Last-Mile Logistics are a Challenge in the Goods Industry

HOUSTON—According to Adobe Analytics, total US online purchases in June were up 76% from last year, for a total of $73.2 billion for the month. Since the start of the COVID-19 pandemic, e-commerce sales on everything from groceries to backyard furniture have boomed.

As customers increasingly expect same-day delivery of goods delivered to residential addresses, a massive surge in e-commerce has disrupted the global supply chain and transformed industrial transportation networks. To meet demand, companies are looking for a faster and more efficient way to ship goods to consumers, says Brion Sargent, regional critical facilities practice area leader for Gensler’s South Central region.

While good for the bottom line, the surge in online shopping has put pressure on logistics operations, particularly for the last mile, the final and crucial step in delivery from the distribution center or warehouse facility to the end user. Today, all transportation modes are being considered to compress costs and connect this growing network of facilities.

In fact, last-mile logistics are the new challenge in the consumer goods industry. Delivery at this stage of a package’s journey remains the least efficient part of the supply chain, making up 28% of the total delivery cost.

“There are multiple challenges that brands face in the last mile, but for those seeking to save costs and gain competitive advantage, strategically placed distribution centers are quickly becoming critical to the operation,” Sargent tells GlobeSt.com. “Brands are now hustling to seek out distribution space closer to customers, primarily in densely populated urban areas.”

Intermodal transportation, a combination of two or more different shipping modes such as trucks, trains, ships and aircraft to move freight to a final destination, could prove to be the most efficient and cost-effective solution. Rather than relying on a single mode of transport, companies are using an intermodal combination of waterway, roadway and railway to move goods on longer routes requiring fewer transfers. This offers significant cost savings for shippers, buyers and other stakeholders in the supply chain, where distribution is one of the biggest costs, says Sargent.

The four most efficient means to move goods from one place to another by cost are pipeline (oil), shipping (via oceans, lakes or rivers), railroads and long-haul trucking. The logistics of bringing products to customers generally involves some combination of all of these modes.

E-commerce relies heavily on the trucking industry in the form of long-haul transport, then regional and urban transfers, and then finally the last mile, which is usually completed with vans and app-based delivery services. The dramatic expansion of e-commerce and with it, distribution and last-mile logistics, has been noticeably affected by volatility in the trucking industry.

After a decline last year on spending for trucking due to increased tariffs, unpredictability regarding trade with China and new regulations, the total amount shippers spend on freight by truck, rail, barge and air is back on the upswing, according to the Cass Freight Expenditure Index. This spending is a function of price and volume, which has surged because of social distancing and a greater demand for e-commerce. As a result, long-haul trucking capacity is being stretched thin.

An increase in the number of road freight carriers is leading to greater traffic congestion and costly delays in the delivery of goods to end users. However, intermodal infrastructures are improving, along with other advances in technology for managing complex supply chains that operate across various modes of transportation.

“How can companies get goods to consumers faster and more efficiently when trucking capacity is limited? Surprisingly, the rail industry might just have the answer,” Sargent tells GlobeSt.com. “Over the last year, the rail industry has been improving operations by implementing precision scheduled railroading or PSR. Contrary to conventional belief, conventional trains move freight only when they are sufficiently full, but under PSR, trains move at a set time whether the freight or cars are in the yard. The goal of PSR is to enable longer trains, partially loaded cars, faster speeds and less time spent in terminals. This scheduling model is the same model used for years with air-based shipping and while not innovative in and of itself, when applied to rail, it stands to revolutionize how rail is utilized in the US.”

In the last few years, rail shipping companies have been expanding and making infrastructure improvements to increase efficiency. In 2020 alone, one company plans to spend $760 million to this end. The expansion and improvement of rail infrastructure could have major implications for intermodal facilities where rail, road and shipping converge.

“The growth of intermodal freight transport provides new opportunity for industrial real estate investors and developers who can build industrial distribution parks that cater to intermodal freight transport by attracting the right mix of distribution centers, warehouses and manufacturing plants,” says Aaron Ahlburn, practice lead for logistics and industrial data at Avison Young.

Intermodal rail companies have been buying up and redeveloping abandoned rail rights-of-way to re-establish routes to legacy distribution centers currently languishing within cities, and in turn, push services back into city centers closer to the customer and end user. These properties are likely to be low cost, underutilized and generally still furnished with abundant electrical power.

“As we see a greater need for these types of properties to be converted to last-mile distribution and delivery stations where goods can make that final trip to your front porch, we are constantly evaluating and renovating sites along rights-of-way for our clients to purchase and redevelop,” Sargent tells GlobeSt.com. “We strive to make available sites into viable sites. In so doing, we can ensure they continue meeting consumer demand in an efficient and reliable manner.”