Last Mile Delivery Costs: Why It’s So High and How To Lower It


Last Mile Delivery Costs: Why It’s So High and How To Lower It

A report by Capgemini highlights that the last mile delivery accounts for 53% of the entire shipping costs and 41% of the overall supply chain costs. And if it is not streamlined or managed inefficiently, the cost may further increase. Last mile delivery costs involve the investment required to facilitate the final movement of goods from the distribution hub to customers’ doorsteps. Let’s delve deeper into it:

3 Key Drivers of Last Mile Delivery Costs

1. Same-day Delivery

Same-day delivery is one of the influential factors that help achieve customer satisfaction. Around 56% of online shoppers expect same-day delivery, and more than 25% of shoppers will abandon their shopping cart if same-day shipping is not available. However, offering this service puts businesses under extreme pressure to expedite their last mile processes and add additional resources, which causes an increase in last mile delivery costs.

2. Free Shipping

Customers want free and fast shipping; they may even cancel their order if there is an additional delivery charge. Offering this service is not feasible for all businesses. But to persuade customers, many businesses bear this cost that shoots up the last mile delivery costs.

3. Failed/Delayed Deliveries

If the product fails to meet customers’ expectations or fails to deliver on time, then a customer raises a return request. The cost of return gets added to the last mile delivery costs. Therefore, failed or late deliveries are considered one of the major contributors to the final mile costs.

Breaking Down Last Mile Delivery Costs

1. Labor Costs

Labor costs include the cost of hiring delivery truck drivers. As per the Bureau of Labor Statistics (US) report, the wage rate of delivery truck drivers ranges from $9.43 to $29.39 per hour. This cost may vary depending on various factors such as the region and delivery time. The cost of express deliveries is quite higher than the cost of standard deliveries. Labor costs also incorporate the cost of hiring human resources required for last mile delivery management.

2. Fuel Costs

Fuel costs contribute up to 25% to the total last mile delivery expenditures. It increases when you expand your network to serve more regions and customers. As your delivery vehicles cover more distance, fuel consumption and fuel costs increase. Besides, fuel prices may also fluctuate at any time. 

3. Delivery Equipment Costs

The cost of purchasing tools and equipment required to ensure the safety of products during transportation also adds to the last mile delivery costs. Besides delivery equipment costs, some products, such as medicines, frozen goods, etc., need special containers or are required to be stored at particular temperatures. The cost of hiring specialized vehicles is also calculated under the last mile delivery costs.

4. Reverse Logistics Costs

It includes the cost of bringing the product from the customer’s doorstep to the warehouse. When a customer raises a return request (due to any reason), an entire journey is created from scratch. It includes picking up the product from the customer’s location, checking for quality, using the right packaging material for packing to ensure safety, and returning it back to the warehouse. The process is really expensive as the business has to bear double expenses, first to deliver the product and then to bring it back.

5. Last Mile Delivery Software Costs

Traditional last mile delivery management practices cannot help to cope with the latest delivery trends and meet customer expectations. Therefore, most businesses use last mile delivery software, which accounts for 10-15% of the entire last mile delivery costs. A last mile delivery software can optimize end-to-end delivery management to cut costs and improve customer experience.

6. Miscellaneous Costs

Unexpected or unpredicted situations can also increase the overall last mile delivery costs. This includes vehicle idling costs, delivery rescheduling cost, vehicle maintenance costs, product storage costs, and more.

5 Proven Ways To Minimize Last Mile Delivery Costs

1. Offer Multiple Delivery Options

Provide your customers the freedom to choose from different delivery options, such as buy and collect from the store, home delivery, curbside pickup, etc. To understand how it will reduce the last mile delivery costs, let’s take an example.

A customer wants to purchase a t-shirt from your online store. Now it shows that the product will be delivered on the next day; however, he/she is not available at their place on that day. What will the customer do in this situation? Definitely, he/she will abandon the shopping cart or move somewhere else. Another possibility is that the customer may still proceed with the order, but the delivery will fail (due to the unavailability of the customer), resulting in increased last mile costs.

One thing to understand from this point is that the same-day or next-day or, simply say, speedy delivery isn’t always required. Instead, the best thing here is to offer the option to select a preferred delivery time/slot or choose other delivery modes. It will increase the chances of first-attempt delivery and minimize last mile delivery costs. 

2. Optimize Delivery Routes

Well-optimized delivery routes maximize the number of deliveries per vehicle by considering multiple constraints and utilizing a vehicle’s capacity completely. On the other hand, poor route optimization increases resource utilization and leads to an increase in the overall last mile delivery cost. With route planning and optimization, one driver can execute multiple deliveries in one trip.

While designing delivery routes, smart last mile delivery management platforms consider multiple parameters like delivery location, delivery time window, nature, size, and weight of goods, type of vehicle, driver’s skill, and real-time traffic and weather conditions. It designs a delivery route that not only ensures improved delivery productivity but also minimizes empty miles.

Route planning and optimization also include dynamic route planning to accommodate any last-minute requests or changes in the delivery schedule and design a new route to save time, costs, and effort. Lesser number of vehicles on the road means low fuel consumption and CO2 emissions.

3. Minimize Manual Intervention

Tasks such as AWB generation, label printing, order dispatching, choosing a suitable delivery driver and vehicle, designing delivery routes, and more can eat up a significant amount of time and money. Moreover, manual management of last mile operations also increases the chances of errors.

An advanced last mile delivery solution can do wonders by automating all these operations to reduce labor costs and improve operational efficiency. Moreover, businesses can also be sure of accuracy or precision in the tasks.

The software facilitates auto-dispatch, selects a suitable vehicle and driver considering multiple parameters, designs an optimal delivery route, and even helps with making data-driven decisions. It also offers complete operational visibility and a real-time tracking facility to keep track of each consignment.

4. Keep Customers Informed

Customers, these days, want to know the exact status of their order. And by providing them with this information in real-time, businesses can maintain transparency, earn their customers’ trust and build a positive brand image. When such a level of transparency is maintained, customers are even willing to wait for their order if it is delayed for some valid reasons. This, in turn, would reduce the chances of returns that happen due to late delivery.

It can be done by sending them real-time delivery alerts through SMS/WhatsApp/Email. A smart last mile delivery solution sends a tracking link to allow customers to check where their order is, what is the estimated ETA, and even the reason for the delay, if any.

In addition to keeping customers in the loop, it is also important to collect their feedback and delivery experience. Also, provide them a means to connect and communicate with the delivery driver directly.

5. Make Data-driven Decisions

Analyzing data can help a business understand what’s going on with your last-mile delivery. You can keep a track of the number of tasks completed, the average time taken to complete a task, the total distance covered by your fleet, the number of failed/missed deliveries, vehicle idling time, and other crucial last mile processes.

Data and insights assist fleet managers or logistics managers in identifying inefficiencies that become a roadblock to last mile success. Such information can help make informed decisions and build better last mile strategies. 

And better management of last mile delivery will avoid challenges that directly impact the cost and customer experience. An advanced last mile delivery system can analyze data and offer valuable insights. 

Shipsy’s Last Mile Delivery Solution: Automation Is The Way Forward

Automation is a proven solution to deal with last mile delivery costs and management-related challenges. Shipsy’s AI-based last mile delivery software streamlines last mile processes from dispatch, route optimization, COD reconciliation, rider management, and more. It empowers businesses to ensure reduced delivery costs, enhanced customer experience, and improved business profitability. Here are some of the benefits of this intelligent last mile solution:

  • 14% reduction in last-mile delivery costs
  • 28% decrease in customer complaints
  • 26% increase in delivery net promoter score (NPS)
  • 31% increase in vehicle capacity utilization
  • 28% increase in customer experience 

If you, too, are looking to cut your last mile expenses by implementing automation then request for a custom demo of Shipsy’s last mile solution today!


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