David Faulkenberry recently joined FreightWaves as Market Expert for Final Mile. He formerly led strategic planning, operations, quality and business system development teams at XPO Logistics, Inc., 3PD, Inc., HomeDirect, Inc., GeoLogistics and Bekins Van Lines.
Faulkenberry agreed to sit down with FreightWaves to discuss the state of the industry:
Q: How do you define final mile?
It is synonymous with last mile and describes the movement of products and passengers via the last leg of transportation from a facility to a final destination. However, most FreightWaves clients move products (instead of people) and they probably define final mile in terms relevant to their own business, the expectations of their customers and the evolving impacts of e-commerce.
The meaning varies by industry, cargo, mode, delivery vehicle and the specialized skills required of the professionals arranging and executing the delivery. Regardless of definition, it really boils down to how well the expectations of the customer match the experience they receive with the delivery of the goods and services they’ve purchased.
Q: For as long as people have been making things, every product has had to trek a final mile to the end user. What is different now; what fits under the market segment called final mile and what doesn’t?
Well, as it relates to freight, E-commerce changed the industry as a result of disintermediation. Traditionally, consumer goods moved from manufacturers, through retail distribution centers and on to stores before being carried home by consumers or delivered by the local store.
Today, the time and place for delivery are often specified by the consumer online at the point of sale. Goods may bypass a local retail store altogether. If the goods are built-to-order they can be shipped directly from the manufacturer, or if pulled from inventory, shipped from a multitude of warehouses further up the supply chain.
Absent the service, facilities and support of a local retail store, significant service requirements have been shifted (along with inventory positions) within the supply chain. Functions like customer service, product support, returns management, inventory and order management can now be found within the operations of carriers and 3PLs supporting both e-commerce and traditional retail delivery.
Increasingly, anything and everything is finding its way into the final mile, depending on how shippers, brokers, carriers and customers choose to define it. It’s becoming harder to say that any transportation segment should be excluded from final mile considerations.
Q: There seems to be a wide disagreement regarding what data shows about how well providers are servicing the final mile space. In many cases the data doesn’t even exist. What would be data that you would like to see to provide insights?
That’s right, much of the data is proprietary because about 50% of the transportation moves are on private fleets or dedicated providers.
I’d say the best data to show how well a provider is doing would be customer satisfaction and survey data. Understanding which carriers are satisfying which customers for which goods and services would be a great place to start and set the stage for a deeper dive into data related to demand, capacity, costs and utilization. The best methods and models will be making customers happy.
Q: Is heavy goods final mile delivery the next big opportunity as people start ordering things like washing machines right from the ‘net? What companies appear well- suited to take up that challenge?
Actually, the fastest growing e-commerce segments for home delivery are currently grocery and apparel. It’s hard to predict which commodities will be the next market leaders, but that will probably have to do most with consumer demographics and their demands for product delivery and convenience.
In 2017, over 60% of all music, books and media were delivered via e-commerce but only about 13% of furniture bought online. Many companies do sell appliances online, but the installation of appliances requires electric and/or gas hookups and those specialized skills go beyond the scope of capability for many first-to-final-mile carriers. For now, I think the majority of appliance installations continue to result from store-based purchasing and are handled by dedicated or private fleet operations.
Regarding companies well-suited for heavy goods delivery, it’s important to note that the nation’s van lines have been handling heavy goods for over a century. Many of them initially developed heavy goods distribution networks under the third proviso of their household goods operating authority. I worked for Bekins Van Lines at a time when they built one of the nation’s first padded van less-than-truckload (LTL) services. It was designed specifically for handling high-value products that were really heavy (up to 4,000 pounds).
We moved million-dollar mainframes, medical and industrial equipment between any two zip codes in the U.S. on a very predictable schedule. At the time, it was critical that delivery was coordinated with technicians who would install the equipment. Over the past 30 years many 3PLs have utilized moving agents to build and operate their own nationwide delivery networks, connecting them with a variety of middle-mile linehaul solutions. My hat is off to the agents, contractors, van lines, specialty furniture carriers, forwarders and feeder linehaul system providers that have been there from the very beginning.
It looks to me that all carriers are taking up the challenge to service e-commerce and they really have no choice. Most of the major LTL carriers have developed and implemented some level of home delivery service over the past few years. For the longest time, they resisted and classified many goods as non-conforming freight. Where they once had restrictive “residential” surcharges in their accessorial rating schedules, they now offer premium services.
I’ve worked through about 15 mergers, acquisitions and integrations in my career and have high regard for every company involved. I also respect the work and contribution of all of the competitors in the space. They wouldn’t be there if they weren’t satisfying their customers. All of them contribute to improving the final mile through their continued innovation and competition.
Q: You’ve been involved in “white glove” final mile delivery. What constitutes that?
White glove services include inside pickup or delivery on a prescheduled appointment attended by a shipper or consignee, at a home or business with any combination of services like: packing or unpacking; disassembly or installation; debris removal; consumer orientation to products; like-kind exchange; haul-away of used products; and merchandise returns. While shipments are in-transit (between the first and final mile), the carrier may also provide services like: storage-in-transit; merge-in-transit; pre-assembly; testing and repair.
Carriers typically provide white glove services with the skills and equipment of a mover, a warehouseman, transportation manager, and increasingly with those of a technician or tradesman. They arrange and install products like furniture, fitness equipment, healthcare equipment, office imagining, appliances, doors and windows, cabinets, televisions and other products — not necessarily larger than parcels.
Q: We hear a lot of announcements that a retailer partnered with a company like Amazon for pickups and returns, as well as hearing more retailers pushing BOPIS, or buy online, pick up in store. Is that a trend big enough that it will take some of the final mile delivery pressure off retailers looking to compete in the e-commerce world?
I think the first time I heard of the concept it was referred to as “Click and Mortar.” Initially, I thought of it as somewhat of a defensive strategy developed by organizations that owned retail stores and did not own or hadn’t fully enabled direct to consumer e-commerce supply chains. Now, I think it’s more about offering a wider set of options and convenience to consumers and I think it’s a good idea.
There is a persistent trend enabled by e-commerce of connecting producers directly with consumers – which can bring into question the value of a retail store. Up to this point, retail stores have not been designed to act as local cross-docks for consumer pickups – although some are experimenting with the concept for certain products. At the same time, there are products that customers simply want to see and touch before they make a purchase – which may explain why only about 13% of furniture is sold online.
Now, if the customer goes to a store, looks at a product on display and uses his or her smartphone to find the same product at a lower price elsewhere, while standing in the store, well then the store displaying the merchandise really isn’t being paid for the value provided.
In cases where BOPIS is convenient for consumers, I’d expect them to utilize it. Looking at the demographics, I think the growing, aging and web-enabled population will also continue to request final mile and in-home services. I think all retailers want to provide e-commerce and delivery solutions that are convenient for their customers and offering a variety of options is a really good idea, but I don’t think it will diminish the demand for home delivery.
Q: What is the future role of the U.S. Postal Service in final-mile? There’s an argument that with its vast network already in place, the USPS will remain an important cog and could get bigger if it implements the right strategies. What’s its future?
The U.S. Postal Service operating budget for 2018 was $70.6 billion – which is up about $2.6 billion since 2009. Over the period, mail volume however, decreased by 1.6 billion pieces. The good news is that shipping/package volume increased by 3.1 billion pieces and that was probably directly related to the growth of e-commerce.
The final stop in the USPS network is called the destination delivery unit, or DDU. Normally, packages arriving at a DDU are sorted to carrier routes and sent out for delivery. Companies with significant e-commerce volumes can inject pallet loads of consolidated packages, upstream or at the DDU for delivery at a significant savings.
The service is called Parcel Select and provides economical ground delivery service for packages entered in bulk. The cost of the service corresponds to the degree of work sharing the shipper does in presorting its parcels and/or dropping its pieces at a destination facility.
Parcel Select is often used by other private parcel companies to complete delivery of the final mile for their shipments – particularly for deliveries in non-metropolitan or rural areas because the USPS is the only carrier that is mandated to offer delivery to every door six days a week. A significant amount of volume tendered to the USPS comes parcel competitors like DHL, FedEx and UPS – some of which have recently started to in-source along with Amazon.
The USPS operates over 231,000 delivery routes and provides a very important service.
Regarding the future, consider one in which 100% of goods and services are delivered via e-commerce and there are no local retail stores. I know, it sounds like a Jeff Bezos utopia but, if we think about it, it helps us consider what life might look like from transportation and postal service perspective. How many more delivery vehicles would that require? I mean we’d have a USPS truck, a UPS truck, a DHL truck, a FedEx truck, an Amazon Truck, several more private label trucks, maybe one for each manufacturer on the globe? Instead of a cul de sac at the end of the street, we may need cross-docks. There will be a great deal more traffic and congestion.
Regardless of how many retail stores remain in our future, some carrier, vehicle and distribution center consolidations are likely. It makes a lot of sense to leverage the postal service. As I mentioned earlier, it provides service six days a week and operates the only service that drives by every mailbox each day to see if the red flag is up. For their future, finding a way for the USPS to combine the mailbox with a parcel box (and convert the mail flag to a pickup sensor) makes a lot of sense to me.
Clearly, everyone shipping items less than 70 pounds to an address without a white-glove services requirement should consider leveraging the scale, scope, and reliability of the U.S. Postal Service – in my humble opinion.
Q: How big is the management challenge for companies to fundamentally change their way of doing business to add final mile services?
That depends on the scope of engagement. If the business objective is to service a very narrow slice of the market, like pizza delivery, there will be few complications related to trying to deliver a wide variety of products with the same system.
On the other hand, consider the complexity of trying to deliver pizza and pizza ovens with the same business model. The e-commerce challenge for carriers is the infinite basket of items the e-tailer can offer for sale. If they ship pizza and pizza ovens, they may ask their carrier to deliver both – and some carriers may give it a go.
I think the challenges for management relate most to understanding the market, the requirements of the given segments, and the degree to which one can address multiple segments with a given set of on-hand or easily integrated capacities.