Parcel consolidation: The answer to last-mile logistics woes
8 MINS READ
Highlights
- Leading carriers are experiencing high demand for last-mile deliveries that account for 53% of logistics costs.
- TCS’ joint research with Carnegie Mellon University on parcel consolidation explores combining multiple shipments in a single delivery to effectively solve the challenges in last-mile deliveries.
- The benefits include game-changing cost-savings, multi-weekday delivery, enhanced environmental benefits, reduced failed deliveries, and curbed labor shortages.
In this article
In this article
Roadblocks in last-mile logistics
With exponential e-commerce increases, leading carriers are experiencing spiking demands for last-mile deliveries
- where goods are moved from transportation hubs to consumer homes - and significantly impact customer satisfaction. Last-mile deliveries are expected to:
Grow by approximately USD 60 billion in the North American market between 2020 and 2025.
Rise by 22% each year. The number of parcels will increase -- from 150 billion in 2021 to 260 billion by 2026.
Demand in urban areas is expected to grow 78% by 2030. Without any intervention, this will lead to 36% more delivery vehicles in the US’s top 100 cities. Think of the traffic congestion.
“In the research, we developed a simulation of delivery data that reflects real-world environments. We developed algorithms and used sophisticated optimization software to find the best trade-off between delivery costs and storage expenses in each program.”
Parcel consolidation is key
TCS partnered with Carnegie Mellon University to conduct research on parcel consolidation—combining multiple shipments in a single delivery—to solve last-mile delivery challenges.
As a part of this joint research, we studied three consolidation programs:
Assigned weekday—consumers receive all non-essential parcels once a week. Parcels that arrive after the assigned delivery day are stored until the following week.
Assigned multi-weekdays—consumers receive all non-essential parcels on two assigned days each week. Parcels are held until the next assigned delivery day.
Dynamic holding—carriers store non-essential parcels for up to three business days before delivering them to consumers.
The study accounted for real-life constraints, such as limited capacity at transportation hubs, fewer delivery vehicles, and the size and weight of parcels each vehicle can safely carry. The result? Parcel consolidation led to lower costs, improved sustainability, and greater customer certainty due to time-definite delivery.
Bigger, broader benefits
The research highlights key benefits parcel consolidation offers for carriers:
Game-changing cost-savings: Consolidated parcel deliveries that reduced stops are more cost-effective, provided each consumer receives more than one parcel per delivery. Here, each delivery costs only 20-40 cents more than standard delivery. Parcel storage costs also drop to approximately USD 0.04 per pound per day.
Multi-weekday delivery: This option saves significant costs while serving a large population. It allows carriers to offer different consolidated delivery options to suit consumers’ markets based on the number of packages delivered weekly.
Enhanced environmental benefits: Consolidated deliveries will lead to significantly reduced carbon footprint. This also ensures environmental, social, and governance (ESG) commitments are met. Fewer deliveries translate to decreased fuel consumption, lower mileage, reduced emissions, and less traffic.
Reduced failed deliveries: A pre-decided date and time for delivery lower the number of failed deliveries, where a driver must return to a house for a signature, but no one is home.
Curbed labor shortages: The reduced number of deliveries enabled better capacity utilization, enhancing drivers’ experience with fewer stops per shift. This makes delivery jobs more attractive and improves driver recruitment and retention.
From the consumers’ lens
A whopping 68% of consumers are willing to receive all non-essential parcels on two set days each week—even without incentive—according to our survey.
For many consumers, consolidated deliveries could be more convenient because they give greater certainty over arrival times. Time-definite delivery will become increasingly important as people embrace hybrid working which allows them to choose the days when they are at home to accept packages. It reduces the risk of missed deliveries, thereby lowering the risk of theft.
By offering incentives, carriers can boost consumer participation in parcel consolidation programs. An impressive 81% of surveyed consumers are willing to receive all non-essential parcels on two assigned days each week in exchange for a gift card; 75% would sign up in exchange for loyalty card points.
Immense potential in global markets
While our research focused on implementing parcel consolidation in the U.S., we believe it also carries strong potential in other markets.
It offers compelling operational and environmental benefits in countries with mature economies, strong e-commerce markets, and high population densities, like the United Kingdom, European Union, Japan, China, Brazil, India, Argentina, and Colombia.
POWERING ECOSYSTEM PLAY
With parcel consolidation, carriers can shift their thinking from ‘e-commerce’ toward ‘ecosystem commerce’, evolving from linear logistics chains to broader, connected logistics networks.
Carriers and shippers could work together to consolidate deliveries, resulting in greater cost-savings and other rewards. When appropriate, they should collaborate not compete. For example, they could work together on the interstate and in the warehouse but compete at the point of demand or sale.
On your marks, get set, go
Parcel consolidation promises huge cost savings for carriers,
and consumers are eager to sign up. We recommend carriers start by implementing pilot programs at their key last-mile hubs, without offering incentives for participation.
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