Online Retailers Zero in on Last-Mile Profitability in 2023

For online retailers, the last mile is a critical element to the customer’s overall brand experience, covering the entire spectrum from website browsing to purchasing a product and, finally, to receiving a delivery.

While the last mile is critically important to the customer’s brand experience, it contributes an estimated 53 percent to the total shipping cost and is, in fact, the most expensive and time-consuming part of the delivery process. With that in mind, last-mile delivery is prime for reducing inefficiencies that can drive up costs and ultimately impact a brand’s financial health and performance. And as we enter a recessionary period, online retailers will likely be looking for ways to maximize last-mile profitability. The good news is there are steps that can be taken to help brands protect profit while improving their customer experience. These trends will include:

• Online retailers will raise the minimum for free shipping, in some cases doing away with free shipping altogether and even charging for returns. Customers tend to want their deliveries fast and free, so this may ruffle some feathers. But the fact is it can be very difficult to achieve consistently excellent customer delivery experiences without increasing costs from most delivery providers. This is where it becomes important for sellers to have the right shipping partner in place that can provide a necessary balance between speed and cost.
• Online retailers will implement new, cutting-edge location technologies so packages can be placed precisely where demanding customers (who are still getting accustomed to paying for shipping and inclusion in free shipping membership clubs) want them to go. However, traditional carriers still have a long way to go when it comes to ensuring precise delivery to people rather than places. A recent survey revealed that nearly three-quarters (73 percent) of U.S. residents say that deliveries still struggle to find their homes. Forward-looking logistics companies are incorporating elements of more accurate addressing systems from other global regions into their own strategies to improve delivery precision that may help take some of the sting out of higher minimum free shipping requirements.
• Sustainability will be prioritized in order to appeal to customers and increase brand satisfaction. The environment and sustainability are on the minds of today’s customers. According to one recent survey, nearly 80 percent of U.S. consumers consider sustainability (of a product, retailer or brand) when making a purchase decision; 54 percent regularly read about brands’ sustainability initiatives; and 50 percent believe businesses bear a responsibility to customers to operate sustainably. With these demands, we expect online retailers to give customers more options. One example is presenting several delivery date options and their varying environmental impact as part of the checkout process. By giving customers ownership of these decisions, online retailers are directly involving their customers in their sustainability initiatives — which customers appreciate — while also maintaining transparency and conceivably adding more time to what's “acceptable” for the delivery process.
• Volume will be shifted closer to customers by creating “micro-fulfillment” centers that asset-light logistics providers can quickly and easily spin up in order to extend the more efficient middle mile while shortening the more expensive last mile. The popularity of “gig economy” driving will add to this flexibility by allowing these providers to tap the power of local drivers based on real-time, dynamic demand in various markets.

Ultimately, we expect this year to see online retailers asking themselves the ever-present question: What's more important, making more profits or making customers happy? The truth is that online retailers need to do both. Fortunately, with a little ingenuity and a sharpening of their logistics skill sets, achieving both simultaneously is well within their reach.

Adam Bryant is CEO of AxleHire, an expedited urban last-mile delivery service, providing customers with a superior same- and next-day delivery experience.