The rising demand for faster & cheaper last-mile delivery requires new, innovative technologies

The rising demand for faster & cheaper last-mile delivery requires new, innovative technologies 1
Image Source: Autonomous Goods Vehicles for Last-mile Delivery- Evaluation of Impact and Barriers

The demand for last-mile delivery, in other words, the route between the distribution centre and end-customer, has increased considerably in the last decades. The World Economic Forum identifies five key technological and commercial drivers of growth.

  • The rapid urbanization and demographic growth;
  • the increased diffusion of e-commerce facilitated by social media marketing, 
  • the emergence of new digital business models 
  • and the introduction of new pervasive technologies that allow for instant and time-definite delivery.

By 2025, cities are likely to be larger because 60% of the world‘s population is expected to live in cities, according to the WEF. Information and communication technologies will be pervasive, with more than 80 billion connected devices. The online retail sector is expected to rise to nearly 20% of total retailing.

While this is good news for retailers’ top line, today’s delivery models might not be financially viable in the future, with retailers absorbing a significant part of the cost of last-mile delivery.

Robocars have been used successfully during the COVID-19 pandemic to support the need for contactless delivery

More recently, the trade volumes of e-commerce have drastically increased during the COVID-19 pandemic. Gigantic parcel volumes need to be delivered each day, especially in large urban areas, in increasingly shorter time windows. From 2014 to 2019, e-commerce sales ratios nearly tripled globally. Last-mile delivery has become incredibly strategic for any business selling goods online or delivering those goods.

The COVID-19 pandemic has accelerated the transition to contactless B2C last-mile delivery and saw autonomous vehicles used for the first time for the safe transfer of patients and critical equipment. It also highlighted the need for secure supply chain.

The successful outcome of these applications is critical to shape positive consumer perception towards autonomous driving and its use in the transport of people and goods.

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The recent COVID-19 crisis has demonstrated the importance of the resilience of the logistics chain, which sees the most intricate stretch in the last urban mile. Given this context, both delivery logistics and service quality acquire a strategic value in determining retail competitiveness.

The last mile continues to be a costly element of the e-commerce equation

The optimization of the last-mile delivery plays a vital role in promoting retailers’ competitive advantage by increasing customer satisfaction. This heavily depends upon how goods fulfilment is performed, especially since, the last mile is the least efficient element of most supply chains. The last mile’s hefty share in total parcel delivery cost often reaches or even exceeds 50%.

“In 2019, 97% of retail organizations felt their last-mile delivery models were not sustainable for full-scale implementation across all locations.

Despite increasing demand from customers, companies were struggling to make the last mile profitable and efficient.”

Capgemini:The last-mile delivery challenge 

Concerningly, much of the costs incurred for last-mile delivery are variable, meaning that as online grocery delivery volumes increase, so will the costs for last-mile services, thereby increasing the proportion of supply chain
costs going toward last-mile delivery.

The last mile is not only the most expensive and inefficient part of logistics, but also a source of negative externalities that affect the future of cities.

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While the last-mile delivery’ optimization aims to improve the experience perceived by consumers, it also creates robust downward competition among operators who are inclined to act with half-empty vehicles to deliver products as quickly as possible and gain customer trust. The consequence of this new paradigm is, among others, the increase in traffic congestion, due to the excessive presence of light commercial vehicles and the increased emission of CO2 and polluting materials in the environment.

Consumers are buying more and more goods online which is expected to raise the urban last-mile delivery volume by 75 to 80% by 2030 and require 36% more delivery vehicles.

While the last-mile delivery’ optimization aims to improve the experience perceived by consumers, it also creates robust downward competition among operators who are inclined to act with half-empty vehicles to deliver products as quickly as possible and gain customer trust. The consequence of this new paradigm is, among others, the increase in traffic congestion, due to the excessive presence of light commercial vehicles and the increased emission of CO2 and polluting materials in the environment.

Consumers are buying more and more goods online which is expected to raise the urban last-mile delivery volume by 75 to 80% by 2030 and require 36% more delivery vehicles.

Furthermore, the guaranty of narrow time windows as a delivery option can stress the system by reducing the possibility of demand aggregation and lowering the consolidation level of freight vehicles. The lower aggregation of demand increases the number of vehicles in circulation, the operational energy requirement, and the related environmental burdens. In these cases, green vehicle or drone deliveries, replacing vans that are poorly consolidated, can play an essential role in optimizing the system from both an economic and environmental perspective.

Urban last mile delivery is getting electrified 

Electric vehicles are needed to decarbonize transport and increase the efficiency of the system. Autonomous driving technologies have significant potential to increase efficiency in supply-chain processes, especially when dealing with on-demand logistics and last-mile delivery.

Electrified, autonomous, and connected vehicles have the bulkiest impact on the change as they eliminate emissions, reduce delivery times and most significantly optimize the power of data. 

The use of EVs is becoming necessary to comply with increasingly tight emissions-related regulations. In this direction, lightweight electric vehicles, electric cargo bikes, unmanned aerial vehicles (UAVs), etc., have the potential to reduce the environmental burdens connected to last-mile delivery, particularly in high-dense urban environments.

In addition, the spread of renewable electricity production is able to further reduce operational well-to-wheel energy consumption increasing the sustainability level of the electrification of the fleets employed for last mile deliveries. The reduction of the operational energy is always coupled with a reduction of some environmental impacts, such as the overall amount of greenhouse gas emissions.

Even in a conservative scenario battery electric vehicles and fuel-cell electric vehicles can reduce CO2 emissions by 24% and 16%, respectively. Moreover, effective parking enforcement mechanisms could help prevent double parking, thereby reducing congestion by up to 29%.

WOF: The Future of the Last-Mile Ecosystem

Definition of Autonomous Delivery Vehicles

Generally, delivery AV options can be classified into three categories:

  • Drones delivering by air (e.g. Prime Air by Amazon) 
  • Autonomous vehicles on the road (including modified passenger cars by the likes of GM, Ford, Toyota and others, as well as custom on-road delivery vehicles from companies such as Nuro);
  • Last-mile personal delivery device for sidewalks (e.g. Starship robots)

In the last decade, autonomous vehicles have been designed and used for various applications, e.g., from mining and container handling at ports to hospital and medicine logistics. 

To deal with the growing volumes of delivered and returned parcels, increasing customer expectations, and toughening market competition, retailers and logistics service providers are exploring and implementing innovative tools such as self-service technologies to assist their B2C logistic operations. 

Autonomous unmanned aerial vehicles (AUAV), also referred to as drones, and autonomous unmanned ground vehicles (AUGV) were tested within pilot projects to investigate the feasibility together in conjunction with customer acceptance.

The rising demand for faster & cheaper last-mile delivery requires new, innovative technologies 2
Image Source: Amazon

AUAVs can be an effective solution in rural and low-density suburban areas, far-flung regions, areas where road access is limited or in situations where roads limit the fast delivery of goods (e.g., medical supplies). However, big technical challenges associated with the delivery of parcels in areas of very high population density (e.g., allowing the drone to deliver to apartment windows), unresolved regulatory hurdles, functional constraints (e.g., landing space, security, payload), and costs; reduce drones’ deployment at scale in dense urban areas. 

Compared to drones, Electrified Autonomous Ground Vehicles (eAGVs) with built-in parcel lockers may unlock higher service levels for urban and high-density areas. These vehicles would be stationary in certain areas communicated to consumers or on the go, by making home delivery. Similar to the traditional Parcel Locker, the recipient would be notified of the arrival date, location, how to open the parcel locker, and the opening code. 

Several studies indicate that AGVs deployment can lead to a 50% reduction in labor costs and reduce congestion due to automatic navigation systems and better driving habits; JD.com estimates that the cost to deliver each e-commerce parcel would be reduced by approximately 22% if autonomous vehicles were used, and Mckinsey predicts that AGVs with parcel lockers will replace current forms of regular parcel delivery and lead to cost advantages of 40% and more, over today’s conventional last-mile delivery. 

The rapid electrification of the autonomous fleets would be an added plus to the use of such a system in terms of reduced emissions, whereas, by allowing vehicles to be guided without human intervention, greater route optimization could be achieved, reducing journey times, improving scheduling, and increasing energy efficiency.

In the future, ground-based delivery robots will take packages right to customers’ front doors. This technology represents key added value – namely customer convenience – as robots will be able to address the “last mile” of delivery. 

Currently, there are several pilot delivery solutions provided by several players such as Eliport, a new start-up, based in Barcelona, JD.com, China’s second-biggest e-commerce company, and Starship, a startup that deployed robots in 8 cities around the world.

Starship, in particular, offers a service where the autonomous robot drives itself from the origin to the destination, using a path algorithm to find the quickest and safest path, travelling at an average of 6.5km/h speed (up to a maximum of 16km/h) and guaranteeing security with micro-cameras and alarms. 

On-demand solutions similar to the one developed by Starship, could reduce drastically failed deliveries and indirectly congestion, polluting emissions and operational costs for logistic operators, in this regard World Economic Forum (2020) quantifies a reduction of emission, delivery costs, and congestion of 6%, 20%, and 25% respectively.

Technology giants, ADAS suppliers, autonomous vehicles manufacturers, and IT operators have already gained importance in the last-mile delivery field and could unlock additional value-creation potential

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The development of vehicle technologies such as electric vehicles, connected and autonomous vehicles, droids, and drones, as well as the introduction of new business models for urban freight transportation (for example the load pooling model introduced by Uber), aim to dramatically drive down operations costs, making dense networks less essential and opening the door to newer players. 

Technology giants, ADAS suppliers, autonomous vehicles manufacturers, and IT operators have already gained importance in the last-mile delivery field and could unlock additional value-creation potential. While data-driven autonomous mobility business models are emerging and the commercialization of autonomous mobility becomes a reality, the old and the new players need to consider how they best engage with this new ecosystem.

Specifically, the players that master autonomous driving technologies, delivery tour planning, routing, and management of autonomous fleets will be the ones that capture the largest chunk of the new value pool. In addition, the urgent need for new strategies to control the urban transportation system (freight and travellers) effectively requires not only a robust communication network between public authorities and private-sector players but also harmonized regulations – e.g. for autonomous driving and inner-city e-mobility – that would help automotive OEMs and logistics players to better allocate R&D investment and accelerate the adoption of sustainable supply-chain technologies.

Case study: Mobileye and Udelv Deal for Autonomous Delivery

Mobileye, an Intel Company, and Udelv, a Silicon Valley venture-backed company, announced that Mobileye’s self-driving system – branded Mobileye Drive – will “drive” the next-generation Udelv autonomous delivery vehicles (ADVs), called “Transporters.” The companies plan to produce more than 35,000 Mobileye-driven Transporters by 2028, with commercial operations beginning in 2023. Udelv expects Transporters to dramatically improve the efficiency of last- and middle-mile delivery services for everything; from baked goods and auto parts to groceries and medical supplies.

The rising demand for faster & cheaper last-mile delivery requires new, innovative technologies 3
Image Source: Intel

Case study: Kia starts pilot of last-mile delivery service in Singapore

Kia Motors has begun to lay the groundwork for its innovative Purpose Built Vehicle (PBV) business, partnering with cold chain startup ‘S.lab Asia Inc.’ to break into Singapore’s last-mile delivery market. 

Electric purpose-built vehicles – the development of which forms the core of Kia’s mid-to long-term business strategy, known as “Plan S” – are vehicles that are designed for specific applications, such as last-mile delivery, autonomous shuttles and chauffeur-driven luxury vehicles. In terms of Kia’s pilot PBV venture, ‘last-mile delivery service’ refers to the last leg of a product’s delivery from a warehouse hub to a customer, with a focus on maximizing delivery quality and service differentiation.

Video source: Youtube
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