Last-mile business explodes on e-commerce demand

William B. Cassidy, Senior Editor | May 29, 2017 7:31AM EDT

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Changing customer expectations and the pursuit of profits are driving the rush into last-mile logistics.

The last mile on the route to e-commerce fulfillment is getting crowded, with truckload, less-than-truckload, logistics and parcel operators all jostling to squeeze trucks onto residential roads and driveways leading to a consumer’s doorstep and customer’s dollars.

Trucking and logistics operators of all types are stepping up last-mile efforts and looking for ways to advance what’s become the front line for e-commerce business. Amazon.com’s fulfillment promises are reshaping consumer expectations and the transportation marketplace.

These companies all face similar challenges: acquiring specialized equipment and skilled labor for successful last-mile deliveries, developing new customer-facing information systems that such deliveries require, and getting a decent return from customers offering “free shipping.”

“Our customers are seeing e-commerce business surge,” Charles Hitt, president of XPO Logistics’ fast-growing last-mile business, said in a recent interview. “Volumes in Chicago have doubled in the past year,” Hitt said. “We were running out of room just trying to expand.”

XPO in early May doubled the size of its last-mile “market delivery center” in Bolingbrook, Illinois, from 50,000 to 100,000 square feet. “We’ve increased our square footage in a number of cities to take care of customers needs,” Hitt said, as last-mile grows by double-digits.

Chicago is one of XPO’s top last-mile logistics markets, but Hitt said rising demand is universal. “It’s easy to talk about the major cities, but (demand) is growing in the second-tier cities as well. It’s not just in a pocket; it’s everywhere. The heavy goods sector is what we notice the most.”

Hitt and other transportation executives aren’t talking about a surge in packages or parcels, but in big, bulky items ordered online. An increasingly large number of oversized items, from sofas to gun safes, to swing sets and garden furniture, to appliances, are being purchased online.

Those with a really big home shop or small factory, for example, could order a $16,000, 2,500-pound, Shop Fox W1756 three-phase wide-belt sander through Amazon.com, and Prime members would get “free shipping” (a 109-pound sander also is available for only $6,967).

Increasingly, businesses are ordering equipment and supplies online, and they expect the same type of fulfillment experience in the office or on the plant floor as consumers receive at home. Logistics operators and carriers are shifting resources to last-mile to accommodate demand.

Werner Enterprises in May launched Werner Final Mile, a “white-glove” service and a new business line for the truckload carrier that uses uniformed team drivers to deliver large or heavy items to homes and businesses using straight trucks equipped with lift gates.

That’s a departure from Werner’s over-the-road, one-way truckload business, which utilizes 53-foot trailers and Class 8 tractors to deliver goods dock-to-dock. But large truckload carriers such as Werner and Schneider National are diversifying as they seek more profitable freight.

The final-mile service will leverage the existing network of Werner, the sixth-largest US truckload carrier, which includes nearly 200 locations across the United States. Werner also has developed a proprietary, automated software platform for e-commerce deliveries.

The final-mile business will accelerate diversification at Werner. “Our significant investment in technology and network development make Werner Final Mile services another key element in our comprehensive logistics portfolio,” Chief Operating Officer Marty Nordlund said.

Schneider’s acquisition last June of trucking company Watkins & Shepard and technology firm Lodeso gave it a stronger footing in last-mile delivery of heavy goods, and that helped the company, fresh from going public, keep a stronger financial footing in the first quarter.

The second-largest truckload carrier increased first-quarter revenue 8.4 percent year over year to $1 billion, primarily because of the June 2016 acquisitions, growth in truckload brokerage, and higher fuel surcharge revenue generated by rising diesel prices, Schneider said.

Schneider CEO Chris Lofgren doesn’t expect much improvement in the over-the-road truckload market until later in the year, but the last-mile logistics market is expanding now. At XPO Logistics, last-mile logistics revenue rose 16 percent in the first quarter to $207 million.

LTL carriers are creating new divisions and offerings in the final-mile market as well. “Last-mile and cartage, it’s a great time to be in that business,” Justin Hall, chief customer officer at YRC Worldwide, said at the ALK Transportation Technology Summit in Philadelphia May 23.

“There will be more collaboration in the next 12 to 36 months between long-haul LTL carriers and the local cartage industry than there’s ever been in the history of our business,” Hall said. But mixing LTL and last-mile isn’t necessarily easy, YRC Worldwide’s CEO said recently.

“The Amazon effect is real,” James Welch told the Los Angeles Transportation Club May 11, but he added that large rigs are not meant to travel down tree-lined streets with white picket fences. Welch sees YRC Worldwide doing more in the e-commerce sector through partnerships.

Estes Express has been developing final-mile delivery services. “Without even really trying, we’ve seen our percentage of residentials go up,” William T. Hupp, chief operating officer and executive vice president, said in a recent interview. “At every turn there’s more demand.”

But B2C home deliveries present difficult challenges to B2B freight haulers. “A terminal manager might tell you residential business represents 6 to 7 percent of his total shipments, and 40 to 50 percent of the total customer complaint calls,” President and CEO Rob Estes said.

Last- or final-mile deliveries often require white-glove services, including installation or set-up inside the home, which is very different from dropping off palletized freight at a receiver. “We’ve got to make sure it’s a great experience, not just a mediocre experience,” Estes said.

Residential deliveries represent about 15 percent of ABF Freight System’s business, but they shot up 40 percent year-over-year in the first quarter. That rapid e-commerce growth strained the carrier’s ability to effectively use assets, pushing ABF and parent ArcBest into the red.

Purchased transportation costs shot up 17 percent on an annualized basis in the first quarter, as ABF purchased temporary, and expensive, additional capacity from local cartage suppliers to get e-commerce shipments from its docks to homes and fulfill delivery expectations.

Saia, a multiregional LTL carrier based in the Atlanta area, is experimenting with last-mile delivery with its Dallas-based logistics subsidiary LinkEx, which it acquired last year. Residential deliveries represent about 5 percent of Saia’s business, President and CEO Rick O’Dell said.

“We’re adding technology to accommodate (last-mile delivery) and do it on a profitable basis,” O’Dell told JOC.com in an interview. His approach is cautious. “Cost-wise and probably process-wise, if you’re not prepared, you’re dispatching your driver into a problem,” he said.

One big problem: Somebody has to pay for free shipping, and O’Dell doesn’t want to be left holding that bill. “I don’t think in many cases the compensation is there for what the service really requires,” he said. “Over time, we’re going to have to pay if we want that service.”