Delivery Robots as Last-Mile Solution?

Author: Michael

Food Delivery Robot by Amazon, Source: WSJ

Today, Amazon became the latest technology titan to claim the crown of world’s most valuable public company, signaling the industry’s enduring market dominance even after turbulent months in which investors pummeled their shares. As e-commerce accelerates, developing faster and more affordable and sustainable last-mile deliveries becomes more important than ever. Last-mile delivery, especially of parcels, has been viewed as a future bottleneck of growth. The cost of global parcel delivery, excluding pickup, line-haul, and sorting, amounts to about €70 billion, with China, Germany, and the United States accounting for more than 40 percent of the market. And not only is the market large, but it’s also highly dynamic, with growth rates in 2015 of between 7 and 10% in mature markets (such as Germany and the United States) and more than 100% in developing markets, as the market shift from B2B to the B2C segment. Oftentimes, last-mile delivery is the most expensive portion of the e-commerce fulfillment process (28% of total logistic delivery costs, according to an article by Logistic Management).

From DC to Final Destination: Last Mile Dilemma, Source: Logistic Management

There are many challenges in last-mile delivery, which include reduced capacity, driver shortage (as I have analyzed in autonomous trucking post), damaged and stolen product, failed delivery attempt, and increased traffic congestion. But unlike other parts of the supply chain, the last-mile sector has seen little technological disruption during the recent emergence of e-commerce.

Although many hurdles remain, delivery robots are increasingly viewed as a potential option for last-mile deliveries in the not-too-distant future (maybe 5 to 10 years away). Many companies have begun some limited deployments and significant funding has been poured into pilots from startups and internal R&D. While use today is still nascent, a McKinsey report is saying some organizations are predicting that 80% of last-mile deliveries will be autonomous by 2025. There are mainly two autonomous options for last-mile delivery robots, ground-based and drone. In the United States, a pioneer field for these delivery robots, ground-based robots appear to be gaining on drone deliveries, where lack of regulations continue to halt progress. Most experts don’t expect the United States to finalize drone regulations until 2022, opening the door for robots to become established. Currently, most of the trials have focused on deploying an autonomous vehicle to move packages to a specific target area, and disperse robots from the vehicle to complete the final delivery of the package.

Some of the early innovators in delivery robots are: Boxbot (USA, Toyota AI as an early investor), Dispatch (USA, deliver mail to students), Eliport (Spain, Tesco and Ulabox are interested), Marble (USA, pilot runs in Texas and Virginia), Nuro (USA, signed deal with Kroger), Robby (USA, expert in battery tech for delivery robot), Robomart (USA, aiming at supermarket chain), and Starship (USA, tested in more than 100 cities).

Source: McKinsey

In emerging markets, one of the rapidly rising concerns for shippers and 3PLs is greater traffic congestion. It has become increasingly difficult to enter megaurban centers during peak business hours, and some of the cities are considering congestion tolls also posts a potential threat to cost. Delivery robots could help remove delivery trucks, one of the major causes of congestion, from the road. Delivery robots are also more capable of making quiet delivery during the nighttime, when people at work go home.

In developed countries, delivery robots also provide other opportunities. Some retailers and restaurants view last-mile delivery robots as a way to improve customer service and differentiate themselves from their competition. The deployment of robots could also reduce the picking and packing costs. The best part? Since delivery robots is somewhere between a traditional car and autonomous vehicle, legislation has been passed with more ease to make self-driving robots legal around the globe.

It is likely that consumer and political acceptance of delivery robots will grow as more companies begin to deploy. What does that mean for players in the market? If companies operate in a country with high labor costs, they must start thinking about the future of the last mile now, as they need time to lay the foundations and establish the investment strategy. Those that fail to act soon will forfeit their chance to be among the contenders as the struggle in last mile will hurt them in the long term.