DEEPER DIVES: The Mirage of Tech Panaceas

Good Afternoon,

First, as always, thank you for joining.

You’ve probably noticed a few weeks of absence. My apologies there. Life + a stagnant market didn’t contribute to being able to deliver the high quality, insightful analyses you all signed up for.

This article is something that I’ve been working on for a bit. In the face of rising cost pressures and numerous brands and retailers that have all been coming to me with the same concerns, I go deep into this topic.

If this connects, please consider forwarding this email to someone in your network on the brand side that would benefit from this information. There’s too much misinformation and over promised material out there by people who want to sell you their solution, and not actually help grow your business.

Here’s what this issue brings:

• A response to questions I received based on some of my recent posts given the current state of eCommerce.
  
  If e-commerce is big business but the last mile isn’t working and the current economics of delivery are unsustainable, what are companies to do? How can they get their deliveries done on time and keep costs affordable? Is there a long-term view/strategy of this that will help help?
  

The "Fast and Free" Death Spiral

TL;DR / Key Takeaways

• Density (not total volume) is the make-or-break metric. Profitable last-mile routes hinge on how many packages can be delivered per hour within a tight geography
  

• Unit-level e-commerce broke traditional scale economics. Small, spread out orders drive costs up because fixed daily route costs stay (mostly) the same
  

• Popular “fixes” (route software, micro-fulfillment, drones/AVs) treat symptoms, not the disease. They cannot create delivery density or erase rigid cost structures
  

• The viable path forward is a collaborative “volume-triggered” fulfillment network. Retailers and carriers share data to wait until a route hits density thresholds, then send out deliveries
  

• Re-train customers with incentives, not penalties. Shift value from pure speed to reliability, price larger baskets appropriately, and lean on out-of-home pickup
  

• Deep partnerships beat rate-shopping. Consolidating regional volume with fewer carriers lets each hit density, lower cost per stop, and invest in service
  

• Strong brands can afford sustainable delivery promises. Customers allow for more time and flexibility when the product or experience is differentiated

A Blueprint for Viability: How to Get Deliveries Done

The path to a sustainable last-mile network isn’t about waiting for a technological savior. It’s about retailers taking strategic ownership of the problem.

This requires a fundamental shift in mindset and operations.

Accept the Limits, Then Engineer the Solution

First, there needs to be a industry-wide acceptance of the limits of the current system.

The next step is for retailers to take more ownership in establishing density within their own sales base.

This means moving from a passive to an active role.

Shift to Volume-Triggered Fulfillment

The conventional model is time-based (orders are processed as they arrive).

A sustainable model flips this, using volume-triggered fulfillment.

This doesn't mean retailers should take on the complex monitoring themselves. Instead, it requires a new level of collaboration, leveraging carrier partners who are uniquely positioned to manage these volume triggers across a broader client base.

By aggregating orders from various retailers heading to the same area, carriers can meet density thresholds much more quickly, limiting any negative impact on the consumer's delivery timeline while ensuring the route is profitable.

The business rules governing these thresholds (the correct volume for different predefined geographies), would be a joint effort between retailers and service providers.

In the same way that traditional pricing uses "zones" based on time and distance, this approach establishes a new "activity zone" model, fundamentally rethinking how delivery networks are planned.

This requires a fundamental change in fulfillment philosophy, prioritizing network-wide efficiency over the instant gratification of processing every single order in isolation.

Recalibrate Customer Expectations

The industry is caught in a cycle where expectations for "fast and free" delivery drive up costs.

For years, retailers absorbed these costs into their pricing models, a practice that made sense with higher-margin goods and healthier overall basket sizes.

But, with the exponential growth of commoditized and low-value goods now offered for delivery, average order values (AOVs) have plummeted.

This practice, which initially helped establish eCommerce as a viable alternative in the consumer's mind, can no longer apply in the same way.

The cycle can be broken.

Retailers can shift the value proposition away from pure speed and toward reliability and transparency.

This requires a "what's in it for them" approach.

Instead of simply removing popular options and creating a sense of loss for consumers, retailers must actively create offers that entice customers to choose more sustainable, density-building delivery windows.

By creating incentives (like direct price discounts, exclusive access to promotions, or other valuable perks), retailers give customers a real reason to justify making a different choice, reframing it as a gain rather than a sacrifice.

Being explicit about these trade-offs and benefits at checkout empowers the customer and aligns their choices with the operational realities of a sustainable network.

Leverage Smarter Fulfillment Models

Embrace Out-of-Home (OOH) Networks

The single-family home delivery is the most inefficient stop a driver can make.

Moving the final collection point to consolidated locations is a powerful strategy.

Buy Online, Pick-up In-Store (BOPIS) eliminates the last-mile cost entirely by shifting the final leg back to the customer.

Automated parcel lockers and staffed Pick-Up/Drop-Off (PUDO) points solve the two core problems of low density and high failure rates.

A courier can deliver dozens of packages to a single locker in one stop with a near-100% first-time success rate.

While mature in Europe and Asia, North America remains wildly underdeveloped in OOH infrastructure, representing a massive strategic opportunity.

Rationalize Carrier Diversification

Spreading volume across multiple carriers to "rate shop" is counterproductive.

It atomizes volume, making it so no single partner can achieve profitable density.

The strategic alternative is to shift from a transactional to a relational approach.

Use diversification to build deeper partnerships with fewer carriers, and even consider options like awarding exclusive rights to a specific region to a single, well-performing carrier.

Guaranteeing them a critical mass of volume gives you the leverage to demand better service and collaborate on long-term efficiency.

Price Urgency Appropriately

Free shipping should not be a default expectation.

Instead, it must be strategically positioned as either an earned reward for non-members or a core benefit of a paid membership program.

For the general customer base, enforcing strict minimum order thresholds is essential to ensure smaller, less profitable orders don't erode margins.

For loyal customers, free shipping can be a powerful retention tool, but it should be bundled into a membership program that provides a recurring revenue stream to help offset these high logistical costs.

This dual approach creates a clear value proposition:
non-members are incentivized to increase their basket size, while the benefits of the membership program become an attractive alternative for those who order more frequently.

For customers who genuinely require a product in a rush, a premium charge for the delivery is justified (Walmart has already been showing this to be acceptable to consumers).

Those who need it fast but are unwilling to pay can be offered a BOPIS option.

Validate Everything, Continuously

Failed deliveries are a critical cost multiplier.

While robust address validation at checkout is a crucial first step, it is not enough.

Retailers must adopt processes to be regularly monitoring and validating why deliveries are failing.

It is unrealistic to assume a carrier partner can manage the granular tracking and resolution of every exception.

Retailers have to take ownership of this problem, implementing systems to quickly surface recurring issues tied to individual customers, specific geographies, or even certain product types. Those who actively manage the quality of their own data and delivery instructions are in a much stronger position to negotiate and establish effective partnerships, as they cannot be subject to claims of providing "bad" inputs that create challenges a carrier must then mitigate and charge for.

Root-Cause Analysis

The Last-Mile Inflection Point: Why E-commerce's Foundation is Crumbling

Global e-commerce is a juggernaut, on track to surge from $5.13 trillion in 2022 to a staggering $8.09 trillion by 2028.

Yet, this explosive growth is built upon a logistical foundation that is fundamentally broken.

The last-mile delivery network, the final and most critical link to the customer, has reached an inflection point.

Its current economic and operational models are no longer sustainable.

Despite the global last-mile delivery market being projected to reach $258.7 billion by 2030, this figure masks a deep-seated paradox.

The very system enabling an economic boom is crumbling under the weight of its own success, squeezed by dramatic shifts in consumer expectations and the relentless rise of low-cost, commoditized goods.

With last-mile expenses accounting for 50-55% of total shipping costs, the path to profitability and sustainability demands more than simple cost-cutting.

It requires a radical rethinking of the entire ecosystem.

For retailers and brands asking how to get deliveries done on time while keeping costs from spiraling out of control, the answer isn’t about chasing cost-cutting, but in architecting a new, more resilient strategy.

The Anatomy of Unsustainability: Deconstructing Last-Mile Economics

The core of the problem is a dangerous misunderstanding of logistics economics.

Traditionally, the movement of goods benefited from economies of scale:
shipping large volumes to a few centralized locations dramatically lowered the per-unit cost.

Direct-to-consumer (D2C) eCommerce shattered this model.

It forces the movement of unitary orders and small shipments to a multitude of geographically dispersed, individual doorsteps.

This creates a brutal economic reality.

A retailer that doubles its sales by acquiring customers spread thinly across new territories doesn't make its delivery network more efficient; it forces its carrier partners to run more low-density, money-losing routes.

The Fixed-Capacity Fallacy

To grasp the importance of density, you have to deconstruct the profit and loss statement of a single delivery route.

A last-mile route is, for all practical purposes, a fixed-capacity and largely fixed-cost asset for the day.

The driver’s shift time (typically 8-10 hours) and the vehicle's physical capacity are rigid constraints.

Once a truck leaves the depot, the majority of its costs (wages, insurance, vehicle depreciation), are locked in.

This debunks the myth that a "light" day with low package volume automatically translates to a shorter, and therefore cheaper, workday for the carrier.

If the deliveries on that light day are scattered across the same wide geography, the driver still travels a similar distance and uses a similar amount of time.

The fixed costs remain the same.

In this model, package volume is not a cost driver; it is a revenue generator. The carrier only begins to turn a profit after the revenue from delivered packages surpasses the high fixed daily operating cost.

This is where the gig economy often enters the conversation, presenting a model that can theoretically operate at a lower cost than traditional networks.

While it's true that crowdsourced models avoid many of the fixed overheads of legacy carriers, they are not immune to the fundamental laws of last-mile economics.

They still face the same challenge of needing to achieve a critical number of transactions per hour to be profitable.

Furthermore, the model carries inherent risks.

It’s built on leveraging low compensation by enticing workers with flexibility. But a growing portion of the workforce is unwilling to perform demanding delivery work for pennies on the dollar.

The short, fragmented shifts offered by these platforms are difficult for workers to build a stable income around, forcing them to constantly juggle offers from multiple competing apps.

This environment fundamentally discourages the level of dedication and professionalism required to maximize route density and achieve the operational excellence that true, sustainable profitability in the last mile requires.

This dynamic creates a vicious cycle.

Retailers (in a bid to lower shipping expenses), often adopt a multi-carrier strategy, spreading their volume among several providers to find the lowest rate.

In practice, this means difficult and hard-to-reach regions are forced onto national networks, while the deeper density in urban areas is siphoned off to less expensive regional or gig-work carriers.

This action directly fragments the potential delivery density any single carrier can achieve.

It then perpetuates cost increases from the national players (who are left with the most unprofitable routes) and fuels aggressive, discounted pricing from opportunistic carriers who cannot effectively access volume outside their core coverage areas.

No single carrier receives enough volume to build efficient, high-density routes.

Consequently, their operating costs per package remain high, and forced to compete on price, their margins are squeezed, leaving no capital to invest in better technology or service.

The retailer's seemingly rational, short-term decision systematically degrades the financial stability of the very network it depends on.

Tech Myths

The Mirage of Technological Panaceas

In the face of scary economics, the industry has turned to a host of tech solutions, each promoted as a potential savior.

But they are often misapplied as standalone panaceas that fail to address the root problem.

Route Optimization Isn't the Solution

Route optimization software is an essential tool for modern logistics, capable of improving operational efficiency.

However, its strategic impact is fundamentally limited.

It works on a pre-existing set of packages already on a truck (or in a car!).

It can make an inefficient, low-density route more efficient, but it cannot create density that doesn't exist.

If the software saves a driver 30 minutes, but there isn’t any additional packages to deliver in that rescued time, no new revenue is generated.

It preserves margin; it doesn’t add value.

The Decentralization Dilemma

Decentralizing inventory through Micro-Fulfillment Centers (MFCs) seems like a sound principle, and one often touted by ‘experts’.

Placing inventory closer to customers shortens the final delivery leg.

But, for most brands, this is a strategic trap.

The focus on last-mile transportation savings obscures the immense total cost of ownership.

The high price of urban real estate, technology maintenance, increased middle-mile costs to replenish numerous facilities, and the huge complexity of managing fractured inventory often offset any last-mile gains.

It’s a model that only works for the largest retailers with massive, predictable volume.

Drones and AVs Are Not Coming to the Rescue (Yet)

The long-term vision of autonomous vehicles and drones slashing labor costs is another interesting one.

These technologies face a huge challenges when you look at the combination of technological limitations and infrastructure costs.

More importantly, they ignore a massive, undiscussed blind spot:
the physical capacity of our city and neighborhood infrastructure.

Today, a single delivery truck might efficiently make 150 deliveries.

In an autonomous future, those same 150 deliveries could require 15 or more smaller autonomous vehicles. Multiplied across an entire network, this would unleash a flood of new 'vehicles' onto roads that are already struggling to accommodate existing commercial and human traffic.

This added congestion creates systemic inefficiency, not less.

Combined with the unresolved regulatory, societal, and performance barriers, investing heavily in these speculative technologies is a "solution-in-search-of-a-problem" trap, misallocating capital that should be used to fix the flawed underlying business model first.

Conclusion / Call to Action

A Call for Holistic Accountability

The modern last-mile delivery network is at a breaking point.

The paradox of a booming industry relying on a broken, unprofitable model is a present-day crisis.

The industry's most-hyped solutions fail to address the core economic disease: a systemic lack of delivery density (at every hour on every day).

The path forward demands a radical shift.

It begins with retailer accountability, actively engineering density, recalibrating customer expectations, and building deeper, more strategic partnerships with carriers.

It requires an acceptance that there is a limit to how low delivery prices can go and that you will never get high-quality execution from a network that can't generate enough revenue to do things properly.

The retailers and brands that will thrive are not those who can promise the cheapest or fastest delivery, but those who can build the most intelligent, resilient, and economically sustainable delivery ecosystem.

The time for incremental change is over; the time for bold, holistic, and strategic action is now.

That’s it for this week. Thanks for being here.