Last Mile Delivery Explained: Trends, Challenges, Costs & More

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Written By: Rick Bell, Vice President, Strategic Accounts

With global eCommerce sales expected to surpass $6.5 billion by 2023, now is the time to establish, optimize, and solidify your last mile delivery processes. Read on for a close look at what last mile delivery entails, the latest challenges and trends, and how to select a last mile delivery service provider.

What is Last Mile Delivery?

The supply chain process involves three major milestones:

An infographic illustrating the logistics of supply chain management, segmented into 'First Mile', 'Middle Mile', and 'Last Mile'. Icons represent each stage, from 'Long Distance Transport' at the manufacturer or origin, through 'Customs/Border', to 'Port or Hub Storage/Loading', followed by 'Inland Transport (B2B)', and ending with 'Warehouse, Contract Hub & Fulfillment' before reaching the customer. The bottom icons denote key elements in the process: location, goods, technology, people, and fleets.

First mile is the distribution of an item from the manufacturer.

Middle mile involves long-distance transportation and includes going through customs, port or hub storage and loading, and inland transportation. (For domestic orders, not all of these steps are necessary.) It brings products to the final station before being loaded onto vehicles for delivery.

Last mile, sometimes called final mile, is where the item is sent out from a local warehouse or fulfillment center for its final delivery to the customer.

Every step of the supply chain process is crucial, but last mile is where the most impact can be made for the customer experience. If a product arrives late, damaged, or is never delivered, there is a good chance that the customer will shop with a competitor next time. Essentially, last mile is where the business brings their values, their brand, and their promise to the customer’s door.

What Is the Last Mile Problem?

The last mile problem refers to the common inefficiencies of last mile delivery. Factors of the last mile problem include short-delivery frame, same-day delivery, cost of fuel, last-minute route changes, failed deliveries, and customer expectations, just to name a few. Customers have extremely high expectations for timely delivery, and the pressure falls on the fleet managers to fulfill expectations. Last mile is often the most expensive and time-consuming part of the shipping process. In fact, last mile often accounts for 53% of the total costs of shipments.

Steps in the Last Mile Delivery Process

The last mile delivery process may vary slightly from company to company, but these are the typical steps in the process.

  1. A customer requests an order digitally. These requests are held in one centralized system, which makes tracking simple.
  2. The items in the order are located in the warehouse or holding facility and are sent to a transportation holding facility. This is where the last mile delivery officially starts.
  3. A fleet manager or software will assign delivery routes based on orders. Routes will be optimized based on customer location, delivery time constraints, fuel usage, and more.
  4. Orders are scanned and tracking information is sent to the customer. Tracking items allows customers to have a better delivery window, which increases satisfaction.
  5. The customer receives the order.
  6. A proof of delivery is obtained, such as a signature or picture of the delivered order for order records.

Challenges with Last Mile Delivery

In addition to costs, last mile deliveries pose other unique challenges.

An infographic depicting challenges and results of last-mile delivery in different scenarios. The top half shows 'Traveling in Urban Areas', with challenges like narrow roads, traffic, and parking difficulty leading to time-consuming deliveries and potential delays. The right side describes 'Traveling in Rural Areas', noting fueling logistics and long distances between stops, resulting in inefficient routes. The bottom half addresses 'Delivering Large & Heavy Items', with manpower constraints affecting delivery logistics, and 'Lack of Drivers and Vehicles', indicating driver shortages causing more time-consuming deliveries and potential delays. Icons and a road graphic connect the sections.


Traveling in Urban Areas
If you have ever driven through a big city, you know that the roads are narrow, traffic is a nightmare, and parking is near impossible. This makes deliveries a bit more time-consuming than they would be in the suburbs, which can lead to significant delays.

Traveling in Rural Areas
On the other hand, rural locations have nothing but space which is also a problem. Drivers may need to travel miles in between stops, increasing travel times and wait times.

Delivering Large and Heavy Items
Anything can be ordered online, including bulky items like furniture. Ideally, there will be two delivery persons to carry the large item to the customer’s doorstep, but this is not always the case. Either way, the logistics of getting the item out of the truck can be time-consuming.

Lack of Drivers and Vehicles
Even before the coronavirus caused delivery personnel to become essential workers, the U.S. was facing a driver shortage. As we mentioned earlier, many businesses are also relying on costly ad hoc vehicle acquisitions. However, with the continual surge of eCommerce, these as-needed vehicles may soon need to turn into leases.

What Are the Operational Costs of Last Mile Delivery?

Without vehicles, customers cannot receive their orders, which is why a reliable fleet of transportation vehicles is a necessity for last mile delivery fulfillment. How companies acquire these vehicles is where many unnecessary operating expenses arise.

Companies like Postmates and Amazon Flex rely on crowdsourcing and gig economy workers, which involves recruiting independent drivers. Upfront, this seems like a cost-effective method. The drivers are not considered full-time employees and they use their own vehicles. However, this is an unreliable means to an end, as independent drivers are less efficient, hard to find, inconsistent, and may use older vehicles. These factors can end up tarnishing the brand image.

Many companies also rely on daily car rentals for busy days, which carry high costs and little to no stability. With rentals, there are also limitations to the types of vehicles available. If customers are expecting large packages, like furniture or electronics, you need to have a commercial pickup truck rental that can fit the items securely. If a rental company only has sedans in stock, this could delay delivery times.

  • Temperature sensors to monitor warehouses and packages for heat and humidity (or cold temperatures)
  • Smart route planning that takes weather patterns into account

Autonomous Cars, Drones, and Robots

In 2022, Nuro debuted its third-generation autonomous, zero-occupancy delivery vehicle. This vehicle can carry 500 pounds, with space for up to 24 grocery bags in its compartments. Nuro has partnered with Domino’s, FedEx, Kroger, 7-Eleven, and more to play their part in “improving road safety, sustainability and overall access to goods delivery.”

Amazon has recently announced its delivery drone service in College Station, Texas. The drones will be able to carry up to 5 pounds and can travel at a speed of up to 50 mph at 400 feet. This pilot program is being met with some concerns, such as frightening and compromising livestock safety, economic impact, crashes that can cause damage and wildfires, and more. With any new technology, there is criticism. Only time will tell if these new technologies can succeed.

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Last Mile Technology Solutions

Vehicles equipped with telematics and GPS tracking technology provide valuable insights into fleet operations. Most modern vehicles are connected capable, meaning the GPS and telematics hardware is built into the vehicle at the factory. With these connected vehicles, programs such as TotalConnect can help detect unsafe driving habits, offer route optimizations for quicker deliveries, and ensure that vehicles are kept up to date on maintenance to maximize uptime.

Why Last Mile is Vital to eCommerce Operations

Companies like Amazon have created a culture of immediacy. In the U.S. alone, there are over 157.4 million Amazon Prime members, all of whom expect free two-day shipping on their orders (or in some areas, even one-day or same-day shipping).

It can be hard to deliver on quick turnaround times, but it’s worth it from a brand perspective, and Amazon Prime has shown that customers are willing to pay more for faster delivery. Businesses can compete by ensuring that their eCommerce operations and strategies are 100% customer-focused. Here are a few ways to keep the customer at the forefront of operations:

Omnichannel Supply Chains

Omnichannel operations give customers options for purchases and returns by integrating all sales outlets.

Customers can place an order from a computer, mobile web browser, mobile app, phone, or in-store. Then they can choose to receive their products through at-home delivery or by picking them up in the store. Returns can be made by visiting the store or by mailing the items back to the merchant.

Inventory Forecasting

Deliveries cannot be made quickly if the products are not in stock. Using inventory management and forecasting tools, retailers can spot trends in customers’ purchase habits and use that information to forecast demand. Based on this forecast, items can be moved to nearby fulfillment centers, so they are available and ready for fast delivery.

Examples of Companies & Organizations That Have Solved the Last Mile Delivery Problem

One of the most popular online retailers, Amazon has been working to solve its last mile delivery problem. In addition to having multiple avenues of delivery — fleet (including electric vehicles), air, Amazon Scout, and drones — Amazon also has a Delivery Service Partner Program. With the program Amazon partners with entrepreneurs interested in starting a logistics business (delivery team).

Big box store Walmart uses drones, food delivery robots, and fully autonomous box trucks to deliver to customers in certain locations. Walmart is now in the process of securing a patent to combine the technologies. They plan to decrease failed ground deliveries by incorporating autonomous vehicles and drones. If there is a roadblock or obstacle on the ground, then a drone can complete the delivery.

In 2003, FedEx was the first company to use hybrid vehicles for pickup and delivery. Today, FedEx is dedicated to having carbon neural operations by 2040, which includes electric vehicles (EVs) being 50% of new vehicle purchases by 2025 and 100% of new vehicles to be electric by 2030.

EVs work well for last mile delivery services since they avoid vehicle idle laws in certain cities, and can make use of stop-and-go city driving to recharge through regenerative braking. In addition, EVs also emit no carbon emissions from the tailpipe and require less maintenance.

FedEx has a new plan to optimize resources by merging FedEx Express, Ground, and Freight, previously three separate operating entities. “Network 2.0” is set to reduce redundancies and is predicted to save FedEx $2 billion annually. “Rather than duplicate last mile routing footprints across these two parcel networks [FedEx Express and Ground], LMO [last mile optimization] created the insight and processes to effectively handoff packages between networks and remove redundant routes,” said Richard Smith, President, and CEO-elect of FedEx Express.

How to Choose a Last Mile Delivery Service Provider

Amazon is not the only company that can succeed with last mile delivery. Businesses can take advantage of the expanding market by establishing their own delivery network or partnering with a third-party transportation company.

Whatever the route, consider the following while strategizing a last mile delivery plan:

Online reviews will tell you almost everything you need to know about a company. Check Google, social media accounts, and the company’s website to see what other people’s experience with the company has been like.

As we have covered in this article, technology is driving the future of last mile delivery. From advanced order tracking to driverless deliveries, technology is revolutionizing the way customers receive their orders while also making it easier and more cost-effective for retailers to deliver these orders. Last mile service providers should understand the importance of technology and offer relevant strategies to propel a retailer forward.

What vehicles are available? A third-party provider will already have an existing fleet, but is it right for your operations? Class 5 trucks can transport a lot of items, but can they maneuver throughout downtown city streets where many of your customers live? If the plan is to establish a delivery network, working with a fleet management company is the most efficient way to get the right vehicles.

If you have questions about fleet management or how you can improve your last mile delivery services, contact us! We are always happy to help.

Frequently Asked Questions

What is last mile delivery? 

Last mile delivery is the last step in the delivery process in which an item is sent out from a local warehouse or fulfillment center for its final delivery to the customer.

What industries have to deal with last mile logistics?

Almost every business that supplies goods will have to deal with last mile logic logistics.

How much of a delivery cost comes from last mile? 

The cost of last mile delivery depends on the company, but on average, 53% of the total delivery cost is last mile.

What are the common challenges with last mile delivery? 

Common challenges include staffing, route inefficiencies, high customer expectations, inflation, and more.

What is the last mile delivery problem?

The last mile problem refers to the common inefficiencies of last mile delivery process.

How can businesses better plan for last mile volume fluctuations (peak season)?

To better plan for last mile volume fluctuations, businesses can partner with a fleet provider that has an impressive inventory, and provides short-term and long-term lease options and rental options that include nationwide delivery. Merchants Fleet offers an industry-exclusive Rent-to-Lease option so that you never have to miss a route or delivery opportunity.

What’s the best way to keep track of delivery vehicles while they’re in the field?

The best way to keep track of delivery vehicles while they’re in the field is to utilize connected vehicles that have built-in GPS hardware, and use a solution like TotalConnect to see all of your fleet data in a convenient dashboard.

What are the best electric vehicle delivery vehicles?

That depends on your vehicle needs. We recommend browsing our convenient EV finder tool, where you can search by vehicle type, range, price, and more.

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