A vital part of the U.S. economy, last mile logistics is continually evolving and growing. In fact, the market size is projected to grow to $61.72 billion between the years of 2023 and 2027. Between repurposed real estate, the attention of investors, and technological innovations, the evolution of last mile logistics and its influence on the country’s business landscape is hard to ignore.
Here are three ways the evolution in last mile logistics is influencing the U.S. economy:
1. Industrial warehouse space is being repurposed into final mile distribution centers
Industrial spaces on the outskirts of U.S. metropolitan areas, previously the domain of manufacturers, are now becoming popular spots for final mile delivery facilities. As organizations snap up large vacant buildings and their ample parking areas, and add them to their supply chain facilities, they are changing the scope of national e-commerce capabilities and the composition of the U.S. real estate market.
While other areas of the real estate market suffered in the early years of the COVID-19 pandemic, the industrial warehouse market grew. In 2021, the Wall Street Journal reported that industrial real estate prices were up 7.1% from a year earlier, and vacancies dropped to 4.3% nationally and even to 2% in some places, such as Los Angeles and areas of New Jersey.
Particularly, there was an uptick in those seeking facilities under 100,000 square feet, which the WSJ reported is a telltale sign of a last mile distribution center. It makes sense that retailers want to position their inventory in these industrial spaces that are close to huge customer bases, thereby making delivery times shorter, customer satisfaction higher, and margins bigger.
2. Private equity and venture capital firms are investing in final mile logistics
Capital market activity in the final mile logistics arena has increased by 175% since 2019. Private equity and venture capital firms collectively poured over $900 million into the sector in 2020. Private equity investors are maximizing the value of existing final mile companies, venture capital firms are funding new logistics software, and real estate investors are buying warehouses. Investors see final mile logistics’ potential to transform how business is done.
Why is so much capital being directed toward final mile logistics? The answer begins with the pandemic-spurred rapid growth of e-commerce. E-commerce sales increased by a whopping 43% over the course of 2020, the year COVID-19 hit the U.S. And although growth may not be quite as rapid these days, the market does continue to expand. The third quarter of 2022 saw an increase of 10.8% from the third quarter of 2021, just a year earlier.
As businesses scrambled to adapt to the new e-commerce demand, they instantly recognized the value of strong final mile logistics and infrastructure. In order to remain competitive, companies had to close the gap with Amazon’s speedy, often 2-day-or-less, delivery times. They had to think strategically about how to reallocate merchandise, optimize routes, and provide retailers with visibility. It became clear to both e-commerce companies and investors alike that final mile logistics is a high-value service and a true market differentiator.
Furthermore, with final mile logistics, investors may begin to see returns faster than other assets. Those in the final mile ecosystem don’t have to wait long to begin using new technologies, spaces, and improvements. Anecdotally, we’re hearing that e-commerce and retailer earnings calls often include a discussion around last mile logistics, with companies being asked how they are leveraging last mile to be more competitive and boost ROI.
3. Final mile logistics is driving technological innovations in transportation, data analytics, and business operations
Innovations in technology have made final mile deliveries smarter, more efficient, and as a result, much more cost effective. Here are some ways these innovations are having a wider impact in propelling economic growth.
The future of final mile delivery depends on maximizing energy efficiency. Final mile providers are one of the drivers (no pun intended) of electric vehicle adoption (much more so that the consumer market) and drone delivery. According to McKinsey, around 2,000 drone deliveries were already being made per day in early 2022, and the number is growing. These new modes of delivery point towards a greener future as both EVs and drones produce fewer carbon emissions than traditional gas-powered delivery trucks. As companies continue to adopt these new vehicles, look to see lowered expenditures on gas and fuel.
Another huge area of innovation in final mile logistics is the adoption of powerful data analytics technologies. People don’t always think of last mile delivery as being data-driven, but truly optimized final mile delivery is powered by careful analysis. Technology innovations, like USPack’s Adaptive Delivery Driven Intelligence platform, constantly collects and analyzes data to optimize routes and schedules. By harnessing the power of data, companies can significantly lower both their labor and fuel costs.
But platforms like these aren’t just cutting costs, they’re also driving revenue with innovative customer service. End buyers – whether that’s a B2C or a B2B relationship – value up-to-date delivery information and true visibility into their order statuses. With the ADDI platform, both USPack partners and their customers can track their deliveries in real time.
Innovate your final mile capabilities by partnering with USPack.
Stay competitive in the growing e-commerce market by partnering with USPack. A tech-forward final mile provider with 30+ years of experience, we have the tools and expertise to help you boost delivery efficiency, increase customer satisfaction, and be more cost-effective. Contact us to learn more.