Market throws last-mile providers a change-up as consumers, retailers pivot
The pandemic supercharged last-mile delivery as stuck-at-home consumers ordered everything from treadmills to computers and furniture for their homes. Now with Covid subsiding, pocketbooks thinner, and inflation rising, is last-mile growth hitting a wall?
Gary Frantz is a contributing editor for DC Velocity and its sister publication CSCMP's Supply Chain Quarterly, and a veteran communications executive with more than 30 years of experience in the transportation and logistics industries. He's served as communications director and strategic media relations counselor for companies including XPO Logistics, Con-way, Menlo Logistics, GT Nexus, Circle International Group, and Consolidated Freightways. Gary is currently principal of GNF Communications LLC, a consultancy providing freelance writing, editorial and media strategy services. He's a proud graduate of the Journalism program at California State University–Chico.
During the pandemic, fitness equipment for the home, computers and monitors, and furniture for newly established home offices filled the trucks of last-mile delivery providers. That, along with consumers relegated to their homes and undertaking all types of home improvement projects, drove last-mile volume growth at a 40% annual pace as over-the-threshold, “big and bulky” deliveries surged.
Fast forward a year. Consumers are still ordering goods for home delivery and installation, but often after visiting a brick-and-mortar store versus going online and filling a digital shopping cart. And while by some accounts, orders of fitness equipment and electronics have “flattened,” consumers have tossed the market a change-up, ordering goods for delivery to hybrid offices, being more selective about what they’re buying for the home, and scaling back on discretionary purchases as inflation raises the costs of virtually everything.
“What [the last-mile market] did in 2020 and ’21 was not reality,” nor was it sustainable, notes Satish Jindel, chief executive officer of shipping analytics firm ShipMatrix. “With [government stimulus payments,] everyone believed there was a Santa. But Santa is real only for children,” he quipped.
Instead, consumers are shifting much, though not all, of their spending back to services, Jindel says, adding: “People want and need human interaction, which is why you find people [doing more] eating out, spending more on travel and entertainment, and going back to the gym” while dialing back on buying big and bulky goods for the home or office.
RESIDENTIAL ON A ROLL
Estes Express Lines, as a less-than-truckload (LTL) carrier, has performed residential deliveries for years, notes Billy Hupp, the company’s executive vice president and chief operating officer. But it has been in the last five years that the company has formalized last-mile home delivery as a discrete service, investing in specialized equipment, driver training, and a complementary agent network in locations where Estes doesn’t have a significant presence.
During the pandemic, “we delivered more 65-inch TVs than the world could ever use,” joked Hupp. Estes does not itself do the “white glove” in-home delivery and installation service, instead deploying a network of agent-partners to provide those deliveries with two-person teams. The majority of Estes’ home deliveries are “to the threshold” service. “We do help get it in the house or put something in a garage or the backyard, as an accommodation if the customer requests it,” he clarifies. A dedicated customer service team for residential is there to help as well, while Estes’ tech platform provides real-time ETA updates texted to the consumer’s phone.
Like other providers, the company has seen a shift in the types of products going to homes in the past year. Where there once was a preponderance of electronics, fitness equipment, and office furniture, now it’s goods like pavers for a driveway. Patio furniture and backyard play structures. Outdoor grills. Tools and materials for home improvement projects, where the customer orders online and Estes delivers it to the home on behalf of the retailer.
Nationwide, Estes operates from 220 terminals, with a fleet of some 7,500 tractors and 30,000 trailers. As the residential business has grown, so has Estes’ investment in it. Today, Estes deploys some 2,000 lift-gate–equipped units, a combination of straight trucks and 28-foot pup trailers, and 1,000 electric pallet jacks. The carrier has also upped its game on mobile technologies and customer-facing apps that improve visibility and communication. An added benefit of these investments has been driver satisfaction, says Hupp. “Adding lift gates and providing pallet jacks is a real advantage that improves driver’s daily work experience and makes for a better customer experience as well,” he says.
He cites the company’s LTL network, which provides often-needed flexibility and capacity, as another advantage. “When a residential delivery agent gets swamped, we can swing some of that freight into LTL and vice versa,” he notes. And while the overall last-mile home delivery market has flattened somewhat, it remains an in-demand service that will continue to grow. “We’re here to stay,” he says. “We’ve equipped ourselves to be multifaceted in our approach so we can be more flexible, and that’s a competitive advantage.”
THE TOUGHEST JOB IN TRUCKING
The last-mile, big-and-bulky over-the-threshold business is one of the hardest jobs in trucking from a driver’s standpoint, observes Jeff Abeson, vice president of business development for Ryder. “You’re driving a very large vehicle in residential areas. You’re carrying heavy stuff into people’s homes, goods they’ve spent a lot of money on,” he explains. “And then you’re assembling it and sometimes taking away the old goods that are being replaced.”
Ryder operates a national network of 82 locations that serve as hubs for last-mile home deliveries. And while the market has shown signs of softening, “we are still seeing an incredible amount of volume” of last-mile business, Abeson notes. Companies are still dealing with back orders of goods, balancing and repositioning inventories, and managing through the residual supply chain effects of earlier port delays and rail congestion.
Where future demand is headed is tough to predict. Yet the fact of the matter is that the business of hard goods delivered into the home, in Abeson’s view, has not really slowed. “It’s hard to get your head wrapped around that [post pandemic] … since while many are back in an office, many more people are still working from home.” And because they’re spending so much time in the same space, that’s where they’re making their investments.
The majority of Ryder’s last-mile business is over-the-threshold, in-home deliveries, often with installation, Abeson notes. The infrastructure supporting that service is challenging. It requires systems, physical warehouse capacity, labor resources, and specialized equipment. Variability is constant in a business where “your forecast really is only as good as your customer’s forecast,” he says, adding that Ryder works diligently with its customers to flex capacity to match demand.
The biggest focus for Ryder, Abeson says, is continued material investments in technology evolving around the end consumer. “It could be as simple as scheduling a delivery and putting an appointment automatically on [the customer’s] calendar, then sending them text updates. It gives the customer confidence we’ve scheduled them and are following up,” he says. Such technologies “reduce inefficiency because we’re more predictable and we’re delivering the first time more often.” Speed to the customer also is high on the list. To enable quick deliveries, Ryder’s customers are forward-stocking fast-moving SKUs (stock-keeping units) at Ryder facilities. “We are all being conditioned in that way” to expect fast deliveries, he says.
One continuing wrench in the works, a holdover from the pandemic: supply chain delays creating partial orders. “You bought a table and six chairs, but only the table is in the warehouse,” Abeson explains. “You’re not interested in just getting the table. You want the whole order at one time. So, from an operator’s perspective, we have to account for how that affects warehouse space and labor, driver labor, and scheduling. “Many of our customers’ supply chains continue to be challenged in this way, but we just have to manage it and support our customers.”
FLAT VOLUMES, CHANGING MIX
Fernando Rabel, interim president of last mile for RXO, a digital truck brokerage that was spun off from XPO as an independent company this fall, sees two immediate effects on last mile from the post-pandemic environment. “First, the increase in operating costs has been significant and impactful. Second, high inflation has impacted the overall market for furniture and appliances.”
And while RXO’s delivery volumes remain relatively flat compared with a two-year average, “we believe we are well positioned to maintain our lead while capturing even more share within this $16 billion industry.”
From a product perspective, “we’re seeing the typical cyclicality one would expect, with appliances more resilient than bedding, furniture, and fitness equipment,” Rabel says. He cites one metric that points to continued strong growth in last mile: “By 2025, heavy and bulky penetration is expected to increase to nearly 30% of all e-commerce. We expect in the long term that this tailwind will drive continued demand for last-mile services,” he says.
He notes that RXO Last Mile covers 159 markets, with its network putting it within 125 miles of 90% of the U.S. population. The company handled more than 11 million deliveries last year.
NO MORE WHITE BOARDS AND SPREADSHEETS
Dennis Moon, chief operating officer for Roadie, a company that utilizes a crowdsourced network of drivers to make same-day deliveries and which is now part of UPS, says that shipper supply chains continue to evolve in an effort to “get product closer to the customer. That’s everyone’s holy grail.” He cites as an advantage “the scalability of our platform and its flexibility to move up and down with a customer’s volumes.” His product mix has shifted as well. “We are seeing a lot of lift in the medical area—everything from crutches to wheelchairs. Prescription and medical deliveries are one of our largest growth areas.”
The company also is doing more shipment consolidation to gain density. Before, one of Roadie’s “on the way” drivers might make one pickup and deliver it. Now through sophisticated technology, they are doing more batching and consolidating, which is good for drivers, who can make more money, and good for shippers, who benefit from a better rate.
Technology advances and innovation also are driving more responsive operations and customer service for last-mile carriers. End-user consumers want an Uber-like experience that gives them flexible delivery options, up-to-the-minute visibility into shipment status, and an immediate feedback loop post-delivery. New cloud-based, low-cost systems are rising to the challenge, bringing sophisticated tools that once were the domain of the large players to smaller operators.
Krishna Vattipalli is chief executive of software developer Fleet Enable, which provides a full-cycle platform and workstreams that help last-mile fleets wean themselves from manual workflows and drive better processes. “Many small to mid-sized operators are using at least four different systems,” including spreadsheets and even white boards, to plan and run their business, he says. Fleet Enable provides a single-source solution for last-mile delivery fleets, optimizing 16 workflows in the lifecycle of an order, including appointment scheduling, route and capacity optimization, visibility tracking and alerts, asset forecasting, payroll, and billing and invoicing.
Even with companies bringing workers back to the office, there are still many working from home or on a hybrid schedule. That’s extending demand for big-and-bulky last-mile service into B-to-B (business-to-business) markets, complementing B-to-C (business-to-consumer) deliveries. That, along with a continued demand for speed and convenience, is one reason last-mile delivery will continue to grow, Vattipalli believes. “Technology these days is no longer a differentiator; it is a basic requirement,” he says. “Carriers need to be smart about their investments in technology. That will help them achieve better margins and give them an edge to negotiate better with shippers.”
Supply chain planning (SCP) leaders working on transformation efforts are focused on two major high-impact technology trends, including composite AI and supply chain data governance, according to a study from Gartner, Inc.
"SCP leaders are in the process of developing transformation roadmaps that will prioritize delivering on advanced decision intelligence and automated decision making," Eva Dawkins, Director Analyst in Gartner’s Supply Chain practice, said in a release. "Composite AI, which is the combined application of different AI techniques to improve learning efficiency, will drive the optimization and automation of many planning activities at scale, while supply chain data governance is the foundational key for digital transformation.”
Their pursuit of those roadmaps is often complicated by frequent disruptions and the rapid pace of technological innovation. But Gartner says those leaders can accelerate the realized value of technology investments by facilitating a shift from IT-led to business-led digital leadership, with SCP leaders taking ownership of multidisciplinary teams to advance business operations, channels and products.
“A sound data governance strategy supports advanced technologies, such as composite AI, while also facilitating collaboration throughout the supply chain technology ecosystem,” said Dawkins. “Without attention to data governance, SCP leaders will likely struggle to achieve their expected ROI on key technology investments.”
The British logistics robot vendor Dexory this week said it has raised $80 million in venture funding to support an expansion of its artificial intelligence (AI) powered features, grow its global team, and accelerate the deployment of its autonomous robots.
A “significant focus” continues to be on expanding across the U.S. market, where Dexory is live with customers in seven states and last month opened a U.S. headquarters in Nashville. The Series B will also enhance development and production facilities at its UK headquarters, the firm said.
The “series B” funding round was led by DTCP, with participation from Latitude Ventures, Wave-X and Bootstrap Europe, along with existing investors Atomico, Lakestar, Capnamic, and several angels from the logistics industry. With the close of the round, Dexory has now raised $120 million over the past three years.
Dexory says its product, DexoryView, provides real-time visibility across warehouses of any size through its autonomous mobile robots and AI. The rolling bots use sensor and image data and continuous data collection to perform rapid warehouse scans and create digital twins of warehouse spaces, allowing for optimized performance and future scenario simulations.
Originally announced in September, the move will allow Deutsche Bahn to “fully focus on restructuring the rail infrastructure in Germany and providing climate-friendly passenger and freight transport operations in Germany and Europe,” Werner Gatzer, Chairman of the DB Supervisory Board, said in a release.
For its purchase price, DSV gains an organization with around 72,700 employees at over 1,850 locations. The new owner says it plans to investment around one billion euros in coming years to promote additional growth in German operations. Together, DSV and Schenker will have a combined workforce of approximately 147,000 employees in more than 90 countries, earning pro forma revenue of approximately $43.3 billion (based on 2023 numbers), DSV said.
After removing that unit, Deutsche Bahn retains its core business called the “Systemverbund Bahn,” which includes passenger transport activities in Germany, rail freight activities, operational service units, and railroad infrastructure companies. The DB Group, headquartered in Berlin, employs around 340,000 people.
“We have set clear goals to structurally modernize Deutsche Bahn in the areas of infrastructure, operations and profitability and focus on the core business. The proceeds from the sale will significantly reduce DB’s debt and thus make an important contribution to the financial stability of the DB Group. At the same time, DB Schenker will gain a strong strategic owner in DSV,” Deutsche Bahn CEO Richard Lutz said in a release.
Transportation industry veteran Anne Reinke will become president & CEO of trade group the Intermodal Association of North America (IANA) at the end of the year, stepping into the position from her previous post leading third party logistics (3PL) trade group the Transportation Intermediaries Association (TIA), both organizations said today.
Meanwhile, TIA today announced that insider Christopher Burroughs would fill Reinke’s shoes as president & CEO. Burroughs has been with TIA for 13 years, most recently as its vice president of Government Affairs for the past six years, during which time he oversaw all legislative and regulatory efforts before Congress and the federal agencies.
Before her four years leading TIA, Reinke spent two years as Deputy Assistant Secretary with the U.S. Department of Transportation and 16 years with CSX Corporation.
Serious inland flooding and widespread power outages are likely to sweep across Florida and other Southeast states in coming days with the arrival of Hurricane Helene, which is now predicted to make landfall Thursday evening along Florida’s northwest coast as a major hurricane, according to the National Oceanic and Atmospheric Administration (NOAA).
While the most catastrophic landfall impact is expected in the sparsely-population Big Bend area of Florida, it’s not only sea-front cities that are at risk. Since Helene is an “unusually large storm,” its flooding, rainfall, and high winds won’t be limited only to the Gulf Coast, but are expected to travel hundreds of miles inland, the weather service said. Heavy rainfall is expected to begin in the region even before the storm comes ashore, and the wet conditions will continue to move northward into the southern Appalachians region through Friday, dumping storm total rainfall amounts of up to 18 inches. Specifically, the major flood risk includes the urban areas around Tallahassee, metro Atlanta, and western North Carolina.
In addition to its human toll, the storm could exert serious business impacts, according to the supply chain mapping and monitoring firm Resilinc. Those will be largely triggered by significant flooding, which could halt oil operations, force mandatory evacuations, restrict ports, and disrupt air traffic.
While the storm’s track is currently forecast to miss the critical ports of Miami and New Orleans, it could still hurt operations throughout the Southeast agricultural belt, which produces products like soybeans, cotton, peanuts, corn, and tobacco, according to Everstream Analytics.
That widespread footprint could also hinder supply chain and logistics flows along stretches of interstate highways I-10 and I-75 and on regional rail lines operated by Norfolk Southern and CSX. And Hurricane Helene could also likely impact business operations by unleashing power outages, deep flooding, and wind damage in northern Florida portions of Georgia, Everstream Analytics said.
Before the storm had even touched Florida soil, recovery efforts were already being launched by humanitarian aid group the American Logistics Aid Network (ALAN). In a statement on Wednesday, the group said it is urging residents in the storm's path across the Southeast to heed evacuation notices and safety advisories, and reminding members of the logistics community that their post-storm help could be needed soon. The group will continue to update its Disaster Micro-Site with Hurricane Helene resources and with requests for donated logistics assistance, most of which will start arriving within 24 to 72 hours after the storm’s initial landfall, ALAN said.