What Are the Costs of Ineffective Last Mile Logistics Operations?

A recent study by the CMO Council found that the majority of retailers and other consumer products companies are scrambling to meet customer demand for fast last mile delivery, citing outdated supply and delivery chains, a lack of centrally located fulfillment centers, and the high capital costs of improving these processes as their largest obstacles. Despite these challenges, virtually all respondents (99%) expect the shift to e-commerce and home delivery to continue in the years ahead, further highlighting the need for effective last mile logistics solutions. 

In this article, we’ll take a deeper look at the challenges in last mile delivery, the financial and long-term business costs of ineffective last mile operations, and best practices for improving last mile logistics.

Defining Effective Last Mile Delivery 

Understanding what effective last mile delivery looks like is critical when establishing last mile logistics strategies and processes. Defining effective last mile delivery should take into consideration internal operational factors as well as customer expectations for a positive delivery experience. Operational considerations should include the impacts of missed or late deliveries, redeliveries and returns. Each of these factors damage last mile efficiency and result in substantial profit loss over time, so minimizing these occurrences is critical. 

Having a clear picture of how customers define an effective delivery experience is extremely important for shippers and can help guide last mile operations strategies. Recent consumer surveys found that fast delivery and low shipping costs are the most important factors of a positive delivery experience, followed by delivery tracking, easy returns process and sustainable delivery options. Including these elements in last mile logistics planning can help ensure repeat sales and positive customer feedback. 

Challenges to Effective Last Mile Logistics

Last mile delivery is a complex component of logistics operations because, unlike large-scale shipping, shippers aren’t sending large quantities to a single location. Instead, shippers rely on delivery drivers to carry large numbers of small packages to a number of delivery destinations – creating a unique set of challenges that include:

  • Growing Customer Expectations – With the boom of e-commerce and the rise of free two-day shipping, the expectations of today’s consumers have grown to include tracking information at the time of purchase, the ability to check shipment status at the click of a button and real-time notifications at every step of the shipping journey. Last mile logistics operations must find ways to meet customer expectations by providing visibility, accuracy and timely delivery. 
  • Network Complexity – Courier and last mile delivery networks are fragmented and complex, which makes it challenging to drive efficiency and network optimization. Traditional manual processes for managing couriers are time-consuming and labor-intensive, and, as carrier networks expand, they are more prone to human error or oversight as well. Last mile logistics solutions that help companies expand, coordinate and orchestrate delivery networks are essential to overcoming this challenge.
  • Rising Costs – Last mile delivery accounts for up to 53% of total shipping costs, with last mile costs for retailers expected to hit an astounding $55 billion by 2025. As consumer demand for free shipping continues to grow, shippers must identify ways to optimize last mile logistics, minimize costs and protect profits.
  • Last Mile Visibility – Today’s online shoppers have increasingly high expectations for last mile delivery tracking, with up-to-the-minute status updates and accurate delivery times. To meet these demands, shippers need sophisticated last mile operations solutions that provide visibility and notify teams of issues that put delivery schedules at risk, allowing teams to proactively manage exceptions in real time.
  • Resource Management – As demand for last mile delivery grows, so does the need for additional courier partners, vehicles, delivery drivers and fuel. Managing the physical and labor resources required for effective last mile operations presents a significant challenge, particularly in the face of ongoing labor shortages. 

Costs of Ineffective Last Mile Operations

Ineffective last mile logistics operations create costs that go beyond the financial and can have resounding impacts on a retailer’s success and longevity. Those potential costs include:

Missed Deliveries 

Missed deliveries due to address errors, delivery outside the preferred time window or signature requirements can quickly add up. According to a survey by data verification company Loqate, e-commerce businesses report an 8% failure rate for first-time deliveries, with an average failed delivery cost of $17.20 per package. Considering that many companies are already shouldering some portion of shipping fees at a loss, these additional costs can have devastating impacts on total profits. This is particularly true for smaller companies that may not qualify for bulk shipping contracts with parcel carriers and other last mile couriers. 

Returns & Reverse Logistics

As shoppers make more purchases online, they are also returning a large portion of those goods to retailers — approximately 21% of online purchases were returned in 2021. While some returns are to be expected when customers are not satisfied with a product, inefficient fulfillment operations may also contribute to return rates. Customers who receive the wrong product, incorrect size or color of a product, or damaged product will almost always initiate a return and request a replacement. In this case, the retailer is paying for shipping three times — the original shipment, the return and the replacement. Poor fulfillment practices undoubtedly lead to massive reverse logistics costs and ineffective last mile delivery operations.

Lost Customers & Brand Reputation

Inefficient last mile delivery operations can significantly impact customer retention and brand reputation. A 2022 survey of U.S. consumers revealed that 85% of online shoppers will not shop with a retailer again after a poor delivery experience. This was echoed regardless of the reason for the poor delivery experience, indicating that consumers rarely evaluate or consider where in the fulfillment and delivery process there was an issue. In fact, a separate report on fulfillment found that 41% of consumers place the blame directly on the retailer if their order is late. With this in mind, companies must establish efficient last mile delivery operations to ensure that customers are satisfied with their experience, so that they maintain positive brand sentiment and are more likely to make additional purchases in the future.

Staffing & Labor

Poor last mile operations put undue stress and pressure on a company’s logistics and delivery employees. Logistics operations teams tasked with courier management, complex route planning and time-intensive manual tracking may burn out or feel dissatisfied in their roles, leading to substantial staff turnover. Similarly, ineffective last mile routing can negatively impact delivery driver salary per hour, increasing the likelihood of drivers seeking higher-paying jobs in the high-demand driver market. The costs of recruiting and training new employees to fill these gaps create an additional burden as well. 

Best Practices for Effective Last Mile Logistics Operations

Moving from ineffective to effective last mile delivery is absolutely essential for retailers in today’s highly competitive market. These best practices can help companies make improvements and drive last mile efficiency — fast. 

Process Automation

Manual last mile logistics processes are inefficient, create intense labor pressure and cut into profits. Automating operational tasks — like delivery order management, capacity procurement, route planning, and tracking — gives shippers more time to focus on managing real-time exceptions, limiting costly missed deliveries and improving the customer experience. 

Route Optimization

Effective last mile delivery requires a multimodal approach to complex network management — matching each shipment with the right mode and service level to hit an on-time delivery. API-driven last mile solutions deliver optimized route planning through a network of vetted and trusted carriers. Shippers can rest easy knowing even their most complex and time-sensitive shipments are in good hands. 

Exception Management

Effective last mile logistics requires shippers to expect the unexpected and be ready to act quickly when issues arise. Advanced visibility solutions track shipments and identify exceptions in real time, enabling shippers to take proactive steps to mitigate risk and avoid missed deliveries


Delivery circumstances can change in an instant, so having the ability to communicate easily with customers and drivers is essential for effective last mile operations. Last mile logistics solutions that keep companies in close contact with customers and allow real-time communication with drivers help ensure seamless last mile deliveries. 

Master Effective Last Mile Delivery Operations with OneRail 

In today’s consumer-driven market, seamless and effective last mile delivery is essential to meeting customer expectations and building brand loyalty. Technology solutions that drive effective last mile operations need to deliver end-to-end last mile visibility and automate complex processes that get in the way. OneRail is the technology-driven last mile solution that gives retailers the tools they need to optimize delivery and improve last mile operations. With OneRail, shippers can count on:

  • A centralized platform to access an API-integrated courier network with a 98.6% on-time rate,
  • Automated route optimization to ensure the best courier and best driver for every delivery, 
  • Real-time tracking and a dedicated 24/7 Exceptions Assist™ team of logistics experts to address issues as they arise, and
  • A customized, branded communication platform to keep shippers in control and in contact with customers and delivery drivers every step of the way.

Ready to learn more about OneRail’s solutions for effective last mile logistics operations? Schedule a demo today.

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