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Customer Demand Drives Final Mile IndustryLock Icon

5 min read

Deep in their hearts, online shoppers know that shipping isn’t free. They know that somewhere in the price they pay is the cost of getting the thing to their doorstep, whether it’s a book or a box of cigars or a disassembled sofa.

What they may not realize is that this “final mile” of the supply chain — experts call it a $13 billion market — is tantalizing for shippers even as it is putting pressure on retailers’ margins. It is turning truck drivers into appliance installers and providing a rare bright spot in the fortunes of the beleaguered U.S. Postal Service.

Two Arkansas transportation companies, J.B. Hunt Transport Services Inc. of Lowell and ArcBest Corp. of Fort Smith, are betting on being part of the revolution.

“One of the biggest challenges is that the consumer’s expectations are a little bit out of line with reality,” said Dan Sanker, CEO of CaseStack Inc. in Fayetteville, which provides logistical and supply chain management support for companies. “Everybody expects everything to be free: shipping and even returns. That’s nice to have, and I like it personally, but from a professional standpoint there’s nothing free about that.”

A 2016 study by the consulting firm AlixPartners of New York City revealed that three-quarters of customers said the availability of free shipping “greatly” affected their buying decision. The study also showed, to no one’s surprise, that shoppers were buying more stuff online — 23 percent reported they average approximately 15 orders every month.

“How people shop has changed, which is an obvious statement,” said Doug Voss, associate professor of logistics and supply chain management at the University of Central Arkansas in Conway. “That has led to a lot more packages showing up on our doorstep.”

Some companies are well positioned in the final-mile segment. In any residential subdivision during the afternoon, there will undoubtedly be a FedEx or UPS truck making the rounds.

Even the most venerable of delivery services is benefiting. The USPS reported a second-quarter loss of $562 million Wednesday, but its package division — fueled by e-commerce purchases from online vendors — reported an 11.5 percent increase in revenue compared with the first quarter of 2016. The division reported revenue of $4.7 billion from nearly 1.4 billion packages.

J.B. Hunt offers three kinds of final-mile deliveries, and ArcBest has identified the market as a $3 billion opportunity.

Transportation companies are becoming more involved because home delivery is more than just books from Amazon stuck in the mailbox. Consumers, increasingly, are ordering cumbersome, assembly-required items online and still wanting them delivered to the door.

ArcBest, on its website, said it offers a variety of final-mile services that include inside delivery, unpacking and light assembly.

“Whether it’s a retail or commercial delivery, ArcBest has a final-mile solution that can be customized to fit the needs of our customers,” ArcBest said in a statement provided by spokeswoman Kathy Fieweger. “By utilizing the asset [less-than-truckload] network for pickups and linehaul, we can position these heavier, oversized shipments at the appropriate distribution point to provide the full spectrum of delivery experiences.”

J.B. Hunt offers Threshold, Enhanced and White Glove residential deliveries. Threshold drops the product at the door, Enhanced brings it inside, and White Glove includes assembly, installation and removal.

Final-mile services are a part of J.B. Hunt’s Dedicated Contract Services division, which in April reported first-quarter revenue of $392.5 million, up almost 10 percent year over year and approaching a quarter of companywide revenue.

XPO Logistics of Greenwich, Connecticut, another major player in final-mile delivery, reported first-quarter revenue of $207 million for its “Last Mile” division, a 16 percent increase from the same quarter a year ago.

J.B. Hunt brags that its 80-plus cross-dock locations — where incoming goods are loaded directly on an outgoing vehicle — allow service to 98 percent of the country. That’s advertising directed at retailers, because consumers rarely concern themselves with the how or whom, just the when.

“Say you ordered a new washer and dryer, and it shows up at your doorstep as delivered by someone who might work for a J.B. Hunt and their job is to bring in that washer and dryer and install it for you,” Voss said. “It requires a lot greater skill set than we stereotypically think of a truck driver having.”

And for the shipper, it creates a more loyal customer.

“Think about this strategically,” Voss said. “If a [retail] company would like to switch trucking companies that haul their stuff, now they have to go through the process of finding a trucking company that has employees who are not just trained to drive a truck, but install a washer and dryer.”

A few years back, Amazon founder Jeff Bezos spoke of his company delivering orders by drone; some people likely laughed or made Jetson jokes.

In 2017, no one is laughing, and the idea of drone deliveries doesn’t seem far-fetched. The University of Arkansas’ McMillon Innovation Studio in Fayetteville is serving as a test site for a delivery robot from Starship Technologies of London.

The studio’s namesake is Doug McMillon, CEO of Wal-Mart Stores Inc. of Bentonville, which has greatly bumped up its e-commerce division to compete with Amazon.

“The study of logistics in business actually started with marketing,” Voss said. “It is a way to drive customer satisfaction, which is what marketers want. You sell more stuff by satisfying your customers. If you go to Walmart and the stuff you want is not on the shelves, you’re not satisfied. You’re going to go someplace else. Now should that stuff not be on the shelf, you have one more avenue to express your displeasure.”

Sanker, the CEO of CaseStack, said he recently ordered a couch from Amazon — “even though I’m kind of a Walmart fan.” It arrived two days later in six boxes weighing more than 100 pounds.

He put the couch together himself, secure in the knowledge that Amazon would be responsible for return shipping costs if he wasn’t satisfied with his purchase.

“As a consumer I deserve that power; it’s my money,” Sanker said. “It’s unfortunate for some people but it’s really great for other people.

“Shipping hasn’t gotten cheaper; you’re just not paying for it. Frankly, someone is not making as much money. There’s no magic in the story. There were people making money, and those people aren’t making as much money anymore.”

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