The COVID-19 pandemic has triggered a massive shift among consumers to e-commerce. Online sales in the US were 44% higher in 2020 than in 2019, while in the UK, e-commerce sales in the first quarter of 2021 were 74% higher than in the same 2020 period. By 2025, the number of packages delivered around the world is expected to climb to 200 billion, up from fewer than 90 billion in 2018.
Unfortunately, while consumers may support environmental issues in general, price and convenience remain the overriding factors in their delivery choices. Few consumers consider the environmental and social consequences of delivery options. And while there is some dispute over how e-commerce compares to traditional retail with regard to emissions, the cost of the congestion, accidents, deteriorating infrastructure, and pollution caused by thousands of delivery vans plying the streets of the world’s major cities is unsustainable.
Reducing these costs will require developing a system that expands package delivery options beyond the home. At the same time, it must take into account the current and future roles and requirements of the delivery companies and retailers whose businesses depend on the system. This in turn will require collaboration, compromise and compliance among all stakeholders in the postal and parcel industry, to ensure that no player seeks to take advantage of the system. And it must be designed in light of a detailed understanding of evolving customer behavior, their needs, preferences and pain points. Here’s how.
A Bumpy Ride
The great drawback of last-mile delivery is its inefficiency, which threatens both the environment and the social benefits the industry provides. Thousands of last-mile delivery vans crisscross our cities, overlapping on every block every day. To satisfy increasing consumer demand for next-day and same-day delivery, carriers frequently send trucks to the same home several times a day, and different carriers deliver multiple packages to the same address. The huge spike in volume during the COVID-19 pandemic has put enormous pressure on carriers and their workforce.
The impact on cities—from the sheer volume of packages delivered, the growing number of vehicle-miles traveled, and the delivery industry’s inherent inefficiency—is real. In the US, the external costs of last-mile delivery range from a high of $717 per capita in Boston down to $425 in Dallas. (See Exhibit 1.) Because last-mile delivery companies do not directly bear the cost of these externalities, however, they don’t factor them into the cost of doing business. They will send out enough trucks to meet customer demand, which may be more than is socially optimal, considering their impact on cities and neighborhoods.
So far, efforts to solve the problem of external costs have focused on making delivery companies contribute to paying those costs, through direct taxes on shipping or charging for access to the streets. While such solutions can ease the financial burden on cities, they do little to address the underlying business problem: the inefficiencies inherent in current urban delivery networks that propel those external costs.
A coherent solution to the problem at hand must therefore be conceived as a business ecosystem—a collection of largely independent economic players that come together to solve the problem to the mutual benefit of all.
Clearing the Streets
Consumers have long been sold on the notion that convenience should be a primary consideration in all their online activities, especially shopping. At the same time, there are signs of dissatisfaction with home delivery. In a recent BCG survey, most respondents reported some issues, including concerns over multiple daily deliveries and their inability to control the delivery process. And two-thirds were open to alternative delivery solutions. This provides an opportunity to devise a more efficient delivery system that gives consumers convenient out-of-home pickup options while integrating the activities of all players in the system. Key elements of the system include:
How It Can Work
The task of weaving these three elements together into a coherent ecosystem must be carried out by an independent orchestrator. Its task: to define strategy, create the required delivery network and software platform, decide the roles and rules for each stakeholder, set incentives for participation, and ensure open access for competing market participants. The orchestrator—most likely either a public entity or a well-defined public-private partnership—would coordinate all stakeholders, not just the carriers but also the city transport authorities and governing councils that might be needed to put the new ecosystem into practice.
The ecosystem we envision would require a significant shift in the role of the carriers. It would be up to the orchestrator to make clear the efficiency gains available in the new systems, and to encourage their participation through incentives.
This aspect of the new ecosystem is certainly the most challenging, given how large and fully embedded in communities the delivery companies have become. Yet it is critical to the plan. Without the proper set of incentives, as package volume continues to rise, carriers will simply flood the streets with more and more trucks. Yet carriers have much to gain from the properly managed delivery ecosystem of the future.
Delivering the Benefits
The primary goal of the new delivery ecosystem is to offer consumers a range of options that work for them, while increasing efficiency and reducing externalities. It would let consumers consolidate all their orders through personalized, one-click delivery solutions, and provide a network of convenient and attractive pick-up locations. Other benefits include transparency into the environmental and social impacts of their choice of delivery option and the availability of additional valuable services.
Just as important are the benefits such an ecosystem would offer to the other stakeholders in the delivery ecosystem.
The Road Ahead
The benefits of an integrated delivery ecosystem, we believe, are clear. Achieving it will take concerted effort, collaboration and compromise on the part of all the key players—city policymakers, carriers, and retailers. Specific steps include:
Cities of the Future
Despite rapid innovation in package delivery technology, it is unlikely that drones or other high-tech solutions will alleviate the negative externalities of last-mile delivery—the volume of deliveries and size of packages suggest delivery vans are a necessary element of delivery to home. Cities inundated by fleets of delivery vans must look to more down-to-earth solutions that are based firmly on how real people live and move around the neighborhoods and cities they live in.
But merely building a series of pick-up lockers won’t get the job done. Creating a new package delivery ecosystem offers cities the opportunity to rethink the value and role of individual neighborhoods, the economic viability of their commercial high streets, and the city’s overall mobility needs. Informed by the principles of speculative design, guided by an understanding of its social, economic, political and ethical impact, and carried out with imagination, package delivery design can play a key role in the regeneration of entire cities.
ABOUT BOSTON CONSULTING GROUP
Boston Consulting Group partners with leaders in business and society to tackle their most important challenges and capture their greatest opportunities. BCG was the pioneer in business strategy when it was founded in 1963. Today, we work closely with clients to embrace a transformational approach aimed at benefiting all stakeholders—empowering organizations to grow, build sustainable competitive advantage, and drive positive societal impact.
Our diverse, global teams bring deep industry and functional expertise and a range of perspectives that question the status quo and spark change. BCG delivers solutions through leading-edge management consulting, technology and design, and corporate and digital ventures. We work in a uniquely collaborative model across the firm and throughout all levels of the client organization, fueled by the goal of helping our clients thrive and enabling them to make the world a better place.
© Boston Consulting Group 2023. All rights reserved.
For information or permission to reprint, please contact BCG at email@example.com. To find the latest BCG content and register to receive e-alerts on this topic or others, please visit bcg.com. Follow Boston Consulting Group on Facebook and X (formerly Twitter).