Technology delivered: Implications for cost, customers, and competition in the last-mile ecosystem

Technology delivered: Implications for cost, customers, and competition in the last-mile ecosystem

Technology delivered: Implications for cost, customers, and competition in the last-mile ecosystem

What’s the outlook for the last-mile delivery ecosystem, given rapid development in technology? How will technological advances affect unit economics, customers, and competitive dynamics?

One of the best parts of the e-commerce journey is the moment that you finally get your hands on that long-sought-after, much-anticipated item you ordered. As technology increases customers’ expectations of what they can have, it is also widening their options for how those products get delivered. However, our previous research shows that customers are not only increasingly demanding but also extremely cost sensitive and have a very low willingness to pay for greater convenience.1 In the medium term, autonomous delivery vehicles (ADVs) will be the dominant technology in last-mile delivery, with the power to both give consumers greater delivery convenience at lower cost and significantly alter the competitive landscape.

The pace of tech development is faster than expected and is already transforming last-mile delivery

Today, we see examples of technology piloting and testing across the globe. But we are also seeing the beginning of series productions and scaling of technology deployment by several companies. At every stage of development—from concept through testing to rollout—last-mile technology is making rapid gains. In the years ahead, we expect the adoption of a few key technologies to increase in several stages:

  • Short term. We expect electric vehicles (EVs) and the increased presence of unattended delivery technology to form the first wave of technology that transforms last-mile delivery. This change is under way, as these technologies are market-ready and scalable, with each of them contributing to cost effectiveness, customer convenience, or regulatory compliance. As cities tighten their emissions standards, it makes sense that the deployment of EVs in last-mile delivery will be among the first technologies to achieve significant adoption.
  • Near term. In three to five years, large, semiautonomous delivery vehicles that follow parcel-delivery staff are expected to be the next trend to be adopted by companies in the parcel-delivery segment. This first step toward full automation will support delivery staff and increase productivity by cutting the time needed to drive and park vans.
  • Medium term. In five to ten years, ADVs will likely not need to be accompanied by human delivery staff at all and will represent the third wave of widespread tech-enabled parcel delivery.
  • Long term. Beyond 2030, it is expected that robots will take packages right to customers’ front doors. This technology represents crucial added value—namely customer convenience—as robots will be able to address the “last ten yards” of delivery. The first robot-delivery pilots are already happening. However, this technology is costly today, which means that these solutions are far from widespread deployment.

All these technologies have value potential, as well as risks for customers and providers. Semiautonomous and autonomous vehicles, for example, reduce delivery costs in cities by approximately 10 to 40 percent (Exhibit 1). EVs, on the other hand, do not yet yield significant cost savings. That is because total vehicle cost, including mileage, accounts for less than 15 percent of total last-mile delivery cost in dense networks and thus offers only a small basis for cost improvement. Therefore, at least in cities, even significant improvements to total cost of ownership from electrification are not expected to improve delivery cost substantially. Nonetheless, as mentioned, the use of EVs will likely become necessary in order to comply with increasingly tight emissions-related regulations.

Autonomous-vehicle technology holds the promise of increasingly reducing the per-parcel cost of last-mile delivery.

Technology will reshape value and competition in last-mile delivery

As described above, customers are demanding more from their delivery providers, and a highly competitive environment combined with customers’ high cost sensitivity has pushed forward the development of technology that will help the industry deliver on these demands. Combined, these trends mandate immediate adoption of these new technologies by last-mile players. The growing importance of technology in the last-mile industry will affect the overall ecosystem, including its competitive dynamics and the distribution of value across industry players (Exhibit 2).

Incumbents will likely continue to dominate the industry core, where the bulk of value redistribution from automation will occur, but new entrants have the opportunity to emerge in the same-day and instant-delivery segments.

There are three main implications for the ecosystem:

  • First, courier, express, and parcel (CEP) players are likely to remain strong in the industry core. Despite the rather large technological leap that is required, incumbent CEP players are still well positioned to control the bulk of parcel volumes (75 to 80 percent of the 2025 volume) in deferred, in B2B, and—to a lesser extent—in same-day delivery. The capital-intensive nature of sorting and full-scale logistics networks, the almost-mandatory nationwide service offer, significant economies of scale, and the required access to the customer are immense barriers to entry for new players and will help traditional players hold on to dominance in the core. However, certain very large retailers may enter traditional last-mile delivery (that is, deferred delivery) in selected high-density cities to gain control of the customer touchpoint and to create synergies with their same-day networks.
  • New players can enter in new segments. For other new entrants, however, emerging niches in last-mile delivery such as same-day and instant delivery are opportunities for which they are well positioned to move in and compete. First, while incumbents have dense delivery networks that bring a strong competitive (cost) advantage in the traditional business, the volumes in same-day and instant delivery are still low, making it easier for new players to enter and compete at comparable cost. On top of that, ADVs will dramatically drive down operations costs, making dense networks less essential and further opening the door to smaller, newer players.
  • In both the industry core and new segments, significant cost savings will trigger a multibillion-euro redistribution of value. In developed economies, €20 billion to €25 billion per year in savings from cost-effective autonomous technology are up for grabs. The magnitude of the value redistribution is significant, exceeding the overall profit pool of CEP players in developed countries today by quite some margin. Moreover, the lion’s share of value redistribution (€15 billion to €20 billion) in the last-mile ecosystem is expected to occur in today’s core market rather than in the emerging same-day and instant markets. The value will likely be redistributed across CEP players, autonomous-vehicle manufacturers, IT operators, and customers. We believe that three control points will determine the shape of this shift. Specifically, the players that master delivery tour planning, routing, and management of autonomous fleets will be the ones that capture the largest chunk of the new value pool. Even though full deployment of fully autonomous fleets is not expected until well into the 2020s, rapid tech development means that its future winners will likely be determined in the next two to three years because the foundations for future success (for example, data collection, capability building, formation of partnerships) need to be laid by then.

Strong business partnerships can help CEP and commercial-vehicle (CV) players unlock the full automation value potential and ensure competitiveness

In the future, CV players are likely to play a more important role in last-mile delivery, since they not only are well positioned to operate the autonomous delivery fleets (fleet management) but can also leverage their routing expertise. CEP players are well positioned to control the core steps—capacity management, tour optimization and planning, and sorting—as they will continue to play from a position of strength in the core business. Physical control of the parcels also gives CEP players possession of and control over the associated data, which is a vital input for process excellence.

These shifts would bring CV and CEP players closer together. To capture the full efficiency potential, both sides would need to collaborate closely in the routing of autonomous vehicles and together tackle capabilities challenges, such as suggesting possible parking spots and instant rerouting based on traffic information. A close partnership also facilitates the integration and alignment of the routing software with the player’s related IT backbone (for example, tour planning and optimization IT). Beyond the technology advances that benefit CEP and CV players collectively, strong business partnerships can result in competitive advantages to individual players depending on the roles they play in the last-mile ecosystem.

The main advantages to CEP players are better access to technology and, ultimately, a chance to obtain technology leadership as well as improved requirements management. CV players benefit from better core-market access, access to additional value pools, and data insights and IT-related lessons.

The benefits of collaboration can certainly accrue to CEP and CV partners in ways that serve the competitive interests of individual players, but there’s more. In addition to helping ensure they don’t lose ground to other players, collaboration has the potential to give CEP and CV players collective influence in two key ways:

  • Establishment of an ecosystem. Highly successful collaborations can open the door for CEP and CV players to establish a last-mile delivery ecosystem. As “founders” of a new landscape, they could make their routing and delivery planning the industry standard and build a platform on which other ADV manufacturers run and different applications and services are built.
  • Creation of additional data-driven business models. Jointly creating integrated routing and delivery-planning software can give both players access to an immense amount of data. Insights derived from data gathered from various sources—for example, from traffic, parking spots, or consumers themselves—can shape new joint business models.

For CV players, it seems advantageous to partner with one or more large CEP players who are leading in their home countries, because they possess the best data and typically the greatest innovative power. For CEP players, size matters, and smaller CEPs risk falling behind the innovation curve.


Overall, the unprecedentedly fast technology development expected for the coming years is likely to put pressure on both CEP and CV players to act immediately to defend their industry positions and capture new value opportunities. Furthermore, in the future, successful strategies will need to be based on a set of specific capabilities and require leveraging a complex and resource-intensive technology infrastructure. Fulfilling these demands seems overly ambitious for any single CV or CEP player, and so we expect players to set up strong business partnerships in response to these challenges.

Download Fast forwarding last-mile delivery—implications for the ecosystem, the full report on which this article is based (PDF–1.5MB).

About the author(s)

Bernd Heid is a senior partner in McKinsey’s Cologne office; Matthias Kässer is a partner in the Munich office, where Christoph Klink is an associate partner and Simon Tatomir is a consultant; Florian Neuhaus is a partner in the Boston office; and Jürgen Schröder is a senior partner in the Düsseldorf office.

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