Technology delivered: Implications for cost, customers, and competition
in the last-mile ecosystem
What’s
the outlook for the last-mile delivery ecosystem, given rapid development in
technology? How will technological advances affect unit economics, customers,
and competitive dynamics?
One of the best parts of
the e-commerce journey is the moment that you finally get your hands on that
long-sought-after, much-anticipated item you ordered. As technology increases
customers’ expectations of whatthey can have, it is also widening
their options for how those products get delivered.
However, our previous research shows that customers are not
only increasingly demanding but also extremely cost sensitive and have a very
low willingness to pay for greater convenience.1 In the medium term, autonomous delivery vehicles
(ADVs) will be the dominant technology in last-mile delivery, with the power to
both give consumers greater delivery convenience at lower cost and
significantly alter the competitive landscape.
The pace of tech development is faster than expected and
is already transforming last-mile delivery
Today, we see examples
of technology piloting and testing across the globe. But we are also seeing the
beginning of series productions and scaling of technology deployment by several
companies. At every stage of development—from concept through testing to
rollout—last-mile technology is making rapid gains. In the years ahead, we
expect the adoption of a few key technologies to increase in several stages:
·
Short
term. We expect electric vehicles (EVs) and the increased presence of
unattended delivery technology to form the first wave of technology that
transforms last-mile delivery. This change is under way, as these technologies
are market-ready and scalable, with each of them contributing to cost
effectiveness, customer convenience, or regulatory compliance. As cities tighten their emissions
standards, it makes sense that the deployment of EVs in last-mile delivery will
be among the first technologies to achieve significant adoption.
·
Near
term. In three to five
years, large, semiautonomous delivery vehicles that follow parcel-delivery
staff are expected to be the next trend to be adopted by companies in the
parcel-delivery segment. This first step toward full automation will support
delivery staff and increase productivity by cutting the time needed to drive
and park vans.
·
Medium
term. In five to ten
years, ADVs will likely not need to be accompanied by human delivery staff at
all and will represent the third wave of widespread tech-enabled parcel
delivery.
·
Long
term. Beyond 2030, it
is expected that robots will take packages right to customers’ front doors.
This technology represents crucial added value—namely customer convenience—as
robots will be able to address the “last ten yards” of delivery. The first
robot-delivery pilots are already happening. However, this technology is costly
today, which means that these solutions are far from widespread deployment.
All these technologies
have value potential, as well as risks for customers and providers. Semiautonomous and autonomous
vehicles, for example, reduce
delivery costs in cities by approximately 10 to 40 percent. EVs, on the other
hand, do not yet yield significant cost savings. That is because total vehicle
cost, including mileage, accounts for less than 15 percent of total last-mile
delivery cost in dense networks and thus offers only a small basis for cost
improvement. Therefore, at least in cities, even significant improvements to
total cost of ownership from electrification are not expected to improve
delivery cost substantially. Nonetheless, as mentioned, the use of EVs will
likely become necessary in order to comply with increasingly tight
emissions-related regulations.
Technology will reshape value and competition in
last-mile delivery
As described above,
customers are demanding more from their delivery providers, and a highly
competitive environment combined with customers’ high cost sensitivity has
pushed forward the development of technology that will help the industry
deliver on these demands. Combined, these trends mandate immediate adoption of
these new technologies by last-mile players. The growing importance of
technology in the last-mile industry will affect the overall ecosystem, including its competitive
dynamics and the distribution of value across industry players.
There are three main
implications for the ecosystem:
·
First,
courier, express, and parcel (CEP) players are likely to remain strong in the
industry core. Despite the
rather large technological leap that is required, incumbent CEP players are
still well positioned to control the bulk of parcel volumes (75 to 80 percent
of the 2025 volume) in deferred, in B2B, and—to a lesser extent—in same-day delivery. The capital-intensive nature of
sorting and full-scale logistics networks, the almost-mandatory nationwide
service offer, significant economies of scale, and the required access to the
customer are immense barriers to entry for new players and will help
traditional players hold on to dominance in the core. However, certain very
large retailers may enter traditional last-mile delivery (that is, deferred
delivery) in selected high-density cities to gain control of the customer
touchpoint and to create synergies with their same-day networks.
·
New
players can enter in new segments. For other new entrants, however, emerging niches
in last-mile delivery such as same-day and instant delivery are opportunities
for which they are well positioned to move in and compete. First, while
incumbents have dense delivery networks that bring a strong competitive (cost)
advantage in the traditional business, the volumes in same-day and instant
delivery are still low, making it easier for new players to enter and compete
at comparable cost. On top of that, ADVs will dramatically drive down
operations costs, making dense networks less essential and further opening the
door to smaller, newer players.
·
In
both the industry core and new segments, significant cost savings will trigger
a multibillion-euro redistribution of value. In developed economies, €20 billion to €25 billion
per year in savings from cost-effective autonomous technology are up for grabs.
The magnitude of the value redistribution is significant, exceeding the overall
profit pool of CEP players in developed countries today by quite some margin.
Moreover, the lion’s share of value redistribution (€15 billion to €20 billion)
in the last-mile ecosystem is expected to occur in today’s core market rather
than in the emerging same-day and instant markets. The value will likely be
redistributed across CEP players, autonomous-vehicle manufacturers, IT
operators, and customers. We believe that three control points will determine
the shape of this shift. Specifically, the players that master delivery tour planning,
routing, and management of autonomous fleets will be the ones that capture the
largest chunk of the new value pool. Even though full deployment of fully
autonomous fleets is not expected until well into the 2020s, rapid tech
development means that its future winners will likely be determined in the next
two to three years because the foundations for future success (for example,
data collection, capability building, formation of partnerships) need to be
laid by then.
Strong business partnerships can help CEP and
commercial-vehicle (CV) players unlock the full automation value potential and
ensure competitiveness
In the future, CV
players are likely to play a more important role in last-mile delivery, since
they not only are well positioned to operate the autonomous delivery fleets
(fleet management) but can also leverage their routing expertise. CEP players
are well positioned to control the core steps—capacity management, tour
optimization and planning, and sorting—as they will continue to play from a
position of strength in the core business. Physical control of the parcels also
gives CEP players possession of and control over the associated data, which is
a vital input for process excellence.
These shifts would
bring CV and CEP players closer together. To capture the full efficiency
potential, both sides would need to collaborate closely in the routing of
autonomous vehicles and together tackle capabilities challenges, such as
suggesting possible parking spots and instant rerouting based on traffic information.
A close partnership also facilitates the integration and alignment of the
routing software with the player’s related IT backbone (for example, tour
planning and optimization IT). Beyond the technology advances that benefit CEP
and CV players collectively, strong business partnerships can result in
competitive advantages to individual players depending on the roles they play
in the last-mile ecosystem.
The main advantages to
CEP players are better access to technology and, ultimately, a chance to obtain
technology leadership as well as improved requirements management. CV players
benefit from better core-market access, access to additional value pools, and
data insights and IT-related lessons.
The benefits of
collaboration can certainly accrue to CEP and CV partners in ways that serve
the competitive interests of individual players, but there’s more.
In addition to helping ensure they don’t lose ground to other players,
collaboration has the potential to give CEP and CV players collectiveinfluence
in two key ways:
·
Establishment
of an ecosystem. Highly successful
collaborations can open the door for CEP and CV players to establish a
last-mile delivery ecosystem. As “founders” of a new landscape, they could make
their routing and delivery planning the industry standard and build a platform
on which other ADV manufacturers run and different applications and services
are built.
·
Creation
of additional data-driven business models. Jointly creating integrated routing and
delivery-planning software can give both players access to an immense amount of
data. Insights derived from data gathered from various
sources—for example, from traffic, parking spots, or consumers themselves—can
shape new joint business models.
For CV players, it
seems advantageous to partner with one or more large CEP players who are
leading in their home countries, because they possess the best data and
typically the greatest innovative power. For CEP players, size matters, and
smaller CEPs risk falling behind the innovation curve.
Overall, the
unprecedentedly fast technology development expected for the coming years is
likely to put pressure on both CEP and CV players to act immediately to defend
their industry positions and capture new value opportunities. Furthermore, in
the future, successful strategies will need to be based on a set of specific
capabilities and require leveraging a complex and resource-intensive technology
infrastructure. Fulfilling these demands seems overly ambitious for any single
CV or CEP player, and so we expect players to set up strong business
partnerships in response to these challenges.
By Bernd Heid, Matthias Kässer,
Christoph Klink, Florian Neuhaus, Jürgen Schröder, and Simon
Tatomir
https://www.mckinsey.com/industries/travel-transport-and-logistics/our-insights/technology-delivered-implications-for-cost-customers-and-competition-in-the-last-mile-ecosystem?cid=other-eml-alt-mip-mck-oth-1809&hlkid=fcc373886c2645e78cb9ac80dae8ce25&hctky=1627601&hdpid=2bc52409-4b68-4766-be66-97c4018e467d
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