By Jan Lederhausen, Kavee Phunratanamala and Weizhong Yun, The Abraaj Group
The name suggests something small and easy to achieve: the final mile – the end of the supply chain that leads directly to the customer’s front door. Of course, in reality, it is anything but small, and certainly not easy.
The final mile to the consumer represents the biggest logistical hurdle for suppliers. It is also the most expensive. As e-commerce continues its exponential growth and technological innovation continues apace, the final mile is at the centre of a highly competitive business revolution.
The CEP (Courier, Express & Parcel) market is forecast to be worth US $343 billion by 2020 with the B2C sector experiencing a much more rapid expansion than the B2B sector, especially in growth markets.
Size of the bubble represents total market size in 2020, global market predicted to be worth US$343.1 billion.
The last mile’s hefty share in total parcel delivery cost – often reaching or even exceeding 50% – makes it a key process step for those seeking to gain a competitive advantage. At the same time, it is precisely at the last mile that many companies struggle, as they often shoulder significant delivery and labour cost disadvantages.
Last mile delivery is being transformed around the world but it is in growth markets that the most rapid change is taking place. Growth markets are witnessing the expansion of global trade, the broadening of the urban class and the deeper penetration of digital connectivity. All three developments directly drive the fast-growing logistics services industry in these areas.
Middle classes with poor coverage of traditional retail per capita are quickly shifting consuming patterns and purchasing via e-commerce, further driving express logistics growth.
By 2025 an urban consumer class of four billion people is expected in global growth markets creating about 400 cities that will be responsible for 50% of global GDP growth.
In an industry that is constantly being disrupted, traditional delivery companies need to innovate to stay relevant. That’s where technology, start-ups and nimble enterprises willing to experiment are stepping in.
Dynamic companies able to make the most of this rapidly evolving market are thriving. At Abraaj, we believe in teaming up with great management teams in companies that are already established and know what works and what doesn’t in their market.
This what interested us in the Latin American courier and light logistics company Urbano Express, which has operations in Peru, Ecuador and El Salvador.
The company is constantly innovating, keeping ahead in a crowded field. Photo confirmation of delivery and fingerprint secured delivery are just two examples of how customers’ evolving needs are being met.
Since Abraaj invested in the company, Urbano has been strengthening its existing light logistics offerings while expanding into new and complementary business lines that can further boost growth or enhance the overall costumer experience, including call centres, international deliveries and convenient 24/7 collection points.
Another disruptor is tech-enabled logistics company Ninja Van which takes an innovative approach to last-mile logistics, using sophisticated algorithms to solve complex logistics issues and optimize delivery routes.
The company also forges partnerships with complementary transport fleets to optimise utilisation through its proprietary systems and capacity sharing model. The company is continuously innovating to deliver a superior product and stay ahead of the curve. Going forward, it will be concentrating more efforts to tap the thus far underpenetrated consumer logistics market.
Ninja Van currently has a pan-ASEAN presence having successfully rolled out this comprehensive approach to last-mile delivery across Singapore, Malaysia, Indonesia, Thailand, Vietnam and the Philippines. We partnered with the company in 2016 and see an exciting growth story ahead for the business.
What the future could look like: Drones, droids and driverless trucks
Technology is behind much of the change in delivery service models. As well as the sophisticated systems currently used to plan human deliveries, fully automated deliveries are now on the horizon with Artificial Intelligence set to further revolutionise the industry.
Three delivery models are currently being developed to play a large part in the last mile service in the future. The first is Automatic Guided Vehicles (AGVs) – driverless trucks that carry lockers loaded with deliveries. Customers are notified of the exact time a delivery will be made then access the relevant locker themselves.
Source: McKinsey & Company
Drones are likely to take most of the strain, with the more optimistic projections suggesting they could make around 80% of deliveries in many areas.
Droids are single-parcel vehicles which could operate in urban areas. Again, customers would be notified of exact arrival time and then access the parcel themselves.