The Supply Side: Final-mile delivery demand growth tied to e-commerce craze

Final-mile delivery is growing amid the significant expansion of U.S. e-commerce sales. Much of the growth can be attributed to Amazon and its Prime membership of more than 100 million in the U.S., according to Consumer Intelligence Research Partners.

Walmart’s rapid expansion of online grocery pickup and home delivery services is also adding to the final-mile delivery sector. Walmart now offers same-day delivery of grocery items from more than 1,600 U.S. stores.

While Amazon mostly uses the U.S. Postal Service and UPS ground shipping for its final-mile deliveries, Walmart is experimenting with a host of local providers. The Bentonville retailer is also testing the use of employees to make the deliveries.

Final-mile delivery is the most expensive leg of the journey. While Amazon is largely eating those costs, retailers like Walmart are not willing to do so. Walmart and other retailers from Old Navy to Kohl’s require a minimum purchase to get the free delivery option.

A recent white paper from Minnesota-based transportation management company Cerasis outlined some of the risks and challenges in choosing a final-mile delivery service. The report notes retailers have to offer delivery if they want to try to compete with Amazon.

“Unfortunately, Amazon’s sheer size means it affects every industry involved in the sale or transfer of merchandise, including general retail, whole distribution for business partners, original equipment manufacturers (OEMs), furnishings, appliances, electronics and more,” the report stated. “If shippers want to stay competitive with Amazon, they must re-evaluate their shipping strategies, particularly those affecting customer service the most — final-mile processes.”

According to Logistics Management magazine, Amazon, Target and Walmart have built a record for the most influential retail experiences for customers. They offer same-day service on millions of orders. The average shipper struggles to provide the same capabilities, especially at Amazon’s price points. However, improved final-mile strategies and increased transparency into actual cost impacts can help, the report said.

According to the report, wholesale distribution also is changing its approach to final-mile management. Although Amazon and the big box retailers have pushed thousands of small businesses out of the picture, the economy is improving.

Even those companies that have retained a level of independence from Amazon — such as home furnishings stores — are seeing changes in final-mile, according to Cerasis. Home furnishings giant Wayfair has been known for providing unique home products, furniture and art for customers of all ages. As Amazon and more recently Walmart have upped its home furnishings game online, Wayfair decided to begin offering free shipping on big items bought online to try to keep its market share.

The only way to deliver bulky items fast and free, according to the Cerasis report, is to have an effective final-mile management strategy.

“Keeping the Wayfair example in mind, consider the final mile of appliance delivery,” the report said. “Appliances can be quite complex, and if you have purchased a smart refrigerator, you know setting it up is not as simple as it sounds.”

More appliance distributors and sellers are looking for ways to provide better customer service. With the globalization of purchasing, hiring an in-house team to deliver products might work for local areas, but it falls short when delivering on a global scale.

Electronics are another area where the final-mile delivery is evolving as consumers may need help setting up their products, installing software and integrating smart devices into existing systems. This is a “white glove” service that raises the stakes for the retailer. It can either delight customers or anger them if the service goes awry.

ON TIME LOGISTICS
Tim Ward, director of sales and marketing at courier and logistics company On Time Logistics in Springdale, said demand for white glove service is growing. On Time Logistics has been in the final-mile business for roughly six years. The company started as a courier business 12 years ago, but the growth of e-commerce pushed them to include all levels of final-mile delivery for several third-party logistics firms handling freight for Walmart.com, Amazon and Target.com.

The company also does final-mile delivery for Wayfair, a business projected to grow 30% annually, according to company officials.

“Wayfair was growing in this area, and they called on us to handle their last-mile deliveries,” Ward said. “We opened offices in Little Rock to help deliver across the state for Wayfair. We also have an office in Tulsa (Okla.) to serve that business.”

Ward said On Time Logistics also handles parcel post deliveries coming from Amazon or FedEx that are forwarded to local post offices that handle the last mile.

“We get that freight into our warehouse and sort it out and then make the deliveries to the local post offices whose carriers take it the final mile,” he said.

Ward said the company has grown to roughly 30 employees in Northwest Arkansas and has another 12 final-mile drivers who work as independent contractors. He said finding drivers has been a challenge given the tight labor market and the high level of scrutiny required. Drivers must be 23 years old, pass a background check and drug screening and have a good driving record. Ward said Amazon has a “no felony” policy for anyone delivering packages on the company’s behalf.

Each of the retailers for which On Time Logistics delivers has several different service levels, ranging from curbside drop-off with no signature to in-home installation. The more detailed the service, the higher the fee.

Ward said managing the transparency from the final leg all the way back up the chain to the shipper is done through various communication channels.

“We use multiple layers of communication being the middle length in the chain some of the time,” Ward said. “Some of the deliveries from our third-party customers are electronically integrated into our system. Other times we use email and phone calls to send notice of receipt and proof of final delivery.”

On Time Logistics will move into its newly constructed facility in Bethel Heights in a few weeks. Ward said the company has outgrown its location on Powell Street in Springdale.

Editor’s note: The Supply Side section of Talk Business & Politics focuses on the companies, organizations, issues and individuals engaged in providing products and services to retailers. The Supply Side is managed by Talk Business & Politics and sponsored by Propak Logistics.