A look at last-mile delivery in Mena [Part 1]
The final leg of the product shipping journey, defined as last-mile delivery, is the least efficient and costliest part of the product supply chain, accounting for 50-60 per cent of total delivery cost. The process typically involves several stops with low parcel volume, and such is the cost that the quest for efficient last-mile solutions has ventured into the drones and robotics space.
Just last month, Careem, Noon and Majid Al Futtaim signed agreements to develop self-driving solutions with Kiwibot, Neolix and Yandex respectively, to use robots for their food and grocery delivery services. Meanwhile in Saudi Arabia, a startup called Quix, has introduced a drone-based delivery solution to its home market for the first time. It raised SAR 3 million ($800,000) round via crowdfunding platform Scopeer.
But while cities like Dubai and Riyadh are becoming testbeds for the latest last-mile robotic solutions, the vast majority of last-mile logistics still involves humans and so most of the innovations for the time being have been centred on increasing efficiencies via technology.
Over the past couple of years, the last-mile delivery sector has witnessed a spike of new startup entrants, with most operating an asset-light model, focused on empowering small businesses by offering them shipping services via crowdsourced couriers. The sector is also attracting both regional and international investors. In November, UAE-based iMile raised one of the biggest rounds in 2021, raising $40 million from China’s ByteDance, while its compatriot Lyve, raised $35 million back in March. So far this year, startups in the logistics sector across Mena have raised in excess of $153 million.
The growth in the number of players is not solely down to the pandemic and the subsequent boom in e-commerce. In fact the biggest spike in startup entrants was pre-Covid in 2019 with 28 new companies established, mostly in the courier space. Of the 102 last-mile delivery startups mapped by Wamda, 67 operate the courier model.
"With all these new entrants, everybody in this scene started upping their game. Technologies like AI for route optimisation, live traffic navigation, automated communication, and many other tools have been put in place to ensure the best customer experience. It's become not necessarily saturated, but definitely a crowded market with new entrants from various parts of the world," says Rabih Allaf, global director at Aramex.
What did change with the pandemic was the rise in the number of startups offering fulfilment, warehousing and delivery services, a trend driven by the growth of online shopping.
Regionally, e-commerce was already on the rise prior to the pandemic. The industry had been gaining ground among consumers, in tandem with growing internet penetration rates, with Amazon-backed Souq and PIF-backed Noon at the forefront. Back in 2017 the region’s e-commerce market was worth $8.3 billion with an annual growth rate of 25 per cent according to Bain and Company. Today, Mena’s e-commerce sector is one of the fastest growing in the world and is set to be worth $48.6 billion by 2022 according to Visa.
“The e-commerce market, in general, has been growing by 20 per cent from the last 10-15 years. When covid-19 came, the sector saw an 80 per cent growth rate, now it’s down to 50 per cent. That said, online selling, by all means, is here to stay,” says Samer Gharaibeh, CEO and founder of Egypt-based last-mile logistics startup Mylrez.
As e-commerce matures, the last-mile logistics and fulfilment solutions also continue to mature, the radical changes impacting the retail space have increased the pressure on retailers and shippers to offer faster, lower-priced last-mile delivery and fulfilment services.
“Retailers were previously forced by corporations to sell online; this has become no longer the case. Now, some retailers are putting up specific items for sale through online channels to encourage people to shop online. We are seeing a pressing demand for efficient fulfilment and warehousing solutions. People need to scale,” Gharaibeh adds.
But scaling is difficult in a region where cash on delivery (COD) still dominates. While preference for COD dropped during the lockdowns, consumer habits are difficult to change entirely, with many reverting back to paying in cash.
COD as a payment option makes it harder for e-commerce businesses to manage efficient reverse logistics and increase their delivery success rates. To offset its impact on reverse logistics, e-commerce brands like Amazon charge extra delivery fees on orders paid in cash.
“If a shipment is pre-paid, there’s a 93 to 95 per cent chance that [it’s] not going to be returned or rejected,” says Hasan Jabarti, CEO and co-founder of Saudi-based courier aggregator platform Diggiepacks, who added that 80 per cent of current transactions in KSA are paid in cash.
“During the lockdown, around 95-96 per cent of shipments were pre-paid. We rarely had a COD shipment. Shortly after, COD [accounted] for 81-82 per cent of transactions and the rest is prepaid,” he adds.
In Egypt, where 70 per cent of retail is an unregulated, grey market, Gharaibeh says that the high penetration of cash results in a gap in trust between merchant and courier leading to malpractice. For example, a merchant can have their cash or shipment stolen by a courier if paid in advance, or a courier can pay the merchant the shipment's actual sum before delivering it and then discover later it is worth less than what was paid.
The issue is further exacerbated by the prevalence of inaccurate geolocation data, especially in remote or far-flung areas. When a courier finds it hard to pinpoint a specific address, they usually contact customers so they can send their location via WhatsApp or provide directions. The process takes a lot of the courier’s time, resulting in slower delivery times and an overall poor customer experience.
Looking ahead, Jabarti expects that a rise in mobile payments and alternative payment methods such as buy now pays later (BNPL) foreshadows a greater adoption of fintech and a drop in COD rates.
"This made a huge difference in the market. [I know] personally a lot of e-commerce owners that ruled out COD, as soon as they had another option, which is BNPL. So these companies helped reduce COD by forcing the buyer to shift from COD to prepaid," he says.
For the last-mile delivery companies, an end to COD will also lead to greater efficiencies while reducing the security risk for couriers, who in some parts of the region, end up carrying substantial amounts of cash, making them potential targets for attacks.
But with some of the lowest banking and credit card penetration rates in the world, it will take a long time before COD truly disappears in the Middle East.
In the second part of this feature, we will consider whether the last-mile delivery sector has reached a saturation point.