Did you purchase one (or more!) of the 375 million items sold during Amazon’s 2023 Prime Day event? Each year, shoppers mark their calendars for Prime Day, anticipating killer savings on home goods, appliances, toys, and more, all delivered to their door within days. There’s a lot that goes into getting those orders processed, packaged, shipped, and delivered, but the most important step is arguably the final one — getting the package to your doorstep. This is known as “last mile delivery,” and it’s one of the most critical and expensive steps in the parcel delivery process. From an insurance perspective, this final mile is fraught with risks and exposures that make underwriting eligibility tricky.
What Is Last Mile Delivery?
Last mile delivery refers to the final leg of the supply chain management process, where a package or product is transported from a distribution center or hub to its final destination. Typically, instead of the merchant delivering the product directly to the customer, they use a shipping carrier. However, that shipping carrier doesn’t always complete the final delivery step themselves and instead contracts the task out to another company — one that might operate their own fleet or allow their drivers to use personal vehicles.
Expect Continued Last Mile Delivery Market Growth
The last mile delivery market is expected to grow by a staggering $165.6 billion between now and 2027. Of that amount, $62 billion is expected in North America.
Thanks to companies like Amazon, this market growth is largely driven by rising customer expectations for two, three, or even same-day delivery. According to the logistics company Flexe, 62% percent of shoppers say delivery speed influences their purchasing decision and 85% will shop somewhere else if a business’s delivery times are too long.
With a greater number of people shifting their purchasing behavior online, successfully managing the final mile delivery process will be crucial for e-commerce businesses to remain competitive.
E-commerce shopping habits have risen rapidly in the past decade. Source: Census.gov
Last Mile Delivery Challenges and Risks
This “last mile” is generally the most challenging and expensive part of the delivery journey, and it can have a significant impact on overall customer satisfaction and a company’s operational efficiency. Furthermore, it’s riddled with risk and exposures that can make it a challenge to underwrite. Here are just a few common risks:
- The rush to meet delivery quotas. There’s a severe industry-wide driver shortage, which is making it difficult for delivery companies to stay on top of orders. This problem is exacerbated by the rising trend in e-commerce and shoppers’ expectations for quick delivery times. Drivers are often under pressure to make up for lost time, which can result in less-than-ideal delivery behavior: speeding, parking in unsafe areas, carrying too many packages at once, etc.
- Driver experience level. Because last mile delivery vehicles are typically smaller (often box trucks or vans), drivers aren’t required to hold a commercial driver’s license. This has attracted a younger demographic of drivers who may lack the experience to safely maneuver through busy, urban areas. Less-seasoned drivers means more risk of accidents.
- Gig drivers. While some delivery companies use their own fleet of vehicles for last mile deliveries, others hire “gig drivers.” These drivers are typically contractors who use their own personal vehicles for deliveries. Roman Atkielski, Transportation Practice Leader at Jencap, explains, “A common misconception is that personal insurance will pick this up. But your personal insurance won’t cover you while you’re using the vehicle for commercial use.” Even if the gig driver has their own personal auto insurance, their policy won’t cover damages that occur while they are making deliveries.
- Curbside parking in urban areas. In urban areas, parking can be limited, and often the only option for drivers is to park at the curb. Although perhaps necessary, it’s not ideal and increases the risk to both the driver and the vehicle, particularly on busy streets. Atkielski notes, “Most injuries happen to drivers, not from driving accidents, but from jumping in and out of their car.”
- Theft. Last-minute delivery drivers make frequent stops. Amazon drivers, for example, make a delivery about every one to two minutes. More stops means more opportunities for theft, which is one of the most common loss drivers for the last mile delivery market.
As the demand for faster delivery climbs, so will the need for last mile delivery services. Last mile delivery businesses will need to be proactive in putting risk mitigation and safety measures in place for their drivers and their equipment, particularly if they want to secure insurance coverage at a reasonable rate.
If your client’s risk has wheels — whether on the road or in the garage — Jencap’s transportation and garage team is your one-stop shop for comprehensive insurance solutions. We stay ahead of the curve when it comes to emerging transportation industry news and can support you in finding the coverage your clients need. Contact us today for a quote.
