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A new survey finds e-commerce profitability being increasingly undermined by rising last-mile costs caused in part by efforts to fulfill high expectations around delivery.
The survey of 550 e-commerce decision-makers at retailers across Europe from London-based paper and packaging company DS Smith found 84% experienced cost increases around the last mile of deliveries within the past year, including 39% facing double-digit hikes. Similar increases are expected over the next 12 months.
As a consequence, 39% of those surveyed reported lower profits in their e-commerce operations.
Among the steps being taken to reduce costs:
- 59% are reviewing their returns policies.
- 57% are imposing minimum order values for deliveries.
- 36% have increased delivery fees charged to end consumers.
- 35% have increased the price of their products.
- 27% are cutting back on sustainability initiatives.
Cost pressures are expected to continue as retailers feel they’re falling short of delivery expectations. Of the respondents, only 33% felt they’re meeting their consumers’ expectations around delivery speed, 36% around delivery cost, 30% around the flexibility of delivery times, 39% around sustainable delivery options, and 28% around sustainable packaging.
Last-mile expenses can account for up to 53% of total supply chain costs, as failed deliveries and higher fuel, vehicle, and labor costs strain the system. Another reason expenses are so high is that it’s difficult to optimize logistics for small orders for delivery to many different locations, often within a short window of time.
AlixPartners’ 2024 Home Delivery study, based on a survey of 110 North American transportation, logistics, and supply chain executives, found 85% seeing reducing cost per order as a top priority for last-mile delivery, with 72% not believing home delivery is accretive to their profitability.
According to the survey, 40% have shifted volume away from UPS and FedEx to other providers in the last year to reduce costs, 49% have increased the spending threshold for free shipping over the past 12 months, and 47% are reducing split shipments. More merchants are also tightening return policies and utilizing artificial intelligence. AI use cases cited include optimizing driver schedules based on shopping and traffic patterns and regulatory requirements across different regions, minimizing fuel consumption and emissions, and adapting to real-time traffic and road conditions.
AlixPartners similarly found retailers struggling to meet delivery expectations. An accompanying survey of 1,100 U.S. consumers found 92% agreeing that offers of free shipping impact purchase decisions. Consumers also expect orders on average to arrive 3.5 days from order placement, yet 47% of the supply chain executives surveyed indicated that they couldn’t meet that threshold.