Which Factor Most Affects the Cost of Last-Mile Delivery?
The factor that most affects the cost of last-mile delivery is labour, with fuel coming second. These areas are where most of the costs go when businesses get deliveries from the processing point to the customer’s hands. Last-mile delivery is seen as the most costly stage of logistics, sometimes making up as much as 53% of total supply chain expenses.
Labour costs typically include factors like driver salaries, overtime, and route details. On the other hand, fuel costs usually consist of driver density (which refers to the number of stops on a trip) and distance. Combined, they play a key role in shaping how smoothly your operations run and how profitable your business can be.
To help you better understand the high costs of last-mile delivery, we’ll guide you through the expenses associated with this stage, why labour is the heavyweight factor, and how your business can get these costs under control. See how Cartrack and our sophisticated technology can give you full visibility and assist in keeping costs under control.
Why is labour the highest cost of last-mile deliveries?
Labour is the factor that most affects the cost of last-mile deliveries because the last mile is incredibly demanding, with factors like driver wages, idle times, and overtime contributing to the total. So much of the cost is contributed to labour that it usually surpasses other factors like fuel. The longer a delivery takes, the higher the costs.
Let’s look at the effects and amplifications of labour costs:
- Urban vs rural routes: Urban or dense routes typically see more deliveries being made in less time, typically reducing labour costs. Rural or sparse routes mean more travel time and fewer stops, typically inflating labour costs.
- Driver pay & overtime: If drivers are working overtime or longer hours to ensure deliveries are complete, then more money is going towards wages.
- Idle time: If the car is idle in the middle of traffic or during a delivery, labour time is increased and raises costs.
- Failed deliveries: Failed deliveries mean that redeliveries have to happen, which directly contributes to overtime/longer hours and more fuel spent.
What does “last-mile delivery cost” mean?
Last-mile delivery costs refer to the expenses related to the process of getting packages from the last hub to the hands of a customer or business. The last mile is typically considered the most expensive part of the process, even though it’s usually the shortest.
Last-mile delivery describes the last step in an order journey—getting the delivery from the centre to the customer—but it’s complex and costly because of the numerous expectations. Not only are there tight time windows and many stops, but there are also high customer expectations and the need for stellar communication.
Although the last mile is usually seen as a collection of expenses that could weigh the business down, it could actually prove to be a profitable venture. If you implement positive adjustments, like route optimisation or consolidating deliveries, you could potentially gain a competitive edge.
Take a look at the process in its entirety:
- First mile: This is from the supplier to the warehouse
- Middle mile: This is from the warehouse to the local hub
- Last mile: This is from the hub to the customer
Why is last-mile delivery so expensive?
Last-mile delivery is so expensive because of factors like pressures to deliver on time, congested roads, the cost of fuel, and sparse delivery stops. All of these directly add to the overall costs and can affect your business’ level of efficiency.
There are also some Botswanan-specific obstacles to overcome:
- Sparse delivery stops: Botswana has vast rural areas, which means there can be long travelling times between delivery points.
- Infrastructure: Routes and roads can be very unreliable, especially as you move further into rural or farm areas.
- Safety: To ensure safety and security, drivers might take longer routes so as to avoid dangerous areas.
Labour costs don’t always have to give you a headache. You can optimise driver routes and keep track of their performance using Cartrack technologies. Book a demo to see how you can improve the performance and profitability of your fleet.
Breaking down the overall cost of last-mile delivery
If we look at a breakdown of the overall cost of last-mile delivery, we have to consider factors like fuel, customer expectations, and driver labour costs. Some of these factors are easier to manage than others, but understanding these variables can help you decide where you can optimise and save.
Take a look at this breakdown of the typical contributors:
- Fuel and vehicle operating costs: These are probably the most erratic expenses. With the ever-rising cost of fuel, typical wear and tear on a vehicle, and the stop-start nature of delivery driving, it’s no surprise that costs here are high.
- Driver wages and labour: As mentioned, labour is the highest last-mile expense. Driver shortages, wages, overtime, route inefficiencies, and other elements can add up and easily elevate costs.
- Routes and potential inefficiencies: This is one of the best factors to manage cost-wise, as route optimisation can massively improve last-mile costs. Without route optimisation, expect longer routes, overtime, and more idle time.
- Potential failed or repeated delivery attempts: These essentially become hidden costs. Having to make redeliveries means even more per-delivery costs, from wasted fuel to extended driver hours.
- Customer expectations: Customers expect smooth handoffs and deliveries that can be tracked while they’re on the way. This makes deliveries more complex, with restricted delivery windows and rigid schedules.
To better understand which areas are easier to optimise, look at the table below.
How to read the table:
- High controllability: These are areas where costs can quickly be brought down through proactive governance and fleet management technologies.
- Medium controllability: These costs can be reduced through statistically informed decisions, though they’re still partly shaped by outside factors.
- Low controllability (N/A here): These relate to larger, general variables such as economic shifts or regulatory changes, which are harder to manage directly.
Takeaway:
While labour remains the biggest last-mile delivery cost factor, the most achievable expenses often come from controllable inefficiencies. With various smart technologies available with Cartrack, businesses can improve productivity and make meaningful cuts to operational spending.
How to manage and reduce labour-driven last-mile costs
To manage and reduce labour-driven last-mile costs, it’s best to focus on high-controllability areas and manage those before tackling lower areas. Having a better handle on how drivers spend their time can immediately improve efficiency, but a holistic approach will always be the best way forward.
Consider these strategies:
Route optimisation software and smart planning
Implementing route optimisation software and smarter planning can help you cut back on wasted time, fuel, and effort. Through innovative technologies and AI systems, the most efficient and fuel-saving routes can be planned for each of your drivers.
By choosing to prioritise route optimisation software, especially from Cartrack, you can:
- Decrease fuel usage
- Bring down idle time and total time spent on the road
- Confidently manage more stops in a single shift
Delivery consolidation and managing batch orders
By effectively managing batch orders through delivery consolidation, you enable your drivers to complete more deliveries in less time per trip. Smarter delivery consolidation means you can strategically combine trips in the same geographical areas, cutting down on back-and-forth trips.
Cartrack’s FleetWeb features can help you manage dispatching so that every trip is grouped correctly and more time-effective.
Real-time customer communication
Real-time customer communication—through channels such as in-app updates, SMSes, and ETA notifications—massively improves overall delivery experience. Additionally, clear and constant communication with customers helps prevent potential redelivery attempts.
Cartrack’s customer visibility features (proof of delivery, live tracking, automated customer notifications, etc.) guarantee improvement with first-delivery-attempt success rates.
Safe and efficient driver management
Better productivity and protection directly correlate with safe and efficient driver management. Driver behaviour monitoring tools and telematics allow you to keep track of your drivers while also facilitating proactive and preventative approaches.
Cartrack’s GPS tracking and driver scorecards promote safer driving habits, meaning accident-related interruptions and overtime are reduced.
Is last-mile delivery profitable?
Yes, last-mile delivery is profitable, but businesses must balance performance, customer satisfaction, and running expenses. Although this part of the delivery cycle is the most costly, it’s also the most personal, giving you space to truly connect with your customers. If done correctly, you can cement a favourable brand connection and stand out among the rest.
Cost and customer experience
Although reducing costs is the goal, you’ll want to ensure you preserve customer satisfaction and high service standards. Profitability rides on balancing costs and quality service. If you have satisfied customers, you’re almost guaranteed profits through repeat customers and clear brand loyalty. This, however, can only be achieved by quick, flawless, and reliable delivery experiences.
Balancing efficiency and profit
Businesses that implement the right tools and technologies to improve performance are those that are likely to have the best success rates. Lowering costs per delivery while maintaining customer satisfaction could not only improve your bottom line but also give your business an edge over the competition.
Cartrack’s role in reducing last-mile delivery costs
Empowered by advanced technology and real-time visibility, last-mile delivery can transition from a major expense to a strategic advantage. It’s a transformation that Cartrack enables for every business it supports. By directly tackling the highest last-mile costs and helping you take control of them, Cartrack is your top solution as a loyal business partner.
Here’s a look at what we can do for you:
- Route optimisation: We use smart tools and AI-driven insights to optimise your drivers’ routes, helping them drive smarter and not longer. This cuts back on fuel and overtime spend, ensuring that drivers stay on schedule as regularly as possible.
- Delivery tracking & real-time ETAs: With our customer visibility features, you can ensure smooth deliveries on the first attempt. Redeliveries should become far less frequent, and your completion rates will increase.
- Fleet cost management tools: Thanks to our value-added services like MiFleet, you can have complete oversight over operational finances and performance. This kind of oversight allows you to make insight-backed decisions to improve your bottom line.
- Vehicle security: Hijackings and other threats to safety can lead to potential driver shortages and delivery losses. Cartrack is a leading name in vehicle tracking and recovery, protecting your assets and drivers while preventing pricey disruptions.
Final takeaways
There are plenty of reasons why last-mile delivery costs can add up—fuel, maintenance, routes, and especially labour. The list goes on. These expenses are part of doing business, but it doesn’t mean they have to feel out of control.
With the right technology behind you, your business can move away from just reacting to costs and start improving them before they become a problem. You can keep your fleet efficient, your team productive, and your customers satisfied every step of the way.
Ready to cut your last-mile costs while keeping customers happy? Discover how Cartrack helps dispatch teams deliver smarter, safer, and more profitably.
FAQs
Q: What causes failed deliveries, and how do they affect cost?
A: Failed deliveries are caused by numerous factors; a customer may not be available for pickup, the pickup location may be wrong, or there may be delays at the warehouse. Whatever the reason, failed deliveries affect cost by adding to the already existing fuel and labour costs through redelivery.
Q: How do peak periods (holidays, etc.) impact delivery costs?
A: Peak periods impact delivery costs through their increased volumes; higher traffic, higher delivery flows, and higher overtime. All of these factors are directly linked to an increase in labour and fuel costs. It’s possible to keep these costs under control, though, by ensuring you assign tasks to enough drivers and keep routes optimised.
Q: How does Botswana’s rural delivery landscape affect last-mile costs?
A: Botswana’s rural delivery landscape affects last-mile costs by covering longer routes, having fewer drop-off points, and featuring roads that aren’t always in great condition. These challenges drive up fuel consumption, ultimately extending delivery times. Imposing smart dispatch planning and GPS tracking means fleets keep operations profitable, even in remote regions.
Q: How does driver training impact last-mile delivery efficiency?
A: Driver training impacts last-mile delivery in a massively positive way. Skilled and well-trained drivers get deliveries done faster, but also use vehicles more efficiently and are far less likely to cause delays or safety incidents. When managers have regular insight into driver performance, it becomes easier to guide improvement, boost productivity, and steadily reduce operating costs.
