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Viewpoint: As a recession looms, optimizing last-mile delivery should be your first port of call

Technology such as AI can help alleviate chokepoints

With fuel costs rising and a potential recession looming, providers need to be find a better way to optimize delivery instead of just passing along costs. (Photo: Jim Allen/FreightWaves)

This commentary was written by Álvaro Echeverría, founder and CEO of SimpliRoute. The views expressed here are solely those of the author and do not necessarily represent the views of Modern Shipper or its affiliates.

The whispers that a recession is on the horizon have now become loud cries. Consumers are increasingly feeling like their money doesn’t go as far, while businesses across industries are conducting mass layoffs.

Naturally, delivery-focused companies haven’t been immune. Delivery demand has fluctuated and new regulations are stifling profits. Grocery delivery giant Gorillas has pulled out of four markets, Jokr has closed European operations entirely, and Getir and Zapp have laid off over 10% of their workforces.

Organizations know the role that last-mile delivery plays on their bottom line, as well as their ability to withstand an economic downturn. In light of the new challenges, businesses need to seize this moment to optimize last-mile delivery processes to lower costs and widen profit margins. Doing so is not only smart in the face of recession, it contributes to a more sustainable, long-term business strategy. 

My logistics optimization company has partnered with Walmart, helping reduce delivery times by 30%, logistics costs by 34%, and increase the performance of each shipment by 25%. Drawing from our success, these are my tips for other organizations to streamline their last mile and journey through choppy waters ahead.

Don’t pass costs to customers, use AI to alleviate expenses

Customers want quick delivery and they don’t want to absorb the cost of making it happen. Modern expectations mean that end users won’t anticipate paying for faster or more convenient delivery options, and in the looming recession nor can they afford to.

For organizations, however, the soaring cost of gas is making operating vehicles more expensive. So, how can you navigate customer preferences and rising prices? Some companies have introduced temporary surcharge fees for delivery, being transparent about the impact of inflation on their services. But raising prices is dangerous – it could lead to core, loyal users churning, and tells audiences that your brand merely passes on the burden in an unstable market.

A better option is to review your fleet and practices. The number of vehicles you have making deliveries is likely one of the highest expenses for your company (roughly 80% of last-mile costs). With AI solutions, you can optimize your vehicles’ routes and reduce the amount of active vehicles without dramatically affecting your bandwidth. Free AI-powered software like Detrack, Route4Me, and Shipday assist with more effective route planning that results in less time in transit, less gas used, and better coordination of multiple stops in minimal journeys. Plus, optimized routing equates to drivers having fewer hours on the road, which in turn lowers your spending on salary. 

Do more with less, starting with sustainability

People are buying more products than they did before the pandemic hit. Last-mile delivery has to subsequently adopt a “more with less” mentality to survive in the current market uncertainty, as well as to thrive in the longer term.

If your company has seen significant growth and customer intent looks stable, now is a good time to experiment with different modes of transport that facilitate the surge in product purchases and boost your efficiency down the line. Electric cars are cheaper to maintain than gas ones, are paid off faster, and depending on your location, can come with attractive tax incentives. Just this month, Walmart bought 4,500 electric vehicles from Canoo – a move that pushed up the startup-turned-SPAC’s share price.

Alternatively, you may want to invest in smaller-sized trucks, which use less gas and are more agile around heavily-congested areas, so you can make more trips, more frequently. With this option though, you’ll need to weigh up the savings against the limited cargo capacity of smaller trucks.

It’s important to remember there’s a strong correlation between sustainability and optimized last-mile delivery too; the two have different incentives but a similar destination. Older vehicles produce more CO2 emissions (which damages the environment) and are most expensive to run (which damages your bottom line). Newer fleets are more sustainable in both the ecological and financial sense.

Don’t put all your eggs in one basket, share the delivery load

Staying stagnant in light of a recession poses more risk than making changes. With that in mind, review your distribution centers – locations outside of urban hubs will be cheaper and tend to offer more space. Likewise, they can serve as a launch pad to rural locations where customers have more patience toward longer delivery times.

But don’t be tempted to transfer all your centers to these more remote spots. Local, micro centers in city areas will be more costly, but they come with shorter delivery distances and greater potential to align with demand for 15-minute arrival. Combining the two types of distribution centers creates a more diverse model that gives you the agility to scale up and down each type depending on where the biggest demand comes from. 

Elsewhere, be sure to leverage third-party companies to fill any gaps in your last-mile processes. Geotab is a fleet management and tracking tool that shows trucks’ mileage and drivers’ behaviors, generating routing and dispatching reports. This visibility enables better cost control alongside more consistent delivery, as you can communicate more precisely with customers when their goods will arrive. Another valuable resource is Shipvine, which offers affordable warehouse services and fulfillment, working with a range of well-established shipping providers. For smaller companies that have a moderate delivery volume, it’s very beneficial to harness other players’ solutions as a stepping stone to maintained success.

Organizations have to take action before the recession hits, and the savviest ones will use this preparation time to assess their overall operations and areas for improvement. Last mile delivery is the final link in the purchase chain, but it’s by no means the least important. Optimizing last-mile logistics now will ensure you have your business raincoat ready come the storm.

About the author

Álvaro Echeverría, is founder and CEO of SimpliRoute, a route optimization software helping companies reduce logistics costs and increase customer satisfaction.

Álvaro Echeverría, contributor

Álvaro Echeverría is founder and CEO of SimpliRoute, a route optimization software helping companies reduce logistics costs and increase customer satisfaction.