Last-mile delivery is simultaneously the key and the constraint to growth in the e-commerce segment of retail sales.

At less than 10 percent of retail sales, e-commerce is the fastest segment; however, that growth is constrained as more and more demands are placed on parcel delivery services. Autonomous vehicles are frequently cited as the answer to driver shortages, but last-mile delivery faces more than driver shortages as parcel volume and home delivery demand grow.

Just as omnichannel strategies are being leveraged by brick and mortar retailers to compete against e-commerce retailers, last-mile delivery may be the uncontrollable pothole that e-commerce retailers will have to fill. Last-mile delivery is less constrained by the complexity of moving goods from a relatively few high-volume locations to many consumer consumption-of-one locations. (There are more than 250,000 manufacturing firms in the US, nearly 4 million retail stores and more than 125 million households in the US) Rather, it’s the volume and increasing physical distribution costs. During peaks, many parcel carriers lease vehicles short term to keep up with the temporary volume. But, what happens when holiday volume becomes every day volume as the percent of e-commerce sales grows?

Industry sources estimate that the US will need nearly 900,000 commercial drivers in the next 5 to 6 years (contrast that to UPS currently at 50,000 to 60,000 drivers). Where will they come from? Technology is solving the daily routing, scheduling, tracking and logistics math problems; however, it’s not addressing the physical constraints. Drivers routinely drive 150 to 160 miles a day and make up to 120 or so deliveries; however, as e-commerce sales grow, the number of deliveries and the vehicle physical capacity constraints will become sinkholes not potholes.

Consider the past holiday season. Did you happen to notice the number of deliveries being made in your neighborhood? And, how about the number of cardboard boxes clogging recycling bins each week? Product-branded outer pack is already a high cost and waste; however, when we add delivery outer pack, the cost and waste grows. Who’s to pay? And, as the volume increases, more deliveries, more stops, and more capacity will continue to rise and with it more congestion and increased time to deliver.

It’s easy to take parcel services for granted. And, while some carriers are cautiously eyeing Amazon’s growing fulfillment and last-mile delivery services, the volume of parcel deliveries and e-commerce growth will continue to drive growth and healthy competition. However, the cost will also continue to rise and the challenge is once again, who’s to pay? Will consumers be willing to pay the freight? Or, will traditional retailers leverage their brick-and-mortar locations for even more convenient pickup. As meal delivery continues to grow, will parcel carriers be liable for food safety? Will ride-sharing services expand to more product-delivery-sharing services? We are already seeing growth in the food-delivery-sharing services offered by Uber, Grubhub, Doordash and others. As with all trends, the devil is in the details; last-mile delivery isn’t going to get a free ride.   

The Outlook

In 2019, expect to see more growth in parcel services as the volume from e-commerce growth will drive demand for more home delivery. However, also expect that home or last-mile delivery will face a cost pothole in the physical distribution requirements of last-mile delivery. To meet the challenges, new categories of last-mile delivery and sharing services will emerge, such as prepared food, grocery, B2B, apparel, and others consumer categories.

Rich Sherman is a senior fellow at Tata Consultancy Services’ Supply Chain Center of Excellence.