How to Optimize Last-Mile Delivery? Comparing 4 Last-Mile Delivery Methods and Cost-Saving Solutions for Businesses

As e-commerce grows rapidly, cross-border transactions become more frequent, and consumers demand ever-faster delivery times, logistics competition is no longer limited to warehousing or line-haul transport — it now extends to the final delivery segment where businesses interact directly with consumers. So how exactly should companies optimize last-mile delivery? This article takes an in-depth look at the core concepts of last-mile delivery, its cost structure, common challenges, and the differences between four last-mile delivery methods, while also sharing optimization strategies and KPI management approaches that businesses can adopt to build a logistics operating model that balances cost, efficiency, and customer experience.

What Is Last-Mile Delivery? Understanding Its Strategic Value in the Modern Supply Chain

Last-mile delivery refers to the final leg of the shipping process — after goods complete line-haul transport and distribution, they are delivered from a distribution center, logistics hub, or fulfillment center to the end recipient. [1] Since delivery destinations can range from homes and offices to retail stores, parcel lockers, or even convenience store pickup points, delivery models vary across industries and markets.

Its Role in the Supply Chain

Last-mile delivery is the critical link connecting the supply chain to the end consumer, and it is the final step in a business's order fulfillment process. From the moment goods leave the warehouse to their successful delivery into the consumer's hands, this step not only marks the completion of the logistics process but also directly affects a company's operational efficiency, customer satisfaction, and brand reputation.

Furthermore, as e-commerce and cross-border logistics continue to develop rapidly, businesses face growing demands for delivery speed and logistics transparency. Last-mile delivery must go beyond simply delivering goods — it also needs to provide real-time tracking, delivery notifications, and returns support to meet modern consumer expectations.

Breaking Down the Cost Structure of Last-Mile Delivery

According to market research, last-mile delivery typically accounts for about 53% of total logistics costs, making it the segment with the greatest potential for optimization within the supply chain. [2] By improving delivery efficiency, businesses can not only reduce operating costs but also boost fulfillment speed and customer experience, creating a competitive advantage. Delivery costs are generally broken down into the following main categories:

• Labor Costs — Includes driver salaries, part-time delivery staff, customer service support, and on-site management personnel; this is one of the largest cost components in last-mile delivery.
• Vehicle and Fuel Costs — Includes vehicle depreciation, leasing fees, maintenance, fuel or EV charging costs, and fixed expenses such as insurance.
• Route and Traffic Costs — The more dispersed the delivery addresses and the heavier the traffic congestion, the more delivery time and distance are required per item, further raising overall delivery costs.
• Failed Delivery Costs — Costs from redelivery, customer service handling, and returns caused by recipients being unavailable, incorrect addresses, unreachable contacts, or refused deliveries.
• Delivery Density Costs — The more deliveries completed on a single route, the lower the cost per item; if delivery points are dispersed or order density is low, the empty-running rate of vehicles rises, reducing overall operational efficiency.
• Reverse Logistics Costs — Processes such as returns, exchanges, recycling, and restocking all require additional investment in logistics, labor, and warehousing resources — a cost that cannot be ignored in cross-border logistics.

Challenges Faced by E-commerce and Cross-Border Businesses, and Causes of Delivery Failure

Compared with warehouse management or line-haul transport, last-mile delivery faces far more uncontrollable factors. Any delay at any stage can lead to failed deliveries, increased customer service and return costs, and even damage to brand reputation. Key challenges in last-mile delivery include:

• Highly Dispersed Delivery Addresses — Compared to bulk B2B shipments, B2C orders typically need to be delivered to a wide range of homes, offices, or remote areas, reducing the efficiency of each delivery run.
• Rising Consumer Expectations for Delivery Speed — Same-day and next-day delivery have gradually become market standards, requiring businesses to invest more delivery resources to keep up.
• Insufficient Delivery Information Transparency — If logistics information is not updated in real time, consumers cannot track their parcels, leading to more customer service inquiries and complaints.
• Complex Cross-Border Logistics Coordination — International logistics, customs clearance, overseas carriers, and local delivery networks must work closely together; a delay at any single node can affect final delivery timing.
• High Cost of Returns and Reverse Logistics Management — Especially for cross-border e-commerce, the returns process involves international shipping, re-declaration, and product inspection, making it far more costly than domestic returns.
• Insufficient Capacity During Peak Seasons — During shopping peaks such as Black Friday and Christmas, a surge of orders in a short period can strain delivery resources and slow down delivery times.
• Inconsistent Service Quality Among Logistics Partners — When a business works with multiple logistics providers, differences in delivery standards, system integration capabilities, and service quality can increase management complexity.

Common Causes of Last-Mile Delivery Failure

A single failed delivery doesn't just mean a redelivery attempt — it can also increase customer service communication, manual processing, vehicle dispatch, and customer churn costs. Analyzing the root causes of delivery failure is therefore essential to improving fulfillment efficiency. Common causes include:

• Incorrect or Incomplete Recipient Address Information — Address errors, missing floor numbers, or missing contact details can prevent delivery staff from completing the drop-off.
• Recipient Unavailable or Unreachable — A mismatch between the delivery window and the recipient's schedule is one of the most common causes of redelivery.
• Traffic Congestion or Weather Conditions — Uncontrollable factors such as traffic jams, heavy rain, or typhoons can delay or even cancel deliveries.
• Delayed Logistics Information Updates — If the system fails to sync delivery status in real time, consumers may miss their delivery window, increasing the risk of failure.
• Damaged Parcels or Labeling Errors — Poor packaging, barcode errors, or product damage can lead to refused deliveries or returns.
• Cross-Border Customs Clearance Issues — Incomplete documentation, customs inspections, or local regulatory requirements can extend delivery times or even result in returned shipments, affecting the consumer experience.

In-Depth Comparison of Mainstream Last-Mile Delivery Methods and Operating Models

Which last-mile delivery models suit different businesses, retail brands, and e-commerce sellers? The ideal delivery model actually varies by industry, product type, and market needs. For example, high-value goods may call for dedicated delivery and signature service, while small parcels may be better suited to self-pickup points. Below is a comparison of the pros and cons of the four most common last-mile delivery methods:

Building an In-House Delivery Fleet

Businesses hire their own delivery staff and manage their own vehicles and delivery systems, giving them full control over the last-mile process. Because the entire operation is company-controlled, service quality remains consistent, and delivery strategy can be adjusted quickly based on operational needs. This model suits large e-commerce platforms and retail chains with stable order volumes.

However, building an in-house delivery fleet requires a high initial investment — including vehicles, staffing, and information systems. For businesses with smaller or more volatile order volumes, the overall operational burden is relatively heavy.

Third-Party Logistics (3PL) Delivery

Third-party logistics (3PL) refers to businesses outsourcing delivery operations to a professional logistics company, which handles the delivery network, staffing, and management. Since logistics providers already have mature delivery resources, businesses can expand their delivery coverage quickly while reducing the labor and fixed costs of building their own fleet — making this model especially suitable for small and mid-sized e-commerce sellers, cross-border brands, and growing businesses.

However, outsourcing delivery also means businesses have less control over the delivery process, and the delivery experience is more dependent on the logistics provider. Choosing a partner with stable delivery capabilities and strong system integration is therefore key to succeeding with the 3PL model.

Convenience Stores, Parcel Lockers, and Pickup Points

This method reduces the need for door-to-door delivery, lowers failure rates, and offers more flexible pickup times, making it widely used for small parcels, cross-border e-commerce, and urban delivery. Compared to home delivery, self-pickup models help improve delivery efficiency and reduce costs, though they are generally unsuitable for large or heavy items due to limitations in pickup point density and locker capacity.

On-Demand Delivery Platforms

On-demand delivery platforms match delivery requests with partner couriers through a digital platform, who then pick up and complete deliveries in real time. This model is common in food delivery, fresh grocery delivery, and instant retail services. Its advantage lies in fast delivery speed and flexible capacity that can quickly respond to peak order demand. However, on-demand delivery is typically priced per item, making it relatively costly, and businesses have less direct control over the delivery process and service quality.

Business Strategy: In-House Last-Mile Delivery vs. Outsourced Third-Party Logistics (3PL)

There is no absolute advantage between building an in-house delivery operation and outsourcing to a third party — the right choice depends on a comprehensive evaluation of order volume, product characteristics, service commitments, and future growth strategy. The table below summarizes the key differences between the two models:

Last-Mile Delivery Optimization Strategies and Key KPI Management

Delivery speed is important, but without cost control, quality management, and information transparency, faster delivery alone can still increase overall operating costs. Businesses should therefore establish a comprehensive delivery management system — reviewing every stage from order creation, route planning, and delivery execution to after-sales service — while continuously monitoring key performance indicators (KPIs) to identify areas for improvement.

Key Strategic Approaches

Businesses can pursue last-mile delivery optimization through the following approaches:

• Establishing Forward Warehouses or Regional Distribution Centers — Positioning inventory closer to end markets can effectively shorten delivery distances, reduce transit time, and improve delivery speed.
• Using Demand Forecasting to Allocate Delivery Resources — Analyzing historical orders, seasonal demand, and promotional data to plan vehicles, staffing, and inventory in advance, reducing pressure during peak periods.
• Offering Delivery Time Slot Reservations — Allowing consumers to select their preferred delivery window reduces failed deliveries due to recipient unavailability and improves delivery success rates and customer experience.
• Integrating Order, Warehouse, and Transportation Management Systems — Connecting OMS, WMS, and TMS systems improves information synchronization and reduces manual processing and delivery errors.
• Continuously Monitoring Delivery Data — Regularly analyzing on-time delivery rates, failure rates, per-delivery costs, and customer satisfaction helps identify bottlenecks early and guides ongoing optimization.

For businesses lacking an in-house delivery team or cross-border logistics experience, partnering with a logistics provider that offers integrated warehousing and delivery capabilities is also an effective way to improve last-mile efficiency. A professional logistics partner can help plan warehousing, delivery, and cross-border logistics processes based on a company's product characteristics, delivery coverage, and operational needs.

The Advantages of Smart Logistics Technology

How can businesses improve last-mile delivery efficiency? Beyond improving processes and resource allocation, leveraging smart logistics technology is now a key factor in modern logistics management. According to global management consultancy McKinsey & Company, businesses using AI and real-time visibility platforms can reduce up to 40% of the waste caused by information gaps, poor communication, and delays at logistics handover points. [3]

Common smart logistics technologies currently in use include:

• AI Route Optimization — Automatically plans the best delivery routes based on traffic conditions, delivery density, and time slots, shortening delivery time and reducing fuel costs.
• GPS Fleet Management Systems — Provides real-time tracking of vehicle location, routes, and delivery progress, improving delivery transparency.
• Electronic Proof of Delivery (ePOD) — Instantly transmits signature confirmation via mobile devices after delivery, reducing paperwork and improving information synchronization.
• Logistics Tracking Platforms — Allow businesses and consumers to check delivery status in real time, reducing customer service inquiries.
• Delivery Demand Forecasting — AI uses historical order and seasonal data to predict future delivery demand, allowing vehicles and staff to be allocated in advance.
• Geofencing Technology — Automatically triggers notifications or status updates when delivery staff approach a designated area, improving delivery efficiency.
• Data Analytics Dashboards — Provide real-time monitoring of delivery efficiency, exception orders, and KPI performance, helping management make faster decisions.

Core KPI Measurement Framework

Without quantifiable management metrics, even the best logistics strategy is difficult to sustain and improve. Businesses should establish a KPI framework that balances efficiency, cost, and service quality, and regularly review delivery performance. Common metrics include:

• On-Time Delivery Rate (OTD) — Measures whether orders are delivered within the promised timeframe.
• First Attempt Delivery Rate (FADR) — Reflects the proportion of deliveries successfully completed on the first attempt; a key metric for reducing redelivery costs.
• Average Delivery Time — Measures the time required from order dispatch to completed delivery.
• Cost per Delivery — Measures the average delivery expense per order; an important reference for cost management.
• Delivery Failure Rate — Analyzes the proportion of delivery exceptions caused by address errors, recipient unavailability, and other factors.
• Order Fulfillment Rate — Assesses whether orders are fulfilled completely and on time.
• Customer Satisfaction (CSAT) — Gauges consumer sentiment toward delivery service through surveys or reviews.
• Return Rate — Monitors the proportion of returns caused by delivery issues, helping to improve the delivery process.

SJ Logistics: Integrated Warehousing and Delivery for High-Resilience Last-Mile Logistics

As competition in the logistics market intensifies, businesses face more than just a race for delivery speed — they must also balance cost control, operational flexibility, and supply chain resilience. For cross-border e-commerce sellers, brands, and fast-growing businesses in particular, true logistics competitiveness — regardless of which last-mile delivery method is used — depends on the ability to integrate warehousing, delivery, and supply chain resources, and to use data analytics to optimize last-mile efficiency and success rates.

Frequently Asked Questions (FAQ)

1. How should cross-border e-commerce sellers choose the right last-mile delivery provider in Hong Kong?

It's recommended to prioritize logistics providers with local Hong Kong delivery, cross-border logistics, and integrated warehousing-and-delivery capabilities, rather than comparing delivery prices alone. Beyond delivery speed, businesses should also evaluate coverage area, information transparency, system integration capabilities, and exception-handling processes.

2. How can small and mid-sized e-commerce businesses optimize last-mile delivery speed on a limited budget?

Small and mid-sized e-commerce businesses can effectively improve delivery efficiency through third-party logistics (3PL) and integrated warehousing-and-delivery services, without needing to build a full logistics system on their own. By leveraging smart delivery systems, diverse pickup options, and delivery data analytics, businesses can gradually optimize and improve their logistics management to balance delivery speed, cost control, and customer experience.

References

• Association for Supply Chain Management – Last-Mile Delivery
• EMARKETER – FAQ on Last-Mile Delivery: How the Final Step of Fulfillment Will Take Shape in 2026
• McKinsey & Company – Digitizing Mid- and Last-Mile Logistics Handovers to Reduce Waste