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Why Are Last Mile Delivery Costs So High (And What Can You Do About Them)?

February 10th, 2021    

Last mile delivery, or the process of transporting goods from a hub to the consignee’s door, comes with an expensive price tag. Last mile delivery costs account for more than half of the whole supply chain operating costs, and certainly at least half of the frustration and heartache. 

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Shipping goods door-to-door is no easy feat, especially when we’re talking about larger goods that can’t just be dropped off in the mail room. This article will discuss how last mile delivery works, along with the reasons for its high costs and some tips for businesses to keep those expenses comparatively low.

What Is the Last Mile Problem?

The last mile problem pertains to the movement of goods from delivery hubs to the end customer. There’s a reason it’s the most expensive part of the logistics process: the more stops you have to make, the more possible permutations of the route there are, which means that finding an efficient route in a timely manner is extremely difficult.  

Delivering door-to-door is not the same as shipping large volumes to a single location. The last mile requires more frequent stops, as well as installation and other services, potentially in crowded urban streets or difficult country terrain. Delays and inefficiencies tend to pile up quickly, and the result is more drive time, more idle time, greater fuel and labor costs, and untenable complexity. 

Last Mile Delivery Costs: What Drives Them Up?

Companies with last mile delivery operations are potentially dealing with thousands of packages that need to be delivered to different customers every day. The volume and variety of drop-off locations—to say nothing of things like traffic, weather, and breakdowns—make last mile deliveries punishingly complex. As for costs, there are a host of different contributing factors.

Failed Deliveries

Companies that distribute goods to supply chain partners or delivery hubs don't have to deal with failed deliveries. In contrast, businesses that deliver to the end consumer are grappling with the problem of failed deliveries every day. Even a single digit percentage of failed deliveries (and the industry average is around 5%) can add up to considerable costs quite rapidly. 

There are multiple reasons why failed deliveries happen.

  • The customer was not at home because the driver missed the delivery window
  • The customer was unavailable as he or she was not expecting the delivery 
  • There were no options provided to customers in terms of delivery scheduling
  • The business has the wrong address

Fuel Costs

Last mile deliveries are made complicated by differing drop off points. Some customers are located in rural areas, which means delivery drop off points are located miles away from each other. One might think that dropping off packages in urban areas will be easier, but it's not. This is because the shorter distance between drop off points is offset by congested roads and scarce parking in many cities.

Delivering in urban areas requires drivers to drive at low speed, which means fewer miles per gallon. Drivers will constantly have to stop, accelerate and decelerate at rapid intervals. On the other hand, delivering goods to rural areas allows drivers to go faster, but drop-off points are located far from each other, making efficient routes difficult in terms of distance. 

Unfortunately, both short distances with heavy traffic congestion and longer distance driving require high fuel consumption.

Idling and Downtime

There's a lot of idling going on when drivers are driving and dropping off goods in cities. Drivers are dealing with diverse vehicles, numerous traffic lights, and winding streets on a daily basis. A delivery truck, on average, uses around 0.84 gallons of fuel per hour when idling, which can add up quickly.

Out-of-Route Miles

Drivers tend to lose track of their dispatchers' route plans given the high number of individual stops they make—especially if those routes aren’t easy to refer back to. Unfortunately for shippers, a study shows that out-of-route miles usually account for 10 percent of the overall delivery fleet's mileage. 

The Solution to Your Last Mile Problems

The last mile delivery process may be complex, but doesn't necessarily need to be exceptionally costly. Route optimization can help companies with the final stage of order fulfillment.

Route optimization helps businesses manage their fleets more effectively while increasing delivery capacity. It's also a potent tool for minimizing failed deliveries.

Optimizing routes entails finding the most cost-efficient sequence of stops—considering all the variables affecting delivery. This kind of workflow is made possible by route optimization software. In this way, the right solution can help businesses plan their deliveries efficiently every single day. 

Automated route planning 

The primary challenge in planning routes is the various factors affecting deliveries that dispatchers have to consider. These include driver schedule, vehicle capabilities and features, customer availability, and much more. All these are difficult for a human planner to handle manually. In contrast, decent route planning software factors in these constraints and comes up with the best routes in several clicks. The result is more deliveries per day, which reduces your cost per delivery.

Easy rerouting

Companies that use manual planning have difficulties adjusting to changes in real time. Replanning routes manually can take many hours. On the other hand, your route optimization software should be able to reroute all deliveries according to current driver schedules, vehicle locations, package location, planned destination, and re-delivery time frames. 

Reduced Labor 

Not only does smart route optimization create better and more efficient routes than a human planner could hope to accomplish by hand, it should also save significantly on labor time and costs for back-office staff. Simply put, if you can give planners back X number of hours per week, you can reallocate that labor time to something more valuable—e.g. managing exceptions and providing proactive customer service. 

The order fulfillment process's final mile is not easy to manage. But companies can address these problems and ensure efficient delivery services with the help of route optimization. Software that can quickly provide businesses with the most optimal routes and allow easy rerouting will go a long way in lowering last mile delivery costs. 


DispatchTrack is a leading provider of SaaS solutions that enable end-to-end optimization of operations and customer experiences in last-mile delivery. The company's platform includes modular tools for self-scheduling, route optimization, customer communication, real-time tracking and ETA, proof of delivery, and delivery network intelligence and analytics. With customers across North America, Europe, South America, and Asia, DispatchTrack is used by thousands of businesses of all sizes and many multi-billion-dollar enterprises across a wide range of industries, including furniture, appliances, building supplies, food, and beverage. More than 60 million scheduled delivery experiences are powered by DispatchTrack each year. For more information, contact us or book a demo now.

Keep reading: How Can Route Optimization Reduce Operating Costs? →