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Analysis

PUDOs to Transform Last-Mile Future

By Antonio Gozain | Tue, 07/05/2022 - 13:00

Along with considerable opportunities, the e-commerce boom has brought a number of challenges for retailers, customers and shipping companies, especially when it comes to last-mile deliveries. Pickup and drop-off points (PUDOs) could represent the solution to these struggles, however, as they enable more cost-effective, convenient and efficient deliveries for all parties involved, agree experts.

“When dealing with a retailer, you deliver 10 or 15 boxes at once. However, with e-commerce, these boxes go directly to the final customer with deliveries of one box per stop. This impacts the environment, traffic and pollution. The entire industry must analyze how to address that problem,” said to MBN Ingo Babrikowski, CEO, Estafeta.

In 2020, online shopping grew by 81 percent in Mexico, according to AMVO. In 2021, it grew by 27 percent. “This year, more people are expected to make their first purchase online or make this their favorite purchase method,” wrote for MBN Karen Herrera, PR and Editorial Manager, Kueski.

Last mile deliveries present several challenges, starting with the cost. Companies find it difficult to execute fast deliveries without losing money, according to Last-Mile solutions company FarEye, while facing demand volatility, staffing problems, among other inventory-related hurdles. In addition, profitability can be severely impacted by failed deliveries, either due to poor address quality, availability of customer and adherence to timelines, which represents another huge challenge in itself. Routing efficiency and route optimization depend on multiple variable factors and are key for a successful business model, says FarEye. In addition, several countries including Mexico are facing a shortage of drivers.

In light of this situation, PUDOs have risen as a potential solution, especially as increasing deliveries and a growing population density in key cities and metropolitan areas create new hurdles.

What is a PUDO?

PUDOs are local shops or retail outlets that offer parcel pickup and drop off services as part of a wider network. This service enables parcels to be picked up or dropped off at locations where a trusted member of the network receives them. Typically, PUDOs include post offices, retail stores, restaurants, hotels, gas stations and convenience stores, among other businesses.

Currently, Estafeta operates the largest network of PUDOs in Mexico, with over 2,000. Through PUDOs, customers can pick their parcels at their convenience, added Babrikowski. “This initiative creates win-win scenarios for everyone involved. Senders pay less, our operation becomes less costly and shops that act as a PUDOS will benefit from more sales once the buyer picks up the parcel. This model is working well in the EU.”

PUDO benefits reach customers, businesses and carriers. This alternative provides higher customer satisfaction as clients have the option to collect their parcels from a convenient location, thus reducing failed deliveries.

Globally, the EU is leading the way in PUDO adoption, according to Last Mile Experts. The region has seen a growth in PUDO points since mid-2019. For instance, in Poland alone, PUDOs and lockers (which complement the strategy) increased by 32 percent between 2019 and 2020.

The Challenging Path to Implement PUDOs

Customers need to have a PUDO point within a reasonable distance for the concept to work, according to logistics solutions company Scandit. The minimum rule for the strategy to work is 1 point per 10,000 people, according to Last Mile Experts: “This is not an optimal network but represents the minimum density for a chance of success.”

Germany has the highest number of PUDO points within the EU, with over 57,000, followed by France (45,000), the UK (38,000) and Italy (36,000), according to Last Mile Experts. However, Finland has the highest density of PUDOs in the EU, with an average of 20 points per 10,000 inhabitants. Meanwhile, Germany only has 7 locations per 10,000 people. In the US, PUDO points are managed by giants FedEx, Amazon, UPS, DHL and USPS. Together, they offer an estimated of over 70,000 access points, including lockers, centers and third-party retail stores, according to the US Postal Service.

PUDO implementation in Mexico also depends on urban density. However, the first challenge comes with IT, says Babrikowski. Some shops serving as PUDOS use Estafeta’s system but others use their own systems, making integration a challenge, he added.

There is a unique phenomenon emerging in Mexico, which opens interesting opportunities for the model to work, said Babrikowski: “We have several mom-and-pop shops within our network using Estafeta’s solutions and Mexicans are more receptive to these shops because they have known the person running them for 20-30 years. It is a matter of trust. This is very specific to Mexico and will work well in the future.”

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Antonio Gozain Antonio Gozain Journalist and Industry Analyst