Rising Last-Mile Delivery Costs: Challenges and Opportunities for E-Commerce Supply Chains

The e-commerce boom has transformed how goods move from warehouses to doorsteps, but a new report from DS Smith, Last-Mile Delivery: The Future Unpacked, reveals a sobering reality: last-mile delivery costs are spiraling upward, putting pressure on businesses across the UK and Europe. Based on a survey of 550 decision-makers, the report highlights that 84% of e-commerce companies saw cost increases in 2024, with 39% experiencing rises exceeding 10%. At Gain Consulting, we’ve dissected these findings to uncover what’s driving this trend, how it’s reshaping supply chains, and what proactive steps businesses can take to stay competitive.

The Last-Mile Cost Crunch: A Growing Concern

Last-mile delivery—the final leg of the supply chain from distribution center to customer—has long been a critical and costly component of e-commerce. The DS Smith report paints a stark picture: 84% of surveyed businesses reported rising costs tied to couriers, returns, and damaged or lost goods in 2024. For 39% of these companies, the increases were in double digits, a clear sign that supply chain challenges are hitting hard. Looking ahead, 84% expect costs to keep climbing over the next 12 months, with half predicting a doubling of this trend.

These rising costs are more than just a line-item headache—they’re eating into profits. Nearly 39% of respondents reported lower profitability due to operational inefficiencies, forcing tough choices: 35% have raised delivery fees for customers, while another 35% have hiked product prices to offset the burden. For e-commerce businesses already operating on thin margins, this is a precarious balancing act.

Why Costs Are Climbing

Several factors are fueling this last-mile cost surge. First, operational overheads—like fuel, labor, and vehicle maintenance—have risen across the board. Second, the complexity of returns and failed deliveries is adding to the tally, with damaged or lost items driving up replacement and refund costs. But the biggest wildcard? Consumer expectations. The report notes that 75% of customers now demand sustainable packaging, 71% want real-time tracking, 69% expect flexible delivery windows, and 67% seek eco-friendly delivery options. Meeting these demands requires investment in technology, greener fleets, and optimized routing—none of which come cheap.

Yet, many businesses are struggling to keep up. Only 39% feel they’ve met expectations for sustainable delivery, 36% worry they’ve fallen short on keeping delivery costs low, and just 30% believe they’ve satisfied demands for flexible timing. This gap between expectation and execution is a red flag for supply chain leaders.

The Ripple Effects: Sustainability and Strategy Under Pressure

Rising costs are forcing e-commerce companies to rethink their priorities. The DS Smith report reveals that 27% have scaled back sustainability initiatives to cut spending—a shortsighted move that could alienate eco-conscious consumers. Meanwhile, 59% are tightening returns policies, and 57% are imposing minimum order values to manage delivery costs and forecasting uncertainty. These stopgap measures may buy time, but they risk eroding customer loyalty in a market where convenience and value reign supreme.

The stakes are high. Last-mile planning isn’t just a logistics issue—it’s a profit-and-loss imperative. Businesses that fail to adapt could see margins shrink further, while those that innovate stand to gain a competitive edge.

Innovation as the Antidote

The report’s most compelling insight? Companies that embrace innovation and collaboration are better equipped to weather this storm. DS Smith found that 65% of businesses with an “innovative mindset” conduct regular supplier reviews to uncover cost savings, while 59% leverage third-party planning and coordination to streamline their supply chains—from packaging and production to warehousing and transportation. These proactive steps reduce overheads and boost resilience.

Olivier Cottard, DS Smith’s Global E-Commerce and Industries Director, put it succinctly: “Leading companies are developing innovative and effective ways to improve their e-commerce and supply chain models without compromising on customer service.” He emphasized that businesses open to new ideas—whether through packaging redesigns or strategic partnerships—are “better able to cope with the significant challenges” and “meet the demands of tomorrow.”

What This Means for E-Commerce Supply Chains

At Gain Consulting, we see the DS Smith report as a roadmap for navigating the last-mile challenge. Here are the key takeaways for supply chain leaders:

1. Cost Control Requires Collaboration

   Rising costs can’t be tackled in isolation. Partnering with third-party experts—like Gain Consulting—can optimize every link in the chain, from packaging solutions to delivery routing. The 59% of innovative firms using external support are already reaping the benefits—lower overheads and happier customers.

2. Sustainability Isn’t Optional

   Cutting back on green initiatives may save money now, but it’s a gamble with long-term consequences. With 75% of consumers demanding sustainable packaging and 67% expecting eco-friendly delivery, businesses must integrate sustainability into their core strategy. We can help you balance cost and conscience with tailored solutions.

3. Customer Expectations Are Non-Negotiable

   Tracking, flexibility, and affordability aren’t luxuries—they’re table stakes. Falling short, as 70% of respondents fear they have on delivery timing, risks losing market share. Investing in technology and process improvements is the only way forward.

4. Proactive Planning Beats Reactive Fixes

   The 65% of innovative companies reviewing suppliers regularly aren’t just saving money—they’re staying ahead of disruptions. A long-term commitment to forecasting and optimization is the difference between surviving and thriving.

   
   

Partnering with Gain Consulting for Last-Mile Success

The last mile is where e-commerce battles are won or lost, and the DS Smith report underscores the urgency of getting it right. At Gain Consulting, we specialize in turning supply chain challenges into opportunities. Whether it’s redesigning your packaging for sustainability, streamlining delivery networks, or negotiating better rates with carriers, our team brings the expertise to deliver results.

Rising costs don’t have to mean lower profits. By embracing innovation and collaboration, we can help you meet customer expectations, protect your bottom line, and position your business for growth in a competitive landscape. Contact Gain Consulting today to explore how we can transform your last-mile strategy—and keep you ahead of the curve in 2025 and beyond.