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Lockernomics: Important Insights of Locker System and Last-Mile Delivery – Part 1

. Reading time: 6 min.

Barbara Alvarado
Barbara Alvarado
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In many circumstances, when compared to traditional home delivery, using lockers may cost just over half as much. But how does this happen?

Lockernomics consists of a series of 3 articles that show how lockers create value in the last-mile delivery.

In these articles, we seek to identify  the impact of lockers’ unique features in distribution and review how transformative locker adoption will be to different sectors. We provide up-to-date information on the locker system, examples and data to explain how these economics work.

We look beyond the numbers. In the case of parcel lockers, customer behavior, preferences and overall experience, as well as environmental concerns. align very consistently with economic interests, leveraging even further its potential. 

This assessment is confirmed in a recent study by the World Economic Forum named “The Future of the Last-Mile Ecosystem”, where Parcel Lockers are shown to be a key factor (out of 24) for the competitive dynamics of the last-mile.

So, let’s take a look and see how locker-based distribution will help to shape the future of the last-mile and understand why lockers are a fundamental part of the supply chain of the future!

First and foremost, last-mile delivery is both the most expensive and time-consuming part of the shipping process. It is also key to customer experience. To illustrate how the economics of last-mile distribution work, let’s review one recent example.

In March 2021 Walmart introduced a $10 Express Delivery Fee to Walmart+, (for those who pay a monthly membership fee of $12,95 a month or $98 per year) without any minimum order requirement. Regular orders still carry a $35 minimum order and when delivered to a customer’s door carry a delivery fee of $7.95 or $9.95. 

By reviewing these conditions, it may be understood that around the $10 threshold is the minimum they can spend on delivery and possibly break even. 

Considering that last-mile delivery may account for roughly 50% of order fulfillment cost (the widely accepted standard), we may assume that, on average, about $5 will be spent on the last-mile (for this US example). 

Locker system - Courier
Courier man delivering packages (Photo by Kampus Production – Pexels)

Locker System:  Solution for Last-Mile Costs 

For regular to-door delivery, the most important costs drivers in the last-mile delivery are salaries, fuel, fleet (acquisition, maintenance, insurance, etc.), IT, and other miscellaneous costs. The breakdown of costs amongst these cost drivers varies widely depending on a number of factors such as size, weight, location – urban/rural and delivery speed, just to name a few. 

The following illustration intends to point out the difference in terms of marginal cost per delivery but also to show how remarkable is the cost structure between to-door and  smart locker delivery. The final goal is to reinforce how strongly advisable it is for companies to keep guard of these businesses’ tech trends and become digital even when it comes to deliveries. 

Locker system - costs difference to door delivery vs smart lockers
Marginal costs difference between to door delivery vs smart locker delivery

Another interesting fact is that as these costs drivers increase their prices, either through inflation or taxes, the margin of the locker distribution model further increases its strength against to-door delivery.

Lockers, despite adding another cost layer to this process (the costs related to the parcel lockers), are able to reduce overall costs significantly, as they operate with a very different cost structure. This extra cost is largely offset by productivity gains that are achieved by lockers through its consolidation, capacity and scale unique features. 

As stated, Lockernomics works its first economic miracle through consolidation, as the productivity gains in terms of parcels distributed per postman per shift may reach up to 10 times more than to-door delivery (1). 

Placing lockers at convenient, busy and accessible locations, allows for more efficient route optimization on one hand, and also prevents carrying out deliveries to more restricted places where traffic congestions lower delivery speeds considerably.

As the distance covered to deliver parcel decreases, costs are brought down even further. Finally, consolidation also considerably reduces courier and vehicle idle times, as well as practically eliminates failed deliveries, which account for around 5% of delivery costs.

Locker system technology
Smart Locker Technology (Photo by Shutterstock)

Locker Systems and Smart Lockers Scalable Benefits

The second miracle of locker systems is capacity. Not only do parcel lockers have a huge ability to increase capacity simply by adding more lockers or bigger ones, but also by providing timely accurate customer information and reducing the parcel retrieval timeframe, capacity is proportionally increased.

And finally, well implemented locker systems allow for significant scale benefits to be achieved. The more smart lockers are added to the network, and the higher the usage frequency, the more benefits are generated through increased efficiency of the operation. Smart locker density and customer preference are thus essential to be able to collect on these additional gains.

In conclusion, as in most geographies, eCommerce continues to show a clear growth stance, the last-mile equation using the traditional to-door delivery model is not sustainable. 

The obligation to cope with this immense growth in delivery capacity on par with the need for greener and friendlier alternatives, without prejudicing the clients’ experience mandate that new alternatives gain center stage. 

Lockers and Digital were this year’s Ecommerce Awards winners for Innovation in e-commerce Delivery, Logistics & Fulfilment  having emerged as the new high capacity consolidators that allow for the continued growth in volumes to be handled.

What’s next for the Lockers Systems Industry?

The next two articles will explore customer experience and externalities and how delivery lockers tackle these important pieces of the equation as a way to improve urban living and achieve decarbonization targets.

Locker System
Lockster Smart Locker powered by Bloq.it

How can Bloq.it help you and your business?

At Bloq.it we are at the forefront of locker systems integration and development, besides providing our own lockers custom-made for several uses. Our solutions are already being used by many companies that have already proven their worth across several European countries.

Want to discuss more how Bloq.it can help you and your business? Reach out to know more about our Smart Lockers solutions

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Source:

1. Stanisław Iwan, Kinga Kijewska, Justyna Lemke. Analysis of parcel lockers’ efficiency as the last mile delivery. ScienceDirect. s.l. : ELSEVIER, 2015.

Content written by Miguel Neves.