As e-commerce has grown, customer demand for ever faster delivery (such as same-day and instant delivery enabled by improved fulfillment processes) has also increased. This growth has provided ample grounds for studying the future development of last mile delivery (which often exceeds 50 percent of total parcel delivery costs).
A report from McKinsey & Company estimates that in only 10 years time, new technologies such as drones and autonomous ground vehicles (AGVs) will deliver 80 percent of parcels. The report describes seven general home delivery models and identifies the three delivery models that are likely to dominate the last mile in the future, driven by consumer preferences and drop density (e.g., longer distances in rural areas significantly increase last-mile costs).
These three delivery models are:
- AGVs with parcel lockers
- bike couriers.
To better understand consumer preferences, a large-scale survey was conducted in China, Germany, and the US with a total of 4,700 respondents (1,500+ in each of the three countries). The survey used a type of conjoint analysis to better understand consumers' relative preferences for different delivery options, including their willingness to pay.
In addition, costs were estimated for each delivery method based on a proprietary McKinsey tool designed to calculate last-mile cost. The tool takes into account a number of variables, including drop density and delivery depot density. The team also worked closely with their fellow Design-to-Value Lab to better understand production costs of new technologies, e.g., drones and complementary items such as batteries.
- Calculation shows that AGVs with parcel lockers will provide 40 percent cost savings over today's conventional last-mile delivery – especially in rural, but also in urban areas (assuming labor costs of about EUR 20 per hour). Such savings would translate into a 15 to 20 percentage point increase in profit margin or into a 15 to 20 percent cut in prices.
- Well above 40 percent of consumers claim that they would definitely or likely use AGVs with lockers. Among younger customers (aged 18 to 34), AGVs are even more popular, with well above 50 percent stating that they would definitely or likely use this delivery option
- Drones turned out to be surprisingly cost-competitive in rural areas, at only about 10 percent above the cost of today's delivery model. With their higher speeds they are even better suited for sameday and time-window delivery of smaller items in rural areas.