By Gordon Benedict, Director, Industrial Tenant Representation
This article is the fourth in a series on how eCommerce is affecting the retail and industrial real estate markets.
The continued growth of eCommerce and the evolution of the concept of “last-mile logistics” has come full circle. The last-mile is defined differently by different companies but essentially it is the last leg of a product’s trip through the supply chain before it arrive at the consumer’s door; without a doubt the most expensive part of the fulfillment process.
So how did we get to this point with “last-mile” delivery discussions, and where will it be tomorrow?
The Origins of Last-Mile Logistics
The concept of modern package delivery in the U.S. can trace its origins back to the California Gold Rush in 1849. With the need for both gold and money to move across the country Wells Fargo and others worked together to found the Overland Stage Company which moved product by stagecoach. By 1869, the completion of the Transcontinental Railroad shifted much of the long-haul package delivery business to trains, where packages would be stored in the office at the train station where they could be picked up and transported.
True home package began in the early 1900s, when the U.S. Postal Service began offering domestic parcel shipping. That allowed for the advent of catalog shopping – the true precursor to modern online shopping practices. Other companies, such as American Messenger Company – which would eventually evolve into today’s UPS – focused on delivering groceries and other items direct to people’s homes. As cars became more and more common, the company began to consolidate delivery routes by neighborhood to reduce costs. And by 1918, the firm had signed many leading department stores to outsource their home deliveries.
UPS and other firms continued to advance, and eventually became a “common carrier”, delivering packages direct to private and commercial addresses and competing directly with the USPS. The company continued to expand across the country, and by 1975 had reached a point where it could reach the entire lower 48 states.
Last-Mile Logistics Today
As online shopping has evolved during the past several years, retailers have continued to push the envelope in terms of reducing the time from when a customer purchases an item to when it shows up at their door.
While most consumers still look for free or low-cost delivery options, they also expect the option of 1-day or same-day delivery (and in many cases are willing to pay a premium for that convenience).
That ‘on demand’ push has filtered down to every aspect of the supply chain, with automation, robots and other technology taking just minutes to pick, pull and package a product for immediate delivery.
To facilitate this, retailers and 3PLs (third party logistics) are having to locate this last leg in the supply chain closer and closer to their customers than ever before. As that proximity to the customer is the overwhelming priority – superseding functionality and even cost – UPS, DHL, and other 3PLs often pay a premium to accomplish this.
This is certainly the case in Atlanta, which is experiencing upward rental rate pressure in the supply-constrained urban in-town submarkets. Despite the functional obsolescence of these older warehouse buildings, there is still high demand simply due to the close proximity to the urban core.
As the ‘last-mile’ is the only point where the customer has direct hands-on interaction with the retailer, companies must ensure it’s a favorable experience. For example, Amazon is now experimenting with concierge-type services in which packages can actually be delivered inside your home via remote door access or one-time lock combination – and even potentially put your groceries right inside your fridge.
Whether this in-home staging concept will be accepted is an open question, but it’s a sign that the industry is moving beyond “last-mile” thinking and shifting toward “last-inch”.
Last-Mile Logistics of the Future
The question now becomes – What will last-mile logistics look like in the future? Recent patent filings and other concepts from various companies offer a brief glimpse.
Amazon has continually pushed the concepts of automated drones delivering packages right to customers’ doorsteps. There are many regulations yet to be resolved, but conceptually the drones would deploy from either a vertical beehive warehouse design or a mobile, aerial blimp. UPS is also exploring a similar concept whereas the drones would nest and deploy from their delivery trucks’ roofs. Such aerial flexibility would make last-mile or same-day package delivery financially feasible to more remote locations. For further inaccessible areas, Amazon has even patented a shipping label that doubles as a parachute eliminating the need for the drone to land at all.
Walmart’s tactics are seemingly more low-tech: they are rapidly expanding their in-store (often times curb-side) pickup program, in which shoppers retrieve online orders at a nearby store. As they already have trucks moving stock from fulfillment centers to these stores, those same trucks could be used to bring online orders closer to their final destination. They are also experimenting with enlisting their employees to deliver online orders on their way home from work. Walmart is uniquely qualified and uniquely positioned to be able to offer this as 90 percent of Americans live within 10 miles of a Walmart store.
It’s clear that the industrial and logistics space has a great deal of room to grow and evolve, and even more changes will affect the industry in the near future; such as “anticipatory shipping” (a concept in which companies automatically ship items to a particular region in anticipation of upcoming orders – such as shovels in advance of a snowstorm), delivery via crowdsourcing ride-sharing services like Uber, Lyft and Deliv, and even fully automated driverless vehicles.
Until science fiction becomes reality – with transporters and matter replicators replacing manufacturing altogether – the logistics environment will continue to evolve with technology and become even more efficient.
How quickly will these future plans take shape? We’re about to find out.