While the growth of Amazon continues to be the most discussed and documented frontier in retail, its business model is entirely dependent on one industry that is often taken for granted - parcel delivery.
Although online retailing involves many sellers other than just Amazon, the giant is a significant contributor to an e-commerce sector predicted to hit $4,878 billion by 2021. Due to the fast-growing popularity of online shopping worldwide, the parcel delivery industry has been forced to keep pace with the rapid global expansion of e-commerce and the new demands this has created. And there is one problem in particular that distributed ledger technology is poised to solve.
The Last Mile Problem
This global dispersion of delivery addresses has created an industry problem known as "the last mile." While parcel delivery firms can ship goods between major hubs efficiently and with an economy of scale, moving goods from the distribution center to the customer's home is a far bigger problem. McKinsey estimated in 2016 that the cost of parcel delivery globally is around €70 billion ($60.7 billion), with last mile deliveries accounting for a staggering 50 percent or more of the costs that arise due to the lack of efficiency in business-to-consumer (B2C) deliveries.
In remote locations, a delivery truck may have to travel a long way between drop-offs. While cities provide the opportunity for clustering nearby deliveries together, congestion means that a truck may spend the majority of its time in traffic.
The problem becomes even more apparent in the developing world, where in many countries the infrastructure for last mile deliveries just does not exist. The Wall Street Journal has previously reported that some companies are even partnering with one another to develop the infrastructure needed for deliveries. This is in response to demand from a burgeoning middle class in countries like India and China. All over the world, consumers are looking to have their goods delivered as quickly and as cheaply as possible.
The last mile problem offers massive opportunities to create efficiencies, and many companies are putting an enormous investment into technological solutions. Amazon has already trialed home deliveries using drones and says it is only a matter of time before drones will be leveraged as regularly as delivery trucks on the road.
Self-driving autonomous vehicles are a further area of development. Fortune reported in March that a spokesperson from Renault-Nissan stated that commercial delivery vehicles would be at the forefront of the self-driving vehicle revolution. DHL even predicted that self-delivering parcels, autonomous packages that steer themselves, may feature in the future of last mile deliveries.
Blockchain in Parcel Deliveries
Distributed ledger technology could now add significant value to parcel delivery and particularly to the last mile problem. One of the challenges faced by the industry is fragmentation. Logistics and shipping consist of a vast mix of global players such as Maersk, DHL or UPS, together with smaller, more localized delivery firms and even sole operators conducting deliveries by bicycle.
It is, therefore, a further challenge for industry players to interact efficiently in a way that helps to solve the last mile problem. Whereas a global player can move goods between its hubs and distribution centers relatively easily, it may need to outsource the last mile delivery to a smaller firm. PAKET is one blockchain startup that is working on the potential for distributed ledger technology to disrupt the parcel delivery sector.
One of the most valuable functions of blockchain technology is its peer-to-peer connectivity, allowing the exchange of value for which it is so highly touted. If the parcel itself represents the value and the different delivery and shipping companies are the peers, then it is easy to see how a blockchain parcel delivery network can bring efficiencies to the sector. PAKET, for instance, is developing a protocol that will allow one party to contract delivery services to multiple others based on the exchange of its native BUL token.
The protocol deploys smart contracts to ensure security for the sender and the couriers involved. Delivery fees are held in escrow until the package is delivered. It is also possible for the sender to require a collateral payment staked by the courier, which acts as compensation in case the parcel disappears. Both the fee and collateral are freely negotiated between the parties.
PAKET foresees that, ultimately, anyone could become involved in solving the last mile delivery problem. For example, regular commuters could pick up parcels in their city of work and ferry them back to their hometown, hence making a side income from their daily journey to work. This connectivity and flexibility will help overcome the infrastructure problem seen in developing countries.
Digital Asset Tracking
Blockchain technology could also reduce the incidence of lost or stolen parcels. Digital asset tracking is being implemented in supply chains (by Walmart , for example) to track the movement of products more effectively. By adding digital tags to parcels, shipping companies could know precisely in which container, on which specific ship, flight or train, a package is traveling.
The parcel delivery industry has already demonstrated its ability to keep up with significant changes to demand brought about by e-commerce. However, the sector is now on the cusp of a technological revolution, with blockchains and autonomous vehicles ushering in a new era for the benefit of consumers.