The last mile is the fourth quarter in the great game of supply chain. Consider the following: Last-mile charges account for more than half (53 percent) of overall shipping costs, implying that the margin for mistake is less. It’s game time. It makes or breaks. The last mile, whatever you want to call it, is where the shipping experience is won or lost.
However, retailers are in a pickle. Route optimization and transportation management systems, for example, are already popular among merchants and their carrier partners. So, in order to reduce last-mile costs even further, they’re probably playing a zero-sum game by passing them on to consumers — and unwittingly lowering demand.
One simple remedy might transform that zero-sum game into a win-win situation. Last-mile parcel lockers are emerging as a solution for retailers looking to save time and money for both themselves and their consumers. This is how.
Hub-to-hub communication
Almost every component of the supply chain transports commodities in bulk or in batch orders. Typically, this bundling unravels after the items reach the final mile, but it doesn’t have to.
“When you’re trying to deliver your package to the end consumer,” Arshaad Mirza, co-founder of last-mile orchestration platform Delivery Solutions, stated to Modern Shipper. “And so it was evident to us that this batching idea would begin to play out in the last-mile space.”
Mirza and Delivery Solutions have gained control of last-mile batching through a unique collaboration with Bell & Howell, a producer of tech-enabled parcel lockers.
The two firms collaborated with supermarket operator Lowes Foods to transport groceries to hard-to-reach clients by using lockers. Delivery Solutions placed temperature-controlled lockers from Bell and Howell in a central area at a senior care facility.
Delivery vans were able to save time and money by using a single dedicated drop-off zone instead of delivering to each individual building. Meanwhile, consumers were allowed to pick up orders at their leisure without fear of porch pirates.
However, the pilot with Bell and Howell is only the beginning of a much greater concept. Mirza estimates that parcel locker penetration is minimal — less than 5% — but he sees them being widely adopted by retail companies.
“Logistics businesses have these spokes, and they would go from the warehouses — which were the hubs — to the spokes,” Mirza explained. “And that would be the starting point for these last-mile providers to go to individual consumers,” he explained. “However, what they’re doing now is virtually hub to spoke, right?” And the lockers are housed in the second hub.”
Hub-and-spoke is currently employed primarily in the middle mile when transporters distribute goods between central warehouses and fulfillment centers. Mirza, on the other hand, views lockers as the last-mile hub, with users replacing delivery vans as spokes.
Locker room democracy
A few things must occur before that becomes a reality. First, lockers must become consumer-agnostic, meaning they must be accessible to any customer in the area. Mirza proposed that locker companies, like restaurants, employ a reservation approach.
“The end-user can temporarily own a locker and then have multiple retailers utilize their locker as a drop-off point,” he stated. “That adds the complication of multiple brands accessing the locker, as well as the security that goes with it.”
However, having access is not enough for any consumer. Last-mile lockers, as Mirza mentioned, will also need to be a retailer- or carrier-agnostic, which means that locker manufacturers will not have exclusive agreements with any one company. Some, such as Bell and Howell, have already done so. These lockers are essentially democratized, with multiple businesses or carriers granted access.
“There is a rising sentiment that these lockers do not have to be located on the retailer’s premises,” Mirza remarked. “They can exist outside of that and be available for use by multiple retailers.”
Mirza expects parcel lockers will take on a hybrid approach in which businesses place lockers in neighborhoods for numerous carriers and customers to utilize. However, they would be offered to a variety of shops at the same time. That implies a customer might place purchases with three distinct brands and have them all delivered to the same locker at the same time.
However, it is not only the consumer who benefits. The vast majority of shops have implemented same-day and next-day delivery services, and centralized parcel lockers would increase efficiency by combining numerous journeys into one. Meanwhile, outside stores, lockers can cut delivery vehicle wait and idle periods.
Retailers may make things cheaper and stimulate demand by reducing last-mile costs, which are frequently baked into product prices.
Similarly, lockers may make returns more profitable for merchants. Currently, enabling a return is frequently more expensive than simply allowing the client to retain the merchandise and offering a reimbursement. Customers should be encouraged to return products to stores. However, with lockers, carriers could collect returns in bulk, reducing the number of trips required — and saving money.
The main challenges
As with any new last-mile option, parcel lockers will face significant challenges before becoming widely used. Intuitively, security appears to be the most difficult task. However, Mirza contends that the contrary is true.
“I think security is one of the reasons lockers are becoming quite popular,” he stated. “In fact, individuals are increasingly preferring lockers to have stuff delivered to their door.”
Mirza believes that lockers give customers more power. With the exception of a high-value item that must be signed for, businesses have no way of confirming that a client got their order after it was delivered to their door.
Lockers, on the other hand, have a more defined chain of custody. When a delivery arrives, shops can provide the consumer with a one-of-a-kind QR code or PIN number that expires when the pickup window they chose closes.
Mirza believes that the true difficulty is one of scale. Installing lockers in suburbs around the country is difficult enough, but commercializing space in cities is even more difficult. According to Mirza, a big effort by locker makers will be required to install them around the country.
“If you look at Germany or Australia, one of the things that have happened is that there have been local corporations that have simply really invested in building lockers all over the country.” And the thought was, “Build it, and they will come,” he explained.
Amazon is the market leader in the United States, with tens of thousands of lockers in over 900 cities and towns. That, however, will not suffice. Mirza believes that for lockers to actually make a difference at the last mile, the network must number in the hundreds of thousands.
Another issue with scaling parcel lockers is that the returns drop as the region becomes congested. Last-mile delivery vehicles in the suburbs frequently have to travel long distances between deliveries. That distance might be decreased to a single street in a city.
“The benefits of lockers are clearly considerably higher, at least from a monetary aspect, when you start to go out where there is a huge area,” Mirza stated. “It’s dispersed, the coverage is limited — it’s a no-brainer for tier two and tier three cities.”
Nonetheless, experts believe that last-mile lockers will catch on fast. According to Research and Markets, the market for smart parcel delivery lockers will more than double from $678 million in 2021 to over $1.6 billion by 2028.
“It’s early days here,” Mirza confessed, “but we’re on the right track.”
Popular opinion holds that the power of buy-online, pick-up-in-store services, which are already utilized by two out of every three Americans, will fuel development. However, Mirza believes that the model is ready for the next stage of evolution.
“It’s like buy online, picks up anywhere,” he speculated. “I don’t have to return to the store where I purchased my stuff.” I want to choose where I pick it up… and I want to ensure that all of my things arrive at that spot.”
