Parcel costs are on the rise and customers disapprove of growing numbers of delivery vans on the streets. As a result, cities and the logistics industry are piloting alternative solutions in last mile innovation.
The Online Boom Drives Parcel Volume
The ongoing boom in ordering goods online has led to a boom in the logistics industry in the Netherlands with 295 million packages delivered (plus 30% compared to 2015). However, it is only now that consumers have begun to complain about the high number of delivery vans clogging up the narrow streets of Amsterdam.
And volumes are expected to grow further: today’s B2C online share in spending in the Netherlands is about 23% (2017) and forecasted to grow by 61% until 2023 to 37% of total consumer spending (Source: GfK). Last mile innovation is essential as the volume of packages is expected to grow at a similar pace.
Delivery Cost on the Rise
For etailers, this growth can come at a high price in their supply-chain: wages for delivery personnel, which make up 50% of the costs per parcel are growing quickly, partially due to the scarcity of personnel on the labour market. While logistics service providers have not yet been able to charge these costs through to etailers, this is likely to change in the near future. Make no mistake, passing on these prices to a customer who has become used to free delivery and an increasing number of delivery options, will not be possible. Finding ways to reduce parcel costs is therefore becoming an urgent matter for logistics providers.
Another cost driver is regulation: larger cities like Utrecht and Amsterdam have declared a complete ban of combustion engines for inner city delivery vans from 2025. This means that logistics service providers will need to change their fleets to expensive electric delivery vans and/or delivery bikes.
Innovative Solutions to Tackle the Last Mile Challenge
To respond to these new requirements, DHL and BOL.com (the largest online store in The Netherlands) have introduced electric delivery bikes for inner cities. And the Netherlands’ largest online grocer, Albert Heijn Online as well as brewery Heineken plan to increase the use of electric vehicles over the next few years. The challenge that less cargo loads onto an electric delivery van due to the heavy battery is met by special permissions from the authorities for drivers with a standard drivers’ license to drive heavier load electric trucks.
It is questionable, however, whether these initiatives alone are scalable to the extent of coping with the considerable increase expected in the number of packages sent.
Examples for innovative solutions to reduce last mile costs are often found at Dutch online grocers. Albert Heijn Online, for example, optimizes delivery routes by enticing customers to pick wider ‘green’ delivery windows to help reduce kilometres driven.
Dutch online grocer Picnic has introduced the ‘milk-route’, that is, driving the same route along each customer every day at the same time. This is efficient, as it means that no delivery van is driving by the same address more than once per day.
Other examples to optimize routes to reduce last mile costs are the use of smarter algorithms and real-time-scheduling, increasing the load rate per van, km/customer and cost eventually.
There are also first experiments in reducing the larger than needed packages found in stores, which can be especially interesting for smaller electric vehicles. Procter & Gamble’s e-commerce innovation team has redesigned the packaging of Tide laundry detergent (note that this example is from the US and not the Netherlands) from a bottle to a cubic shape, similar to a wine box, which allows for more efficient packing of delivery vans.
However, the best way to reduce parcel costs is to reduce the overall volume per EUR sold. Fashion brands are refining and standardizing their fits and sizes to reduce the high number of customer returns. Scotch & Soda, for instance, encourage in-store returns by asking customers to pay for the return package if not returning in-store.
Do I Need to Change My Supply Chain?
Whilst the labour cost pressure driving cost per parcel may be lower in the market you are operating in, we do know that other cities and local governments are watching the Netherlands closely with regards to their unique push on electric driving in inner cities. And while we can simulate the effects of rising costs and changing delivery modes on the supply chain, no desk research can replace a one-day visit to an inner-city hub or riding a cargo bike and experiencing the effects of electric transport infrastructure first hand. Please get in touch with the author if you would like to explore last mile innovation further.
About the Author:
Maximilian Gellert gets excited about transforming a range of digital options into pragmatic every-day solutions for retailers. Combining consulting experience with industry functions in premium apparel and online grocery, he supports retailers and etailers in their digital challenges and last mile innovation. Get in touch with Max via email or connect with him on LinkedIn.