Last-Mile Delivery: What Industry Leaders Look for in Startup Partners
John Payne at Aves Lair
Major players in the delivery industry — including incumbents such as UPS, FedEx, SF Express and DHL — have demonstrated a keen interest in establishing relationships vertically with accomplished startups specializing in autonomous and intelligent logistics and transportation. The convergence of several key trends serves as the impetus for the collaborations:
- Urgent environmental and sustainability concerns
- Growing demand for quick last-mile delivery services
- Increasing parcel volumes
- Frustrating inefficiencies and costs associated with the last mile
- The rise of e-commerce
Startups working with delivery industry leaders are mainly innovation companies with proven autonomous and intelligent transportation and delivery products that can be rapidly deployed to boost efficiency, address environmental and logistical challenges facing the industry, and provide industry giants with a solid foothold in new niche markets and emerging technologies. Indeed, startups with these qualities seem best-positioned to attract the attention of the delivery industry old guard.
The direction in which the last-mile industry is changing seems prime for new partnerships with agile tech startups
The industry giants characterize their engagements with these startups as “partnerships,” “agreements” and “collaborations”; and in some cases big players have invested in or even acquired startups whose products are well suited to advancing the objectives of the incumbent.
Crosswinds from a handful of intersecting trends comprise the backdrop against which the trickle of newly minted cooperative ventures between delivery industry giants and innovative logistics and transportation technology startups is taking place. These trends promise to drive fast growth in the last-mile parcel delivery market and disrupt conventional approaches to the final stage in a parcel’s journey from the factory to the end user’s doorstep.
First, the global coronavirus pandemic has accelerated the growth of parcel delivery volumes and amplified demand for contactless delivery. Whereas thirteen pieces of mail were sent for every parcel in 2005, by 2020 that ratio had fallen sharply to two pieces of mail per parcel. Indeed, McKinsey estimates that the respective volumes of mail and parcels will reach parity by 2025.
Second, the rise of e-commerce, which the World Economic Forum (WEF) predicted will grow at an annual rate of 17%, will also boost parcel volume and, consequently, that of last-mile deliveries. Meanwhile, the emergence of new last-mile delivery startups in vast developing markets such as India, where the volume of parcels has been “doubling every year” may prove especially timely.
Third, the last mile is disproportionately costly for parcel carriers. Though the last mile represents only a small segment of the delivery process, last-mile deliveries can represent as much as half of the cost of that entire process.
Fourth, governments have begun to place greater emphasis on mitigating urban congestion and emissions stemming from a pronounced uptick in the number of delivery vehicles populating dense city centers as parcel volumes climb.
Finally, same-day and “instant” deliveries are growing “36% and 17% annually,” according to a report published by the WEF in January this year.
Same-day deliveries in China account for approximately three million items per day, and one in ten parcels delivered in that country are “instant” deliveries. Astonishingly, Eddie Huang, Associate CEO of the Chinese delivery giant SF Express, suggested that within five years, 12-hour delivery could become a “standardized service” for “most” of SF’s customers across “China’s 600 cities.”
Developed countries have also witnessed an increase in parcel volumes, albeit at a more modest rate of 10 percent annually.
Data reflects the relevance of the objectives partnerships are intended to serve as last-mile delivery companies adapt to and capitalize on changes — ranging from increased demand for speedy last-mile delivery to pressure from governments to address environmental sustainability worries — affecting the entire industry.
These partnerships share several common characteristics. Each represents an instance of a major delivery industry player investing in cutting-edge technology that might prove costlier to develop in-house.
Additionally, all collaborations align with the incumbents’ sustainability targets and corporate values, improve cost efficiency in the last mile, create or shore up their capabilities in emerging market segments (such as same-day delivery service to rural and semi-rural areas), and help industry leaders gain a foothold in competitive technology capabilities by cutting out intermediate steps (including in-house, start-to-finish development).
Moreover, the startups involved in these collaborations boast impressive résumés — whether in their genesis at a prestigious R&D organization or in their accolade as the world’s largest parcel locker company — and therefore represent less of a risky gamble for the incumbent.
Industry leaders seem relatively uninterested in last-mile SaaS or services, which they are capable of developing on their own (take DHL’s B2B delivery route optimization algorithm Greenplan, for example). DHL and its peers seem to prefer partnering with startups that offer scalable, proven and fit-to-purpose products that can be immediately put to work to boost efficiency and drive expansion into new niche markets in the last-mile delivery space.
The following cases demonstrate the trend of partnerships between established delivery companies and startups in the autonomous and intelligent logistics as well as transportation spaces, and highlight the underpinnings of the trend.
Last-Mile Electric Vehicles: UPS x Arrival
UPS will purchase at least 10,000 electric delivery vans from London-based “zero-emissions mobility solutions” startup Arrival, who have adapted their platform specifically for the deliveries giant. UPS’s order of the vans represents an investment of more than 400 million USD.
Arrival’s robust in-house capabilities enable it to provide UPS with a turnkey platform — the startup produces the Arrival Van’s core components, including the “chassis, powertrain, body and electronic controls.”
UPS’s investment in Arrival’s EV product aligns with the industry leader’s announcement that 40 percent of the UPS delivery fleet would be “powered by alternative fuel” by 2025 as the costs associated with transitioning away from traditional gas-powered vehicles continuously fall. UPS asserted in its press release regarding the partnership with Arrival that it will be necessary to “work with partners around the world to solve both road congestion and pollution challenges for our customers and the communities we serve.”
UPS also views its purchase of 10,000 fit-to-purpose Arrival Vans as a strategic decision aligned with the company’s “transformation strategy,” a core component of which is to increase investment in “companies that create opportunities and technologies” related to “UPS growth areas and corporate values,” such as spurring UPS’s adoption of emerging technologies to enhance its delivery capabilities and minimize last-mile inefficiency.
Arrival, meanwhile, estimates that the “commercial van market will exceed [two] million vehicles by 2025 due to demand for same-day delivery,” challenging prospective buyers to follow UPS’ lead in purchasing fit-to-purpose Arrival Vans to increase fuel efficiency while augmenting the capacity of their fleet to cope with consumers’ growing demand for speedy last-mile services.
Last-Mile Electric Vehicles: FedEx x Chanje
FedEx Express’ partnership with Chanje, a producer of electric trucks and “turnkey energy infrastructure solutions” aimed at the “commercial last mile industry,” mirrors UPS’s agreement with Arrival. That is to say, according to the partnership announced in November 2018, FedEx leveraged the scalable, “purpose-built” product (in this case, an electric delivery van) of a startup that has proven its competitive strength in a growing EV industry to bolster the overall efficiency of its own FedEx Express fleet. FedEx indicated that it would purchase 100 Chanje V8100 electric delivery vans directly from Chanje, and lease 900 additional vehicles from Ryder System, Inc. The new vans will be used to carry out last-mile deliveries in California.
Chanje’s V8100 EV can be driven over 150 miles on a single charge and could help FedEx improve its gas-powered fleet’s fuel efficiency and carbon footprint to the tune of two thousand gallons of gasoline and “20 tons of emissions” per year.
FedEx publicized a second partnership with Chanje in March 2020, according to which Chanje will electrify “42 FedEx stations” in California, such that the electrified stations will be able to charge a fleet of “more than 1,000 delivery vehicles.”
Last-Mile Drones: FedEx x Wing
FedEx announced in October 2019 that its FedEx Express business had collaborated with drone delivery startup Wing to trial commercial residential and e-commerce last-mile drone delivery services — the first of their kind in the United States.
FedEx’s engagement with Wing marked a new step in the delivery titan’s “digital transformation,” which it says is intended to enhance end users’ control over the last-mile delivery process and the transparency of that process by way of employing “cutting-edge innovation through autonomous vehicles.” Significantly, FedEx also attributed its collaboration with Wing to a separate last-mile objective, which was to increase the availability of “urgent same-day” delivery services to “customers in rural and semi-rural areas,” markets outside the usual scope of drone or autonomous delivery robot last-mile experimenting, which has in the past occurred mainly in densely populated urban or suburban areas, including college campuses.
Wing began in 2012 at Google X, a research and development organization, and has existed as Wing since 2018. The drone delivery company is an Alphabet Inc. subsidiary. Wing first tested its delivery service as part of a pilot program in Australia; in early 2019, Wing drones delivered take-out to customers from Wing’s “test facility in Bonython, Australia.”
Last-Mile Drones: UPS x Wingcopter
March 2020 also saw the announcement of UPS’s collaboration with German drone-maker Wingcopter to develop a next-generation package delivery drone platform for use in diverse contexts across the United States and abroad.
UPS selected Wingcopter for the development project based on the drone-maker’s “unmanned aircraft technology and its track record in delivering a variety of goods over long distances in multiple international settings.”
UPS framed the collaboration as part of an initiative undertaken by its arm UPS Flight Forward to assemble a “network of technology partners” whose platforms UPS could assimilate to expand its own last-mile capabilities and cement its “leadership in drone delivery.” Specifically, the joint development project seems to be part of the delivery giant’s “[exploration]” of using drones in residential settings “to deliver retail, prescriptions and medical products.” The medical drone delivery service begun in 2019 by UPS at WakeMed’s flagship campus in Raleigh represented the company’s initial testing of the use of drones to fulfill last-mile deliveries in this niche market.
The collaboration is also “a critical step toward building a diverse fleet of drones with varying capabilities to meet even more potential customer needs.”
Wingcopter drones boast a dizzying array of high-tech functionalities, including vertical takeoff and the ability to land in “tight spaces.” The foundation of the Wingcopter 178 Heavy Lift (HL) drone’s impressive capability is the startups’ “core innovation,” its patented “tilt-rotor mechanism,” which allows the drone to alternate between multicopter hovering to fixed-wing, “low-noise” horizontal flight seamlessly.
Wingcopter’s résumé belies its youth. The startup was only founded in 2017 in Darmstadt, Germany, but has already earned recognition from the World Economic Forum as a “2020 Technology Pioneer,” and partnered with the United Kingdom’s National Health Service (NHS), among other entities, to deliver critical medical supplies, such as face masks, during the COVID-19 pandemic.
Wingcopter partook in a handful of other humanitarian projects, including delivering “vaccines and other medications in Vanuatu” and is engaged with UNICEF and African Drone & Data Academy (ADDA) to use Wingcopter drones to “improve health supply chains” and “open up new long-term opportunities for Africa’s youth.” The fledgling company thus epitomizes the crop of innovative intelligent and autonomous logistics and transportation startups partnering with major delivery companies to pave the way for the future of last-mile deliveries — it offers a proven, complete product backed by a tony pedigree.
Last-Mile Drones: DHL x EHang
DHL Express entered into a “strategic partnership” in May 2019 with EHang, a leading drone producer, to “realize a major innovation in smart logistics” in the China market. The incumbent global deliveries company’s collaboration with EHang centers on a plan to jointly “develop and upgrade smart drone delivery solutions,” based on EHang’s existing smart drone platform, tailored to the last-mile market of bustling Chinese cities.
The partnership represents a breakthrough in DHL’s “continuous [effort] to bring innovative and intelligent solutions with greater automation to the market.” Like similar partnerships and collaborations begun by its competitors, DHL’s venture with EHang relies on the innovative product of its startup partner, and brings the vast logistics resources of the delivery incumbent partner to bear to multiply the utility and scalability of the product for the courier, and help the technology startup expand into a timely new use case.
The inaugural delivery route of the DHL-customized EHang Falcon smart drone spans roughly eight kilometers between the customer’s doorstep and the DHL service facility in Liaobu, a district of the sprawling Guangdong city of Dongguan. Crucially, the “intelligent drone delivery system” circumvents all problems related to urban streetscapes, including congestion and hazardous road conditions, cuts down “one-way delivery time from 40 minutes” to fewer than 10, and can “save costs of up to 80% per delivery, with reduced energy consumption and carbon footprint compared with road transportation.”
EHang is a Chinese developer and manufacturer of unmanned drones (autonomous aerial vehicles, or AAVs) and passenger drones (passenger AAVs). The company, which was founded in 2014, went public on the NASDAQ (EH) in December 2019, just four years after unveiling its Ehang 184 passenger drone — the world’s first passenger AAV — at the Consumer Electronics Show. EHang offers a range of four AAVs: the Ghost, Hexacopter, Ehang 184 and Ehang 216.
The EHang Falcon drone, which will serve as the basis of the joint drone development project with DHL, is capable of vertical take-off and landing, like the Wingcopter 178 HL, and boasts intelligent features that allow for optimized route planning and in-flight tracking and systems monitoring functionality. The drone even comes equipped with “multiple redundant systems” to ensure a speedy delivery even if the device’s systems fail. Furthermore, each Falcon AAV can carry a parcel payload up to five kilograms, and is capable of deploying from and landing atop of last-mile hubs termed “intelligent cabinets”.
Last-Mile Parcel Lockers: SF Express x Hive Box
SF Express, a titan of the Chinese deliveries space in general and the last-mile delivery industry in particular, has built relationships with innovative startups mainly through indirect means. That is to say, the company has gradually accumulated a portfolio of holdings in fast-growing last-mile parcel delivery firms through investment and M&A.
SF’s strategy stands in stark contrast to the more direct avenues taken by its North American and European delivery competitors, which include collaborations, agreements and strategic partnerships with innovative startups. Thus, SF Express has effectively deepened its access to revenues from would-be competitors across the last-mile segment, while simultaneously building up its arsenal of in-house efficiency and automation capabilities.
SF’s approach to engaging with startups through M&A represents a comparatively aggressive strategy more akin to the tactics of Amazon, who to date have acquired 102 firms (including upscale grocer Whole Foods Market, which they purchased for $13.7 billion in 2017) to snap up other retailers, than, say, the measured steps taken by DHL to stay ahead of the curve in last-mile innovation.
SF Express has a stake in leading Chinese parcel locker firm Hive Box of about 10%.
Hive Box, the world’s largest parcel locker company, announced in May 2020 that it would acquire the locker system of its competitor, state-owned enterprise China Post. The acquisition would allow Hive Box to absorb China Post’s 94,000 parcel lockers, bringing its own total of lockers from 170,000 to 264,000. Moreover, the merger will increase Hive Box’s market share considerably, to 65%, as the leading parcel locker company acquires the second-ranked firm in China’s parcel locker space.
Hive Box’s lockers handle in excess of nine million parcels daily, a volume the company claims is three times greater than the market average. Users access their locker by inputting their personal credentials into the ATM-like console at each locker location; Hive-Box guarantees that its locker users’ information is protected with “bank-level data security.”
The locker firm has so far partnered with grocery chain Carrefour, Chinese mobile phone giant Huawei, Tencent Games, in addition to SF Express and other national and global brands.