Analyst Insight: The fragmented last mile is rapidly reaching a tipping point because of unprecedented funding and new market entrants. Changing consumer preferences and growth in e-commerce are significant contributors to redefining the last mile. The redefinition of the market includes a closer alignment to the middle mile, along with business intelligence and analytics for faster and more consistent, on-time deliveries. 

Funding for supply chain startups reached a record level in 2021 — more than $80 billion, which is a 95% increase from 2021 and a 70% increase in annual growth since 2014, according to consulting firm McKinsey. Primarily, this was due to a 25% increase in e-commerce from 2020, the need for resilient supply chains and end-to-end visibility.   

According to McKinsey, on-demand last-mile delivery platforms and new last-mile parcel networks were among the top companies attracting investments in 2021. Pitney Bowes forecasts parcel volume to double in the next five years, reaching 266 billion in 2026, with an 11% CAGR from 2021 to 2026. 

As a result, last-mile offerings emerged from retailers such as Walmart, which introduced its GoLocal service, and retailer American Eagle, which acquired middle-mile provider Quiet Logistics, and last-mile tech startup AirTerra. In contrast, UPS acquired gig platform Roadie, and regional carriers LaserShip and Ontrac merged. 

The diverse last-mile strategies will ultimately result in some carriers leaving the market, and others consolidating as the last-mile market continues to grow.  

Carriers that are successful in building delivery density will survive any potential market fallout and will likely be profitable. 

As retailers move supply chains closer to customers, linking the last mile with the middle mile through micro-fulfillment facilities, last-mile hubs or other similar facilities will be critical to driving faster deliveries.  

However, a number of the new entrants are more locally minded, and will need to either partner with larger carriers, such as UPS and FedEx, or providers specializing in the middle mile, in order to fill up trailers and fulfill orders quickly to ensure quicker, on-time deliveries. The stronger middle-mile partner will determine the success of the last mile. 

Technology will be necessary to link the last and middle miles, optimize routes and provide real-time tracking. Routing has become more than a physical, static routing guide. Instead, it is incorporating artificial intelligence and machine learning to monitor changing conditions to ensure more efficient and on-time deliveries.  

For a successful last mile, retailers need access to the right relationships and supply chain knowledge. Who to use, who to go to? How does one find the right carriers? How does one engage them?  

This should be done through analytics and modeling, in which the optimal carrier selection (when to use Carrier A versus Carrier B, etc.) is identified, and the right service levels are determined. From this, retailers can use technology to manage shipments and provide real-time tracking to customers, which helps further expand and improve customer experience. 

Outlook: The last mile’s evolution will be closely linked to the growth of e-commerce and consumers’ changing purchasing preferences. Carriers will adapt through consolidation, service-level enhancements, and technology investments as the last mile extends closer to the consumer. However, the key to success for carriers will be achieving delivery density and incorporating the middle mile into last-mile strategies.