E-commerce is having a dramatic impact on the way shippers move their goods, and the speed at which customers expect to receive deliveries – and that impact is only to going to get bigger. Transport Intelligence estimates that the global e-commerce logistics market grew by 18.1 percent in 2016, and forecasts a compound annual growth rate of 15.6 percent through 2020.
Amazon and other e-tailers have raised the stakes of last-mile delivery by offering free delivery, same-day delivery, and even one- or two-hour delivery windows on select goods. More customers are ordering more goods, and expecting them to ship faster and at a lower cost than ever before.
Those one- to two-hour delivery services make it difficult for carriers to consolidate their routes. To meet this demand, other alternatives have begun to emerge.
According to DHL’s most recent Logistics Trend Radar report: “Delivery is no longer owned by larger players who set limitations on delivery times and locations. New on-demand last-mile delivery concepts utilize the power of the crowd and flexible courier workforces to enable customers to have their purchase delivered when they need it, where they need it.”
However, the last mile is the least efficient and most expensive part of the supply chain. In some cases, the last leg of delivery can account for more than one quarter to one third of the total cost to move goods, according to Frost & Sullivan.
In a recent report (“Competitive Profiling of Automotive Aftermarket eRetailers in Europe”) Frost & Sullivan says that automotive companies are developing new strategies to innovate in the e-tailing sector, including coming up with smart logistics and last-mile delivery options to provide enhanced customer service.
“More omni-channel expectations have put pressure on the supply chain to deliver more flexible delivery options,” says Archana Devi, global research manager with the firm’s Visionary Innovation Research Group. “For example, self-collection from locker boxes or from stores has emerged as a key delivery option among all manufacturers looking to offer online products. This pressure is also moving up the value chain, compelling manufacturers to also innovate transportation options for cargo, for example by using drones.”
Cost, competition drive technology adoption
Several factors are driving logistics firms and other companies to look for new ways to streamline delivery. According to the Council of Supply Chain Management Professionals’(CSCMP) State of Logistics Report 2016, U.S. business logistics costs rose to $1.48 trillion in 2015, a 2.6 percent increase from the previous year.
In addition, rates and demand for transportation are soft and continue to decline, while competition for a dwindling group of drivers has grown more intense. Parcel and express delivery services are expanding primarily because of an increase in business-to-consumer e-commerce and omni-channel retail.
It’s more important than ever for companies across the supply chain to share data and increase visibility, so that goods can be delivered as efficiently as possible. "Supply chain transparency continues to grow in importance for shippers and third-party logistics providers," says Marc Althen, Penske Logistics President. "This is driving significant technological change for 3PLs and shippers alike as they collaborate and share more real-time information to enable data-driven business decisions and meet the growing needs of consumers."
“Data will be a huge enabler,” Devi says. “Tracking and tracing the product, knowing your customer's availability, etc., to a great extent will help address wasteful costs.”
New companies, new solutions
New market entrants are trying to leverage technology to innovate in last-mile delivery. Amazon has not only made its presence known in the aftermarket through online part sales, but is now moving into the delivery and logistics space. The company is investing in both a fleet of trucks and air freight assets, and is working on an Uber-style application that would eliminate freight brokers and provide on-demand access to freight and shipping.
Amazon also has been signing distribution agreements with aftermarket auto parts makers like Bosch, Dorman, Federal-Mogul and Cardone Industries. Combining its e-commerce muscle with fast, free delivery could pose a huge threat to distributors and auto parts retailers. However, auto parts have proven to be a more difficult market to disrupt when it comes to e-commerce. According to a report from market analytics firm Morningstar, traditional auto parts retailers still have an edge.
For DIY customers, maintenance is typically unplanned, and it’s still easier to get the parts you need from a local brick-and-mortar location. Counter staff play an important role, too, in guiding those customers to the right part.
For professional installers, speed and service are still key. Local stores make it easier to get the right parts to the service bay quickly. Accuracy and reliability take precedence over price.
An increasing number of these professional parts orders are conducted online, directly with a retailer. Advance has said that 25 percent of its professional sales are placed through its own B2B portal, while Genuine Parts gets 40 percent of its pro orders that way, and O’Reilly receives between 15 to 25 percent of that business online.
Because shops price repairs on a mark-up basis and price shopping can eat up expensive time, these commercial accounts are less likely to be lured away by lower prices on a site like Amazon. Stores also offer last-mile delivery and return options that are important for shops.
But even those retailers struggle with the cost and complexity of last-mile delivery, and Amazon may pose a bigger threat by cracking the delivery problem.
One possible solution – the Amazon Restaurants and UberEats model. Rather than a dedicated fleet, independent drivers are summoned for quick point-to-point deliveries within specific geographies. Right now those services are being used to deliver take-out food from high-end restaurants, but there’s no reason they couldn’t expand to parts. McKinley Equipment, a California-based commercial door company, uses Uber to deliver parts to its technicians in the field, for example.
Google also has launched its own home delivery service, Google Express, for groceries and household supplies. All of these services present untapped potential for local delivery that any parts retailer or distributor could take advantage of.
Drones and robots
Further in the future, automation will also play a bigger role. Mercedes may have come up with the most unusual solution to this problem, with its Vision Van prototype. The vans connect shippers to recipients, and include a fleet of drones that can grab parcels through a hatch in the roof. The racks in the van are loaded using a route optimization system, with robotic systems handling the loading.
Swiss Post has tested drone delivery using craft from Matternet, the same company that provides the drones for the Vision Van. UPS also has tested drones.
These drone systems are limited by weight (they can handle cargo only up to around four pounds), which makes them impractical for automotive parts. However, autonomous vehicles could provide another way to cut delivery costs.
Mahindra and Mahindra has developed the eSupro cargo van. E-commerce company Brring Integrated Logistics has purchased 50 of the vans for operations in New Delhi. The electric vans have a large cargo capacity, and the company believes the vans can help reduce costs and improve the environmental footprint of delivery companies. Starsky Robotics has developed a driverless trucking system that would allow remote drivers to pilot the trucks just like remote pilots control drones.
There also are robotic systems in development, such as a cold-chain robot from Estonian company Starship Technologies that can deliver food. The idea behind most of these systems is that one truck could make several simultaneous deliveries by sending out parcels using robots, drones, and/or drivers at the same time.
The DHL report identified several other potential last-mile innovations that could benefit the aftermarket. Smaller, local distribution centers could be used to accelerate local delivery, as could “batch size one” manufacturing locations that rapidly produce products for local delivery.
On-demand courier hailing platforms (like those from Amazon and Uber) could provide more flexibility in delivery booking without requiring an investment in drivers or vehicles. Crowd-based parcel delivery services could also be used to, essentially, crowd-source a delivery via ad-hoc networks of non-professional drivers. DHL has already tested this idea out with its DHL MyWays offering.
Last-mile delivery will continue to challenge shippers. For the aftermarket, it will be imperative to investigate new technologies that can help improve efficiency and lower costs to fend off new competitors in the rapidly expanding e-commerce market.
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