As expectations for faster, more efficient shipping increase, the last mile is a crucial, but costly, part of the delivery process to evaluate. In order for businesses to remain profitable in 2025, they may need to be agile with their last mile operations.
Due to the explosive growth of the eCommerce market, the global last mile delivery market size is expected to reach $258.68 billion by 2030.
But according to research from Capgemini, consumers are not satisfied with the current state of last mile delivery. Lack of same-day options, reasonable pricing, and on time deliveries contribute to consumer dissatisfaction.
So, what can businesses do to meet consumers expectations and maintain a competitive edge, while ensuring last mile delivery costs don’t erode their business revenue?
What Does Last Mile Delivery Mean?
Last mile delivery, often also called final mile delivery, is the process where a parcel goes from a distribution center or local warehouse to its final destination, usually the customer’s residence.
Although the last mile is the shortest distance of the delivery process, it’s often considered the most difficult part of the process to manage efficiently.
How Much Does Last Mile Cost?
The last mile is the most expensive step of the delivery process. Every inefficiency along the way contributes to costs that fall back on businesses. In fact, Optimo Route reports that it can cost upwards of 53% of your product’s total delivery cost.
However, the final mile isn’t a cost burden exclusive to shippers in the U.S.
According to 2018 research from Statista, last mile delivery services make up 41% of all supply chain costs worldwide.
As businesses look for opportunities to soften the blow of rising costs and inflation, last mile is top of mind: A 2024 CNBC report found that 85% of shippers in the retail industry said reducing their total cost per order is the number one priority for last mile delivery.
The Last Mile Delivery Problem: What Makes Last Mile Delivery a Costly Challenge?
It’s no shock to shippers that consumers want parcels fast, and at the lowest cost possible. This poses a challenge to meet customer expectations while keeping operations smooth and cost-efficient.
Since last mile delivery involves sending a large amount of parcels to many different locations, the process gets complex.
This is what’s known as the “last mile delivery problem.”
Multi-stop pickups coupled with numerous delivery spots creates an ongoing and complex problem. On top of this, last mile goods delivery becomes especially difficult when it comes to items that are oversized, or need to be temperature-controlled.
Geographical Challenges
The physical distance from a distribution hub to a home delivery location is another factor that influences the efficiency of a last mile delivery.
Driving to a rural or remote home delivery location or navigating construction can compromise delivery times.
On the other hand, highly populated cities can complicate the process as well. These areas often have limited parking options for delivery vehicles which makes it hard to complete deliveries.
Fuel Efficiency
Another challenge presented by last mile delivery is maintaining fuel efficiency as drivers make frequent stops.
When delivery drivers spend idle time waiting in traffic or at delivery spots, fuel usage increases. Between fluctuating base fuel prices and fuel-related surcharges, costs can add up quickly.
Returns
Solid returns management, or reverse logistics, plays a major role in last mile delivery for companies. Returns and exchanges is an important part of the final mile process as it can more than double the cost for shippers.
According to Shopify, many retailers are using third parties to aggregate and batch their returns to reduce the number of trips.
Keeping trips at a minimum for the returns process is vital, as businesses often have to pay extra costs to get items back to the warehouse or distribution center.
Ways to Mitigate Last Mile Delivery Challenges & Save Money
Keeping costs at a minimum in a market that’s always evolving is a challenge—here are a few solid strategies and tips to combat the challenges associated with the final mile.
Embracing Alternative Delivery Methods
According to Grand View Research, the autonomous last mile delivery segment is expected to expand at the highest compound annual growth rate (CAGR) of 17.6% from 2023 to 2030.
Alternative delivery channels, such as drones, crowdsourced delivery, parcel lockers, buy online pick up in store (BOPIS), and autonomous vehicles, are promising tools to increase efficiency for the final mile.
Curious about what parcel shipping trends could contribute to the last mile delivery market this year? Check out Sifted’s article: The Road Ahead: 2025 Parcel Shipping Trends & Tips.
Effective Route Planning
The last mile delivery software market is growing. According to a 2024 report from Verified Market Research, the final mile delivery software market was valued at $2.34 billion in 2023, and is projected to reach $3.51 billion by 2030.
With these technologies available, drivers can ensure they are taking the most strategic route possible, saving time on the road and decreasing fuel costs.
One of the most popular types of software is route optimization software, which often uses GPS-tracking to ensure the delivery drivers’ route is optimized and give the customer live tracking information.
Enhanced Visibility and Communications
There’s an opportunity to increase customer satisfaction by giving your customers visibility to track their orders. Allowing your customers to see exactly where their parcel is is not only common, but expected. Delays caused by weather, strikes, parking limitations, or other supply chain events are almost impossible to avoid. But letting recipients know when a package is delayed goes a long way in ensuring customers are retained.
Another way to save is by inviting your customers to opt for slower shipping. Giving customers the opportunity to select a later and large delivery window for a cheaper price is a way for businesses to lower costs and optimize their deliveries.
Prompting customers to choose which delivery speed they want not only increases customer satisfaction, but puts the control back into your businesses’ hands to prioritize deliveries as needed.
Diversifying Carriers
Carrier diversification is a more and more popular strategy, especially with recent growth of last mile delivery. It can help optimize your last mile efficiency and costs, plus reduce risk.
Many regional carriers provide saturated coverage within specific geographic regions, allowing you to select the most efficient and cost-effective carrier for individual last mile delivery locations. For example, you may have a national carrier perform the majority of your delivery and then implement a regional carrier for the final stretch.
Also, if you are experiencing delivery disruptions with a specific carrier (strikes, capacity limits, etc.) you have the flexibility to move your volume without facing extensive delays.
Achieving 100% Parcel Optimization
Are you looking to lower your shipping costs and optimize them ongoing?
SiftedAI can help! Our software continuously monitors your shipping spend and performance in the background, providing the analytics and tools needed to achieve 100% parcel optimization. Contrary to the standard consulting model, our platform gets and keeps you at a $0 savings opportunity, so you aren’t spending unnecessary dollars.
Armed with always-on profile monitoring, scenario modeling and expense forecasting, end-to-end carrier lifecycle management, accounting automation and advanced reporting analytics, use SiftedAI to get your parcel operations healthy. And keep them there. Schedule a demo.
