UPDATED: Battle for Last-Mile Logistics Heats Up as Amazon Expands Same-Day Delivery Network

UPDATE 11/24/2023: In a strategic move to fortify its last-mile delivery capabilities, Walmart is set to roll out 40 additional parcel delivery stations by the end of 2023, revolutionizing the online shopping experience for customers. 

In a blog post, Walmart US SVP of Transportation and Delivery, Jennifer McKeehan, notes that these stations are designed not only to allow customers to place online orders for a broader range of products with next-day delivery but also to streamline the order distribution process for employees within stores.

McKeehan emphasized the retailer’s commitment to expanding this capability to more locations in the coming year, aligning with Walmart’s overarching mission to serve customers with unparalleled speed, accuracy, and reliability. The introduction of these parcel delivery stations is poised to play a pivotal role in building density (deliver more parcels per route) within the last-mile delivery process, ultimately driving down costs associated with reaching American customers.

Efforts to enhance density are part of Walmart’s broader strategy to compete with industry giant Amazon, particularly in the realm of fulfillment operations.

Walmart CEO Doug McMillon highlighted significant progress during a recent Q3 earnings call, citing a 15% reduction in store-to-home delivery costs. McMillon attributed this success to ongoing initiatives focused on “densifying the last mile.”

Walmart’s Spark Driver network is a key player in achieving this density, facilitating more deliveries from nearby stores while also extending its services to other retailers through Walmart GoLocal.

Over the last 12 months, Walmart has raised the percentage of online orders fulfilled by stores by 800 basis points (1 basis point = 0.01%), while the GoLocal platform approaches a milestone of 12 million deliveries. Crucially, the retailer is managing to reduce last-mile costs without compromising on speed.

McMillon revealed the company’s commitment to trimming same-day delivery times for over 80% of its stores, with some locations achieving speeds as remarkable as 30 minutes – a testament to Walmart’s dedication to delivering an unparalleled combination of efficiency and ultrafast delivery speed in the fiercely competitive eCommerce landscape.

UPDATE 08/25/2023: Amazon has relaunched a shipping service that it temporarily suspended during the initial phases of the COVID-19 pandemic. This move intensifies the ongoing last-mile battle involving Amazon, legacy carriers UPS and FedEx, and even major retailers Walmart and Target that are venturing further into the realm of ultrafast delivery.

What is Amazon Shipping?

Amazon Shipping offers ground delivery services from pickup to delivery for FBM sellers. This means the service will be available to items sold on Amazon.com and other online sales channels.

According to Amazon, it’s “working closely with USPS” to deliver packages in 2 to 5 days within the contiguous US. As can be recalled, the company recently announced its ongoing efforts to integrate USPS Ground Advantage (GA) with Buy Shipping, a label service where sellers can conveniently buy shipping labels for various carriers and track shipments.

Purchasing USPS GA labels through Buy Shipping can potentially help sellers save money (with Amazon’s pre-negotiated rates) and cut down ground delivery times from 8 to less than 5 days.

The relaunch also came after Amazon hit its “fastest Prime delivery speeds ever” and subsequently announced its plans to expand the number of same-day delivery facilities over the next few years.

Through the revival of Amazon Shipping and same-day site expansion plans, the retailer positioned itself to seize greater control of the delivery window, and thus offer 1 to 2-day delivery for Prime and up to 5 days for non-Prime shoppers and sellers, rivaling UPS (which has 24% of the US shipping market) and FedEx (16%).

All of this may be part of a larger effort to attract more non-Amazon sellers to its growing fulfillment network while providing existing FBM sellers with a streamlined shipping solution for their shipments. And to an extent, this holistic approach also allows Amazon to reduce its dependence on UPS, which already placed shipping limits on the company last year.
Related: Amazon Wants to Take a Bigger Chunk Out of Seller Profits with 2 New Fees

UPDATE 08/01/2023: It looks like Amazon is succeeding in trying to make same-day delivery the new norm. 🏆

In 2019, the retailer started working on free one-day Prime day shipping. Four years later, it finally achieved its “fastest Prime delivery speeds ever.”

During the first half of 2023, Amazon has delivered over 1.8 billion items to its US Prime members within the same or the subsequent day. That’s nearly a fourfold increase compared to what the retailer achieved over the same time period in 2019, said Doug Herrington, CEO of Worldwide Amazon Stores.

Herrington says that part of this remarkable feat is down to the restructuring of Amazon’s fulfillment model: moving from a national fulfillment network to a regionalized network model. 

Approximately 76% of US orders came from their eight interconnected regional warehouses. Each of these regional warehouses has a vast selection of items to accommodate immediate delivery of customer orders in nearby areas while still being able to ship products to distant locations when necessary.

Aside from restructuring, Amazon has also streamlined its last-mile delivery process by taking same-day sites closer to bigger cities and recruiting local small businesses in rural areas as delivery partners. This way, certain products have even shorter distances to travel, allowing Amazon to offer ultrafast delivery while reducing transportation costs.

Per Herrington, “millions” of items are available for same-day delivery across 90 major US cities, with more set to follow.

To build on this initial success, Amazon plans to open more same-day sites in the next few years. 

According to Herrington, Amazon’s same-day facilities “are designed for speed with smaller footprints, streamlined conveyors, and picking directly to pack stations.”

And while these hybrid warehouses are smaller than your typical million-square-foot Amazon fulfillment centers (FCs), they are filled with products that customers regularly buy.

As a result, it only takes Amazon associates 11 minutes to pick, pack, and ship customers’ orders in same-day sites, which is “more than an hour faster than traditional fulfillment centers.”

Amazon doubling down on its same-day network expansion plans only means Prime orders will come faster (e.g., from several hours down to just two hours) to customers in the near future. If living close to drone delivery centers, it may even be possible to get certain items (under 5 lbs) delivered within 30 minutes. 

While this bodes well for both customers and sellers, top retailers like Target and Walmart boasting their own fulfillment network will be sensing escalating competition as their battle for last-mile dominance with Amazon rages on.

UPDATE 07/13/2023: A few weeks after Walmart introduced its new order fulfillment network, Amazon announced they’re seeking 2,500 small US businesses to join Amazon Hub Delivery. This new local delivery service appears to be another piece of the puzzle in the company’s last-mile network.

In February, the retailer opened several same-day delivery sites across major cities in the country. A couple of months later, CEO Andy Jassy confirmed Amazon has overhauled its logistics operations from a national fulfillment service model to a regionalized model to speed up deliveries and lower costs.

To improve delivery efficiency in their target regions, Amazon is currently recruiting small businesses such as dry cleaners, coffee shops, salons, flower shops, gas stations, fashion boutiques, grocery stores, and auto service centers, among others. These businesses have a profound knowledge of local roadways and neighborhoods, making them a great addition to Amazon’s existing network of third-party couriers and contractors.

Amazon aims to recruit 2,500 businesses in 23 states, specifically rural areas, by the end of 2023 and in a later phase, expand the deliveries to bigger cities like NYC, Seattle, Boston, and LA.

How Amazon Hub Delivery works

• Delivery partners will receive Amazon packages each day.
• Delivery partners will have the flexibility to make deliveries when they’re available. 
• Finally, get paid for every package delivered.

Amazon is looking for partners who can deliver 20 to 50 packages every day. The exact compensation details have not been disclosed, but small business owners have the potential to earn an annual income of up to $27,000 through Amazon’s new local delivery service.

Based on a delivery partner’s projections, a company that manages to deliver an average of 50 packages per day could potentially earn around $2.50 for each package delivered. However, this amount may not be good enough for some businesses that take several hours to meet their delivery commitments. 

For instance, vehicles are likely to endure significant wear and tear from driving on rough roads for up to 5 hours per day, requiring tire replacements frequently. And as more nearby businesses participate in the program, the volume of daily packages may decrease, impacting a business’s earnings adversely. Interested delivery partners should take their availability, assigned route (traffic and road conditions), and operating costs into careful consideration before joining the program.

It may be a good fit for businesses that have gaps in their normal delivery schedule. In that case, making Amazon deliveries may be a good way to subsidize income and maximize employee productivity. 

It will be interesting to see how this program develops but it is a smart idea to leverage under-utilized, available resources much in the way Uber and Airbnb have done.

UPDATE 06/13/2023: Walmart may have figured out how to beat Amazon and Target in the last-mile eCommerce department – building automated compact warehouses within its physical stores. 

In April 2021, Walmart announced a new order fulfillment network called Market Fulfillment Center (MFC). It is a small warehouse “built within, or added to, a store” and equipped with an automated item retrieval system called Alphabot.

Robots retrieve the products from within the warehouse and then bring them to a sorting station manned by an associate. The associate then collects and prepares the sorted items for courier delivery or customer pickup.

Presently, Walmart customers expect free 2-day delivery when shopping online. The implementation of MFCs is set to revolutionize the company’s daily order fulfillment speed and capacity.

According to the retailer, Alphabot can retrieve items 10x faster than a person, which can make the whole fulfillment process span only a few minutes, commencing from the time the order is submitted to the point at which it becomes available for the customer or delivery driver to collect. 

Once deployed nationwide, MFCs, combined with a robust drone delivery system that’s currently available in 7 states and a growing driver program, could potentially put Walmart’s last-mile service on par with, if not better, than Amazon’s 1 to 2-day delivery promise. 

But that is still a few years down the line, as out of 3,561 Walmart supercenters in the US, only two have an MFC built within them so far. The company piloted the program in 2019 in Salem, New Hampshire and four years later, opened its first official MFC in its Bentonville supercenter store in Arkansas. 

This gives Amazon a lot of time to catch up or get ahead of Walmart’s MFCs, unless they continue to cut costs, which could delay such progress.

Overall, retail giants doubling down on their same-day expansion plans is good news for customers, as this could mean faster delivery times or more accessible pickup locations in the near future.

For sellers, this presents a better opportunity for them to explore Walmart as an additional sales and distribution channel, especially if the sellers’ goal is to reach grocery shoppers.

UPDATE 05/20/2023: In a bid to compete with Amazon, John Mulligan, Target Executive Vice President and COO, unveiled an innovative strategy to optimize their delivery operations.

With a focus on enhancing capacity and streamlining routes, Target is embarking on a significant expansion of larger delivery vehicles in locations where their sortation centers operate.

According to Mulligan, when it comes to routes that were previously covered by smaller vehicles, the utilization of SUVs and minivans allows for the delivery of more than twice the number of packages.

However, the real game-changer lies in Target’s “high-capacity vans,” which have the ability to cater to almost five times the number of packages (vs. sedans). The effectiveness of these larger vehicles has been put to the test by the company, which has been experimenting with high-capacity van routes at their Dallas and Minneapolis sortation centers.

“Over the past year, across all of our markets served by our sortation centers, we have shifted more routes to larger passenger vehicles and early results have been positive,” Mulligan told analysts.

These high-capacity vans accounted for 65% of Target’s last-mile deliveries in Q1 2023 compared to zero during the same quarter in 2022.

“This resulted in meaningful cost savings for our last mile delivery program overall,” Mulligan said.

Other Initiatives to Handle Greater Parcel Volume 

In 2022, Target delivered a staggering 26 million packages through their sortation centers. As they stride forward into this new year, their goals soar even higher as they set their sights on nearly doubling this monumental figure.

To make that happen, the retailer is working on a standardized and expedited approach to load its vans, which “enables package containerization and easy identification of the correct packages at delivery.”

By streamlining the loading process, Target not only simplifies the daily tasks of its drivers but also empowers them to move a greater number of packages in and out of the sortation centers without compromising safety.

As a result, this significantly enhances the company’s last-mile delivery capacity.

Expanding Next-Day Delivery Coverage with More Sortation Centers

In February, Target announced it’s constructing six additional sorting centers across strategic locations to expand its next-day delivery capabilities.

Currently, the company has nine sortation hubs in Texas, Chicago, Minnesota, and Pennsylvania. These hubs collect packages from local stores and prepare them for delivery to customers by Shipt drivers or third-party couriers. 

To optimize the delivery capabilities of its existing sortation centers, Target is adding extension facilities to its logistics network. It recently opened one in Smyrna, Georgia in an attempt to serve its other sortation center in Atlanta.

This way, eComm orders that end up outside of the Atlanta sortation hub can be moved to the Smyrna extension facility. Couriers can then pick up those packages in Smyrna and deliver them to neighborhoods in the area.

With these high-capacity vans and new sortation hubs, Target can now reach and provide new markets with a delivery service that could, it hopes, eventually begin to challenge Amazon.

UPDATE 04/14/2023: In a shareholder letter published April 13th, CEO Andy Jassy confirms Amazon has recently completed a shift from a national fulfillment service model to a regionalized model to lower costs and provide lightning-fast deliveries.

“Last year, we started rearchitecting our inventory placement strategy and leveraging our larger fulfillment center footprint to move from a national fulfillment network to a regionalized network model,” Jassy explained.

“We made significant internal changes (e.g. placement and logistics software, processes, physical operations) to create eight interconnected regions in smaller geographic areas. Each of these regions has broad, relevant selection to operate in a largely self-sufficient way, while still being able to ship nationally when necessary.”

As you may already know, under its previous national distribution model, Amazon would sometimes have to ship an ordered product from far-off locations if a local fulfillment center didn’t have it in stock. Not only did this increase costs for the company, but it also resulted in longer delivery times for customers. 

Now, with its regionalized fulfillment model in place (combined with automated warehouse systems), Amazon is all set to take its next-day and same-day delivery services to new heights. 

“Shorter travel distances mean lower cost to serve, less impact on the environment, and customers getting their orders faster,” Jassy said.

Presently, the retail giant is capable of handling 600,000 same-day deliveries in 90 metropolitan areas. The company also aims to bring its ultrafast delivery service to places beyond larger cities by investing in more rural areas, such as Omaha and Sioux Falls.