Last-Mile Delivery: Balancing Speed, Price, and Customer Expectations

In the rapidly evolving world of e-commerce, the term "last-mile delivery" has become a buzzword that resonates with both businesses and consumers alike. In this article, we break down the concept of last-mile delivery, its key aspects, and its impact on the overall customer experience.

What is Last-Mile Delivery?

The term "last mile" originally comes from the telecommunications industry, where it described the challenges of connecting end users' locations to the main telecommunications network. The last "mile" of cable or wire serves only one customer, making it difficult to distribute the costs of installing and maintaining this infrastructure. In contrast, the main sections, or "trunks," of the network can spread these costs over many customers.

In logistics, "last-mile" or "last-kilometre" delivery refers to a similar issue: it represents the final stage of the delivery process, where a package is transported from a distribution or transportation hub to its final destination, such as a customer's home, office, or a designated pickup point. This stage is critical as it constitutes the customer's last point of contact with the delivery service. Last-mile delivery can utilise various modes of transportation, including vans, trucks, bicycles, and even drones.

The popularity of online shopping and delivery services has steadily grown over the past few decades, but it exploded during the Covid-19 pandemic. For example, in 2019, 81% of the U.S. consumers surveyed said they had never bought groceries online, but nearly 79% of shoppers have ordered online during the pandemic. During the same period, the number of online customers in the U.S. increased from 16.1 million to 45.6 million. As many people around the world shifted to online shopping, the dynamics of the shipping market changed significantly. This shift accelerated growth, altered customer behaviour and expectations, and highlighted the critical importance of last-mile delivery.

Key Aspects of Last-Mile Delivery

Customer Experience

The last-mile delivery experience directly affects customer satisfaction. Consumers today expect fast, reliable, and convenient delivery options. A successful last-mile delivery can elevate the shopping experience, leading to repeat business and positive reviews. According to research, 93% of users check reviews online before purchasing a product or service, and 80% don't buy from a company with bad reviews.

A survey conducted in several European countries revealed that 85% of online shoppers say that a poor delivery experience would prevent them from ordering from that online retailer again. Meanwhile, another study discovered that 13% of users would share a bad experience or poor delivery service with at least 15 people or more. In other words, a bad experience would not only lead to losing a customer but also might influence the buying decisions of their friends and family.

Speed and Efficiency

Speed has become a significant differentiation factor as competition intensifies in the e-commerce sector. Businesses that can efficiently manage last-mile delivery can offer shorter delivery times, giving them an edge over competitors. Innovations like same-day or next-day delivery have become standard customer expectations.

According to The Retail Industry Leaders Association, 90% of customers expect two or three-day shipping to be standard, and 32% of global shoppers will abandon their carts if an estimated shipping time is too long. Another study revealed that consumers often value the speed of delivery more than the price. If they could change one thing about their general delivery experience in online shopping, 48% of consumers worldwide would want faster delivery, while 43% would choose cheaper delivery.

Cost Management

36% of European respondents cite the cost of delivery as a determining factor for their purchase among the 16 criteria listed. For many, it is even the most important criterion (32% in Germany, 38% in France). Although the delivery cost is important for consumers, it is crucial for businesses because last-mile delivery can often cost more than a shipment. According to Forbes, last-mile delivery accounts for 53% of the total shipping cost, and ongoing inflation is making it even more expensive. Techniques such as route optimisation, local fulfilment centres, and leveraging technology can enhance efficiency and reduce costs. For e-commerce businesses, optimising this stage can lead to substantial savings.

One of the largest online retailers in the world, Amazon, processed 5.9 billion delivery orders in 2023 in the U.S. alone—that equates to 16.16 million orders per day or more than 673,500 per hour. Amazon compensates for some of these costs by collecting a $2.99 fee for orders under $35 or through its Prime membership. But most online retailers are not Amazon and have to find ways to compete.

Sustainability Challenges

The environmental impact of delivery services is a growing concern. While sustainability often is not the most important factor in consumers' purchasing decisions, shoppers are increasingly aware of their carbon footprint. A study by GreenPrint found that 77% of Americans are worried about the environmental impact of the products they buy, and 64% are willing to pay more for sustainable goods. Additionally, 78% of people are more likely to purchase a product labelled as environmentally friendly.

The European Union represents another significant market that prioritises sustainability in shipping. Recently, the European Commission introduced a new strategy to address the environmental, quality, and commercial issues arising from a surge in imports from non-EU countries, particularly China. Last year, approximately 4.6 billion low-value goods (valued at €150 or $156 or less) entered the EU market, averaging more than 12.6 million parcels daily. You can read more about the European Commission's plan on our KATA Global Logistics Blog HERE. Nonetheless, whether it is the United States, the European Union, or any other country, sustainability is an important issue on personal, organisational, and societal levels. As a result, last-mile delivery companies must contribute to this effort and are already exploring sustainable delivery options, such as electric vehicles and carbon-neutral shipping practices.

Technology Integration

The rise of technology in logistics has transformed last-mile delivery. Integration of GPS tracking and real-time delivery updates allowed companies to manage their processes better, but also contributed in creating high expectations from customers. Today, 90% of online shoppers expect to conveniently track their orders, preferably with a real-time visibility. If they are unable to do so, more than 60% will consider looking for another retailer.

As delivery services compete on speed, price, customer experience, and sustainable practices, technology becomes the crucial factor of success. Alongside apps for better customer experience, and location tracking for gathering useful data, last-mile delivery services are integrating advancements in automation and artificial intelligence to streamline operations and reduce delivery times. Additionally, new types of delivery transportation emerged, such as drones, which could make last-mile delivery into an autonomous process.

The Future of Last-Mile Delivery

As e-commerce continues to grow, so will the significance of last-mile delivery. Last year, the global last-mile delivery market was valued at $179.5 billion and is predicted to reach $481.6 billion by 2034, growing at a 10.5% CAGR. In order to stay in the game, businesses will need to adopt innovative strategies to enhance their delivery capabilities. This may include utilising crowdsourced delivery services, investing in automated delivery technologies, or focusing on localising warehouses to bring products closer to consumers.

As Forbes puts it, "the last mile in the delivery process is the most complicated, most expensive and most important step of all". By understanding and addressing the challenges of last-mile delivery, e-commerce companies can enhance their service offerings, ultimately leading to higher customer loyalty and a stronger market presence. If you need help in creating the best action plan for your business, do not hesitate to contact KATA Global Logistics, which is a leading provider of freight services offering a range of transportation solutions to meet the needs of businesses across the e-commerce industry.

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