiss is senior vice president, Parcel Innovation Center, with Transportation Insight.
