Image: Shutterstock

Image: Shutterstock

As the recent jump in online retail and home deliveries looks set to stay, startups are playing a key role in reshaping the Spanish last-mile logistics scene to meet new challenges

Online shopping surged by 138% in the first week of the Covid-19 lockdown in Spain in March, the start of an unprecedented boom in online shopping – and demand for home delivery. Caught off guard, last-mile logistics companies found themselves near breaking point, as domestic supply chains bore the brunt of unpredictable spikes in orders.

Hampered by centralized management systems, logistics giants were especially handicapped, often unable to respond fast enough. But startups, equipped with lean and agile delivery fleets and processes, stepped in to help the retailers swamped by orders from customers stuck in home confinement for over three months.

Revoolt, a sustainable last-mile logistics startup handling supermarket delivery in five of Spain’s biggest municipalities, was able to build in record time an app for its clients to upload their online catalog and process orders online. Deliveries were also facilitated at the clients’ preferred time slots. As a result, the company gained a 30% increase in orders while only needing to increase its staff count by 10%.

“The complexity at this stage was enormous,” Angel Sánchez, CEO and co-founder of Revoolt, told CompassList. “We removed important bottlenecks that were unnecessarily slowing down processes.

“This should motivate us to rethink how to plan for such spikes in demand.”  

According to Deloitte, online retail sales more than doubled during the lockdown from the year-ago period, versus 24% growth in 2019. It’s a demand that is here to stay, as “a significant portion of this growth will remain structural," reflecting the accelerated digitalization of Spanish retailers.

“Covid-19 has brought forward by three years the urgent need to encourage changes in freight distribution and transportation models,” the consultancy notes in a research report dated June 2020.

More going local

DHL also observed a clear shift in shipping dynamics that increased the complexity of handling the same volume of transactions during the coronavirus lockdowns. Over half of the B2C and B2B companies surveyed by DHL were still working to fully implement online strategies in their operations when the Covid-19 outbreaks started to spread across Europe.

“Failure to implement a complete online strategy results in less efficiency in critical areas, less ability to meet customer expectations and optimize delivery rates, as well as more difficulties in reducing limitations on existing infrastructure," said Rubén Aliseda, director of the Retail Business Unit of DHL Supply Chain Iberia.

During the lockdown, average supermarket online orders increased by almost 80%. Supermarkets in Spain’s larger municipalities even had to temporarily close their online shopping due to the shortage of local delivery operators. Spain’s largest supermarket chain, Mercadona, for instance, was forced to suspend internet sales to customers in Madrid because it could not guarantee deliveries as normal. El Corte Inglés, the biggest department store group in Europe, resorted to promoting its “click & collect” web service for self-collection of internet shopping in-store to reduce demand for home delivery.

People have also become accustomed to shopping more locally post-Covid lockdowns. Food delivery startup Glovo has recently invested over €800,000 to support local businesses by launching a new in-app feature that allows users to order from various local stores.

“At the very local level, people are getting more emotionally attached to their local areas than previously," said Tom Horsey, CMO and co-founder of Mox, a Seville-based startup offering white-label solutions for instant urban deliveries. 

He recalled how a neighborhood supermarket client saw a tenfold jump in sales due to the spike in online orders. The disruption of global logistics, aggravated by the closure of borders, has created new opportunities for “city-wide marketplaces,” he noted. 

This is where "the digitalization of local businesses, crucial to enabling locals to order from multiple [local] shops in the same shopping basket, has ultimately been a huge added value.” 

Digital and logistical assets

Blockchain technology will also be key to tracking the performance of last-mile logistics. Startups like Mox are testing blockchain integrations with their riders. Every delivery performed by Mox riders can be tracked and monitored in real time, using KPIs such as the time taken to accept orders, collect and deliver the items to customers. The riders will be paid a bonus for every delivery with KPIs exceeding the standards set out in their service-level agreements. Payments will also be instantly made. 

“We can pay them with digital coins that they can later convert into fiat currency,” Horsey said.

In Spain, total investments in logistics reached €1.8bn in 2019, a double-digit growth on the previous year. Sustainable financial backing is vital to ensure a smooth transition toward digital solutions to cater to rapidly changing market and consumer needs. The ultimate goal will be to make deliveries within city centers within the shortest time possible.

“Users are looking for immediate deliveries and don’t want to wait for 2–3 days,” said Horsey. With 80% of the Spanish population living in cities, the online shipments are inevitably concentrated in urban centers. This results in an increasingly challenged and overstressed last-mile logistics infrastructure that’s not designed to cope with such large volume increases.

Also, mounting public concerns about air pollution and environmental sustainability will impose more restrictions on last-mile delivery.

Freight transport generates about 15% of environmental pollution, Deloitte says, noting that municipal governments are increasingly keen to reduce air pollution in their cities. But that issue and traffic congestion have resurfaced since the lockdown ended, and are even exacerbated by more people switching to using private transport for fear of higher contagion risk in public transport. 

As such, delivery companies will find it more difficult to circulate and park in cities, leading to constant increases in operating costs, to the extent of “jeopardizing their profitability in certain industries,” it says. 

Delivery by foot or non-motorized vehicle – which startups like Koiki and Revoolt are already doing – are “the most environmentally sustainable alternative,” Deloitte recommends, noting the need for more urban warehouses to support the logistics operations.

Indeed demand for warehouses close to urban centers has risen significantly in the bigger Spanish municipalities. Investment in logistics assets amounted to €210m for 1Q2020, exceeding the average for the same period over the past 10 years, according to Knight Frank. 

In June, Amazon announced the creation of a second logistics center in Madrid. International courier SEUR recently opened a new 37,000-sqm logistics hub in Toledo to better serve the metropolitan area of Madrid. Glovo has also partnered with DIA supermarkets to convert several outlets into “dark stores” to exclusively serve Glovo’s online customers. Mercadona is optimizing its urban logistics by linking online orders to warehouses, so-called “hives” that strategically serve medium and small districts.

Collaboration, not competition

At the beginning of the year, Mox was already expanding its delivery services to include groceries and parcels from food orders. During the lockdown, it managed to close several deals, including with traditional last-mile delivery operators Seur and Paack. The company deploys native algorithms to optimize routes and load planning. 

“We are not a one-size-fits-all type of solution; we work white label, we do technological integrations and we are happy to use third-party software – that’s not common at all in logistics,” Mox’s Horsey said. “The bigger you become as a company, the more you tend to have standardized processes. The more these processes are standardized, the harder it is to adapt rapidly.”

“That’s a great opportunity for us," he noted. “During Covid, many companies have started to see the value in collaborating rather than competing.”

Investments in big data and AI for predictive logistics will need to be rapidly integrated across the ecosystem. “To cope with the pressure of the new environment, many companies are already choosing to partner with specialized logistics operators to increase their resources and capabilities to scale quickly and effectively. This will enable them to capitalize on all e-commerce opportunities,” said DHL’s Aliseda.

The general director of the Innovation Centre for Logistics and Freight Transport (CITET), Ramón García, emphasized the importance of establishing synergies at the infrastructure level through the collaboration and shared use of resources across retailers, logistics operators and municipalities to avoid going toward an unsustainable model in terms of costs, environmental impact and city congestion. 

"To this end, it is very important that the standards, platforms and spaces that allow such collaborations are enabled,” he said.

Edited by Suzanne Soh, Bernice Tang

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