Commentary: Final mile deliveries are the most challenging

What is “final mile?”

In transportation, supply chain, manufacturing and retailing, the term “final mile” is used to describe the movement of products (and passengers) the last leg of transportation from a facility to a final destination. Also, some carriers and services use different terms for the same thing – among them “last mile” and “white glove delivery.” Although data related to order volume and pricing for final-mile product delivery is mostly proprietary, the nature of the service can be considered by industry, type of cargo, mode of transport, vehicle used for delivery, in-transit or on-site accessorial services and the requisite skills of the professionals arranging and executing delivery. Most FreightWaves clients move products (instead of people) and define the final mile in terms relevant to their own businesses, the delivery experience expectations of their customers and the evolving impacts of e-commerce.

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Final mile delivery of products

Setting aside the transportation of people for this article, final-mile goods can be grouped into two main categories: 

  • Light goods – products that fit within the size and weight limitations of the U.S. Postal Service, as well as parcel carriers like DHL, FedEx and UPS, and that can be delivered by other express and courier-based providers. Product shipments in this category generally weigh less than 150 pounds.
  • Heavy goods – products of more substantial weight and size that require handling with larger vehicles and equipment and by carriers with specialized skills. Household goods movers and their agents, local cartage carriers, full truckload (TL) and less-than-truckload (LTL) carriers and other third-party logistics (3PLs) firms handle products in this category under a wide variety of brands. 

Ring and run

For the most part, light goods delivery is unattended and a scheduled appointment within a delivery window is not required. Parcel and package carriers leave shipments at the front desk or on the front stoop, ring the doorbell and move on to the next stop. This level of service occurs less frequently for heavy goods. That isn’t to say the light goods shipments cannot be scheduled, attended or delivered inside, but when that happens, the added accessorial service is more commonly referred to as white-glove service.

White glove

White-glove services include inside pickup or delivery by scheduled appointment by a shipper or consignee at a home (B2C) or business (B2B) with any combination of the following services: packing or unpacking; storage in transit; merge in transit; disassembly or installation; debris removal; consumer orientation to products; like-kind exchange; haulaway of used products; and merchandise returns. 

White-glove services are provided by carriers with the skills and equipment of a mover, a warehouse worker, supply chain or transportation manager and increasingly more often with those of a technician or tradesman. They arrange and install (or uninstall) products like furniture (RESL.SOFA), fitness equipment, health care equipment, appliances, doors and windows, cabinets, televisions (RESL.ELEC) and other larger-than-parcel products. 

Source: FreightWaves SONAR

E-commerce and the impact of disintermediation on the final mile

E-commerce changed the freight industry as a result of disintermediation. Traditionally, consumer goods moved from manufacturers through retail distribution centers to stores before being carried home by consumers or delivered by the store. Today, the time and place for delivery are increasingly specified by the consumer when orders are placed online. Goods are then delivered directly and most often bypass a local retail store. Disintermediation – in this case the elimination of middlemen – has driven significant change. Without the service, facilities and support of a local retail store, significant service requirements have been shifted (along with inventory positions) within the industry. Non-store retailer sales increased over 383% from 2000 to 2019 (RESL.NSTR). The latest National Household Travel Survey indicates that e-commerce retail sales for household deliveries more than doubled between 2009 and 2017. 

Source: FreightWaves SONAR

Final-mile consumer expectations

Just after deregulation of the transportation industry, and early in my career, a customer talked about the unsatisfying final-mile home delivery services of a competitor. It was called a CCD, which stood for carrier convenience delivery. Essentially, residents were expected to be available to receive shipments anytime Monday through Friday between the hours of 8 a.m. and 5 p.m. – and at the convenience of the carrier. Order-to-delivery transit times for catalog orders ranged up to 13 weeks. There was no day-of delivery or time-of delivery without expedited, exclusive-use or time-stop charges added to the freight bill. Consumer expectations and carriers services have certainly improved since then.

In a May article, “Opening New Doors For Home Delivery,” AlixPartners outlined the evolution of consumer expectations in the final mile:

Source: Consumer Home Delivery Maturity Model

Final-mile data

According to the U.S. Department of Transportation’s 2018 Transportation Statistics Report, much of the data needed by transportation planners and decision-makers to measure and assess the impact of rising e-commerce sales on local infrastructure and traffic is proprietary. Approximately 50% of transportation is in house (e.g., goods moved by trucks owned and or operated by a firm for its purposes). A significant portion of goods transportation related to final-mile delivery falls into this category.

Distance and direction

The distance and direction implied by the term final mile is a bit of a misnomer. All things transported have an origin and destination, but the distance and the importance of the first leg over the last varies. For example, in the context of distance, the last leg of a truckload shipment is much different than that of an LTL or parcel order. Cargo can move through a facility, cross-dock, warehouse, terminal or retail store before arriving at the premises of the final consignee. There may or may not be a through bill of lading associated with the movement. Consider the question, “How far can you run into the woods?” The wisecrack answer is, “Halfway, then you are running out.” Well then, how far is the final mile?

A cab ride of two blocks has a final-mile distance of only one block (about 900 feet in Manhattan). Conversely, I once contracted a 1,400-pound gun safe moved from a cross-dock in Denver to Sweet Grass, Montana. The safe originally shipped from Provo, Utah, and moved to the destination on a single through bill of lading. So by definition, the final mile on that order was 1,209 miles. Had the safe been returned, we would have had a really challenging critical first-mile shipment on our hands — finding its first-to-final-mile way back to Utah!

The cost and pricing in final mile

According to the Bureau of Economic Advisors, whereas transporting goods via rail, container or truckload is typically the most cost-effective manner of shipping multiple items, the last leg is often less efficient, comprising up to 28% of the total cost to move individual goods. The cost of activity and attributes associated with the origin of the journey are referred to as first-mile costs and those associated with the destination are referred to as final-mile costs. 

Whereas truckload pricing is simply based on a rate per mile for the distance traveled, first- and final-mile rate formulations can be more complex. More like LTL rating, they can be based on a variety of accessorial schedules related to pieces, weight, distance, capacity utilization, commodity classification, time and additional services provided at origin, in transit or at destination. 

Certainly, truckload services can be combined with white-glove accessorials – which is another reason why the definition of the term final mile is in the eye of the beholder. Common final-mile accessorial services descriptions relate to residential receiving, inside placement, liftgate service, long or stair carry, packing, unpacking, debris removal, assembly and disassembly, complex installation, extra stops, elevator charges, time stops, extra labor, waiting time, etc. The long-term trend in pricing for final mile is toward simplified or “all-inclusive” schedules.

SONAR indexes of interest

Several indexes in SONAR indicate macroeconomic trends to shippers, carriers and brokers. 

Source: FreightWaves SONAR

As indicated above, unemployment, real personal consumption, real personal disposable income, real goods-adjusted GDP and the Consumer Price Index were all in good shape moving into the peak season for e-commerce. Consumers pull goods to the final mile with spending. With disposable income on hand, even with the current domestic and geopolitical anxieties, consumers recorded all-time high results for Cyber Monday. 

Final mile and SONAR

We are exploring use cases and working to develop new data resources of interest and value for final mile related to the diverse and ever-changing interests of shippers, brokers, carriers and consumers. Please stay tuned!