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Market/Demand
Demand for last mile delivery is expected to grow at a rapid pace. An estimated 40 Billion Packages will be delivered to US Households by 2026. This translates to about 468 packages per year or 9 packages per week for a family of 4.
E-commerce accounts for about 15% of total sales in the US market. This number is projected to increase by 50% over next 4 years to almost $7.5 trillion per year. Apart from big players like amazon.com and Walmart.com driving this trend, approx. 53% of retailers are investing in growth and development of omni channel shopping experience. Combine this with increasing awareness and comfort level of consumers, is creating a growth flywheel for online sales and need for package delivery.
Only about 35% of US consumers have access to same and next day delivery services.
Consumer Behavior
Expectations for 2-day delivery started getting established in Feb 2005, when amazon launched their prime program. Companies have tried to match amazon and explore shipping options that are financially prudent and service the consumer’s needs. However, even today, over 80% of retailers operate a static shipping model and do not offer a specific delivery day – it’s generally a range such as 3-5 business days, 5-7 business days etc. (talk to Optio Delivers on the why and solution). And hence the consumers have no control over delivery day, delivery window, or their delivery experience.
Over 74% consumers either abandon their cart due to lack of diversified delivery options at point of purchase or don’t return after just one poor delivery experience – delays, poor quality of package, subpar delivery experience. It is estimated that over 51% of customers expect compensation for late delivery or poor delivery experience. On time delivery and diversified delivery options are key to customer engagement and retention.
27% of customers share that they have sent packages to an alternative address at some point to avoid theft or loss of package. This is primarily driven by lack of visibility and more importantly control by consumers over delivery time and day. Another main driver is customers living in high rise buildings and apartment complexes. The lobbies and storerooms of such buildings were and are not designed to handle package volume (1.3 packages/day per family or 9 packages/week per family). This is an additional reason why control over delivery experience is very important for customers.
Sustainability is becoming an ever-increasing factor for consumers with over 57% preferring environment friendly options and willing to pay for it. Sustainability is often thought of in terms of electric vehicles and packaging material. While these are very important aspects of sustainability, reducing the number of miles traveled per delivery, reducing overall number of deliveries or increasing the number of packages per stop are extremely important, yet often overlooked factors to reduce carbon emissions.
Ecommerce/Shippers
From a unit level economics standpoint ~ 65% of the fulfillment cost is in the last mile.
Even though much progress has been made in ecommerce and last mile delivery, over 80% of the retailers provide a range of dates – 3-5 business days, 2-6 business days, 5-7 days etc. And are unable to provide an accurate delivery estimate at the point of checkout.
It is estimated that ecommerce companies experience 9%-60% lift in conversion rates when they move from 5-6 days to 1 day shipping and offer diversified delivery options. Only about 57% of the retailers work with diversified carriers. Please note that this simply means that these retailers work with more than one carrier. Diversified delivery options can be even less common.
Often companies get caught in the tribal knowledge of ‘volume tier discounts’ and there is an opportunity to dive deeper into their rate structures, diversification, and how that impacts their customer experience. e.g. volume tier discounts are <3% of the total freight spend. And any potential loss in such discounts, if that happens, can likely be offset by benefits of uplift in conversion rates and competitive pricing.
Another common concern that holds shippers back is the scale and sophistication of tech and processes required for diversified delivery options. Typically, large ecommerce players like amazon, target, and Walmart are the ones with such diversity of delivery options, shipping speed, tracking, and nailing down precise promised delivery date. Founders and builders of Optio Delivers have several years of experience and lead the creation of such services at amazon, RH, Stitch Fix, Wayfair, and WizIq. This enables Optio Delivers to bring these customer centric options to small and medium scale businesses while reducing costs.
Sustainability is important on the websites and quarterly reports. There is much that needs to be done by ecommerce players, omnichannel retailers, stores, and shippers. In the last mile space, the majority of companies today relate sustainability with electric vehicles, autonomous vehicles, carbon neutral operations only. While these are important, one of the keys and arguably the most important aspect is simply maximizing the number of packages per stop. Just Optio Delivers and learn more