Extracting Financial Value From Last-Mile Delivery: Part Two

The Dispatch Team

May 30, 2024
June 12, 2024
Last Updated

Fleet Economics: In-house or Outsourced for Deliveries?

We continue discussing the financial impact of final-mile delivery with Dispatch Chief Financial Officer, Serge De Bock. In this blog, we'll explore a critical decision many businesses face: whether to maintain an internal fleet for deliveries or outsource this vital aspect of logistical operations. The business decision hinges on various factors. Let’s find out the pros and cons of both options.

Q: What are the benefits and challenges of an internal fleet vs outsourcing deliveries? 

A: Let’s start with internal fleets. For larger companies with the means to afford vehicles and drivers, an internal fleet offers more control over deliveries. It's an investment that makes economic sense when constantly utilized for routine, high-volume, and predictable routes and needs. 

The estimated total annual cost of ownership (TCO) for operating a commercial van in the U.S. typically runs between $80,000 and $100,000, including asset cost, driver cost/benefits, insurance, maintenance, and other fleet management overheads. Based on the TCO and standard B2B delivery scenarios, the typical break-even point to own an economically viable internal fleet lies between 70% and 80% utilization. 

For example, assuming an eight-hour work day, to make economic sense, you would need to keep the trucks active and perform efficient deliveries for six hours per day or more. According to a recent survey of 1,200 fleet managers, close to 40% of respondents indicated their fleets idled three to four hours per day, while another 14% of fleets idled more than four hours per day. This creates a significant economic opportunity to optimize costs. 

However, if you have the capabilities in-house and can recruit your own drivers, it could make logistical sense for high-volume, predictable routes to acquire your own fleet. Additionally, you’ll need internal expertise, resources, fleet management routing optimization, and reliable drivers (with backup) to satisfy your delivery needs. 

In this case, you can leverage a delivery management platform like Dispatch Connect to tap into these resources: fleet routing technology, a network of drivers and courier partners (for overflow orders), and comprehensive support. Our suite of solutions allows businesses to optimize delivery logistics regardless of whether they have an in-house fleet or outsource deliveries.

To highlight the benefits of fleet route optimization, tracking, and other features, we collected some metrics that demonstrate how Dispatch can help reduce fleet costs should you decide to operate in-house and if it’s economically viable for your business.

According to the same survey of 1,200 U.S. fleet managers and executives, 45% achieved a positive return on investment in less than 12 months with fleet management solutions. Routing software is a game-changer, reducing planning time from hours to minutes and slashing fuel costs.

From original Dispatch data, businesses can also save 25-50% on Dispatch multi-stop orders compared to single-stop orders. This provides an additional opportunity to save costs by combining deliveries efficiently. 

Q: When should you consider outsourcing all or some of your delivery needs? 

A: First, you should assess whether you can afford the upfront investment in your own fleet/technology and have the capabilities in-house to run smooth dispatching/logistical operations, as well as manage the extra payroll for employees. If the answer is no, which is often the case for smaller businesses, completely outsourcing to delivery partners is often a cost-effective and optimal solution. This allows you to focus on running your core business while having professionals take care of delivery logistics. 

Then, for larger companies that can afford full-time logistics staff in-house, outsourcing should be considered when your delivery needs fluctuate and the routes/volumes are not fully predictable. In that case, it’s very difficult to maintain truck utilization above 70%-80% while keeping enough redundancy in your fleet to tackle daily/weekly/monthly peaks of demand. 

Additionally, if your delivery needs are heavily concentrated (e.g. 5am-10am), it does not economically make sense to have a large fleet if all your deliveries need to be picked up in the morning and delivered shortly after. It often creates a low utilization period during the latter part of the day with unused vehicles and resources.

Finally, a hybrid approach can be the most cost-effective delivery solution for larger companies with high volumes that are somewhat predictable or a mix of steady and variable delivery routes. Own fleets can be leveraged with delivery and routing software to maximize utilization on the baseline while the ebbs and flows of the businesses can be covered by integrating a network of drivers and courier partners. 

Dispatch’s network of professional drivers spans over 75 U.S. cities, and our easy-to-use Marketplace solution empowers businesses to manage deliveries efficiently, whether they have one location or many branches nationwide, and can be used either as a completely outsourced solution or a hybrid solution completely integrated with our Dispatch Connect delivery management solution to handle all of your delivery needs (outsourced an in-house optimization at the same time). 

Did you miss the first part? Read Extracting Financial Value From Last-Mile Delivery: Part One, where we discuss the evolution of last-mile delivery.


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