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Is last-mile delivery a lucrative business opportunity for fulfillment companies?

Ashwini Murthy
Ashwini Murthy
Oct 12, 2017
Min Read

With Millennials accounting for a huge slice of the e-commerce target market, and companies like Amazon feeding into the “need-it-now” economy, the e-commerce fulfillment game keeps getting tougher and tougher as we level up. Walmart is focusing heavily on last-mile distribution by using methods like leveraging store staff for last-mile deliveries and acquiring Parcel Inc - a last-mile delivery startup.  The obvious and mostly untapped potential that many small/mid-sized e-commerce fulfillment companies are missing out on is last-mile delivery. The reason being, last-mile delivery is considered the trickiest and the most expensive part of the supply-chain system. Distinct small parcels and shipments being sent to places that are hard to locate are relatively expensive. Last-mile fulfillment is generally inefficient, so much so that, it is begging for innovative and futuristic ideas, like delivery robots, drones, etc. Seamless delivery has always been the dream for many logistics providers. But only recently, with the onset of the e-commerce revolution and the Amazon effect, last-mile delivery has taken the front seat in retailers’ minds. With that in mind, we at PipeCandy asked a few mid-sized fulfillment companies if the Amazon effect will lead to the fulfillment industry refreshing itself to support last-mile distribution centers and focus on moving small parcels. Is this a trickle that will stay that way for years to come or is the big move to local distribution centers and small parcels underway already? Chris Bingham of Riley Life Logistics says, “Portions of the market will go both directions and there is enough growth opportunity that both can succeed.

Technology-fueled local DCs with uber-like driver networks can compete with Amazon.

That said, I'm still of the opinion that same day delivery is not a requirement and maybe not even a benefit to the customer experience.” Same-day delivery or two-hour delivery works out really well in fast-paced cities like NYC, Chicago, etc. Amazon has been pushing shorter delivery times in such cities with Prime and Prime Now. To compete, traditional 3PL companies are moving to last-mile delivery because independent e-commerce companies are looking for faster order fulfillment. But, do all markets need same-day/2-hour delivery? Not really. Here’s what Michael DeFabis from IDS Fulfillment says: “Markets like NYC and Chicago want same-day delivery and markets in the mid-west want next-day delivery.

To serve this demand, lot of traditional 3PLs which were doing pallet-in/pallet-out are moving to fulfilling direct-to-consumer/e-commerce fulfillment.”

As long as independent e-commerce companies who don’t want to be associated with Amazon thrive, the need for independent fulfillment companies serving the last mile will always exist. The reasons why a large number of companies don’t want to sell on Amazon are - customer loyalty, relationship building, etc. - are next to none. The chances of getting recognized as a brand are very slim. Jeremy Bodenhamer from ShipHawk says, “Dense markets like San Francisco and New York City are well positioned for last mile distribution centers. Sprawling markets may see different levels of service in the long-term. Local DCs will continue to be in vogue as long as investors will support their services or until they can determine a profitable model which will probably require the retailer to subsidize most if not all of the final mile service.” 3PLs focusing on last-mile & local fulfillment is here to stay and it is going to thrive, in spite of Amazon. How profitable they would be, especially if they need independent e-commerce companies to artificially subsidize the cost is a question for another day!


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hm.com
HQ Location: Beaverton, Oregon, United States Of America, 97005
hm.com, operated by H & M Hennes & Mauritz AB, is an internationally-focused online store that generates eCommerce net sales primarily in Germany as well as in the United States and the United Kingdom. With regards to the product range, hm.com achieves the greatest part of its eCommerce net sales in the “Fashion” category.
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