McKinsey on the future of last mile logistics

With the rise of e-commerce, consumer preferences have grown increasingly important in the formerly business-oriented parcel-delivery market. Large e-commerce players, as well as various start-ups, have identified last-mile services as a key differentiator. The variety of delivery options and the perceived quality of the delivery service are major decision-making criteria for online customers and hence directly affect e-commerce players’ success in the marketplace. Vendors are working hard to offer the best customer experience possible, especially by improving delivery times. 

Consumer preferences

McKinsey, in October 2016, published a report on the future of last mile logistics. To gain a better understanding of what customers actually prefer, McKinsey conducted a survey of more than 4,700 respondents in China, Germany, and the United States. We used conjoint analysis to better understand consumers’ relative preferences for different delivery options, including their willingness to pay.

Nearly 25 percent of consumers are willing to pay significant premiums for the privilege of same-day or instant delivery. This share is likely to increase, given that younger consumers are more inclined (just over 30 percent) to choose same-day and instant delivery over regular delivery.

New delivery models

Driven by consumer preferences and drop density (for example, longer distances in rural areas greatly increase last-mile costs), three consumer delivery models are likely to dominate the last mile in the future: autonomous ground vehicles with parcel lockers, drones, and bike couriers. Two of these will be characterized by a high degree of automation and asset intensity, according to McKinsey.

Autonomous vehicles, including drones, will deliver close to 100 percent of X2C items and 80 percent of all items. Bike couriers will deliver only about 2 percent in the relatively small instant-delivery segment. Traditional delivery will account for the remaining items, approximately 20 percent.

Big B2B customers with high drop factors (the number of parcels dropped per stop or recipient) and special delivery requirements, such as hanging goods, will favor mostly human delivery as we know it today. The same is true for e-grocery delivery, as people will still want crates to be carried up to their apartments and returns to be handled directly.

Source: McKinsey

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