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Disruption of the last mile: the future of parcel delivery

12 Dec 2017
Currently, the economics of last-mile delivery are driven by two elements: the van and the driver. Optimization is achieved by transporting as many parcels as possible in one van, combined with a small-delivery area. In this blog, we would like to elaborate on why we believe that developments such as drones and autonomous vehicles will create a disruption of this business model and competitive field.

Ever-increasing demands, less economic value

Today’s consumers expect their orders to arrive at their beck and call. Parcel service providers go out of their way to accommodate the ever-increasing demands. Their solution to delivering all parcels promptly: stock up a van with parcels and have these delivered in the smallest possible area. This allows the driver to go from A to B quickly, thus heightening efficiency.

Nevertheless, it is a costly endeavor. The van, the fuel, and the driver require quite an investment. Of course, it’s an increasingly profitable business, as the number of people who order online are rapidly growing - but the competition isn’t standing still, either. Retailers will opt for the most favorable deals, so it is paramount for carriers to find new ways to lower their prices. The only way to do this is by sending an even more chock-full van to an even denser delivery area.

Autonomous vehicles at your service: customer- and cost-friendly

At the same time, the development of autonomous vehicles and drones is proceeding rapidly. Whereas we have already embraced the self-driving car, a look at the not-so-distant future reveals a world full of even more exciting possibilities. In fact, we believe that there will be a time in which a small autonomous vehicle may deliver an order to your front door a mere fifteen minutes after you’ve placed it online. In our view, there are two reasons why such a system would be viable:

  1. A big consumer issue is having to stay at home to wait for a delivery. Now, imagine there’s an app that allows customers to specify that they can open the door within the next fifteen minutes. Next, an automated vehicle drops off their parcel right on time. Who wouldn’t want that?
  2. Although our idea may sound luxurious at first, the van-plus-driver combination is more expensive. To begin with, drivers are employees that must be paid. Moreover, the majority of the van weight is made up by the van itself rather than the parcels. This unfavorable ratio is a huge waste of energy. Drones, on the other hand, can already carry two thirds of their own weight, thereby providing a much more economical solution. In the future, we imagine, companies may transport one hundred parcels to a depot at once, from where a drone can fly them into the nearest residential area one by one. Although the kilometers traveled will increase, there will be a significant drop in the ton-kilometer ratio, resulting in drastically lower energy and, therefore, a considerably reduced cost per package.

Exploring opportunities: not an option, but a must

Shifting to direct delivery for each shipment by using small autonomous vehicles or drones has certain implications. For example, what will happen to contemporary package deliverers? And will today’s parcel service providers continue to exist when a concept like this is introduced, or will retailers decide to deliver parcels directly from their own depots?

Regardless of the answers to such questions, companies should start experimenting with these developments and possibilities now. They need to build the capabilities required to take advantage of new technologies. Only then, they can stay relevant in the swiftly changing society that we live in.

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