Implementing micro-depots in last mile logistics: opportunities and challenges

Jul 12, 2022 Environment & Sustainability

Explainer

Picture by mohamed Hassan / Pixabay - https://pixabay.com/vectors/man-delivery-courier-face-mask-6051503/

Courier, express and parcel (CEP) service providers play a crucial role in supplying cities with necessary goods, for both the Business-to-Business (B2B) and the Business-to-Customer (B2C) sectors. However, urban deliveries also have a negative impact on the quality of life in cities. One approach to alleviating it is the integration of micro-depots into the delivery process.

Successful establishment of micro-depots in urban areas hinges on meeting certain conditions such as the choice of location and adopting the most suitable operational model coupled with the use of cargo bikes. Thereby, municipal authorities need to act as initiators and driving forces involving as many actors as possible when drafting regulations governing the implementation of micro-depots due to low practical experiences.

This explainer summarizes the characteristics of several micro-depot types and operational models, as well as the opportunities and challenges inherent in redesigning last-mile logistics so as to switch to more environmentally friendly delivery practices.

Introduction

The global urbanization trend has led to the growth of commercial and transportation activity in cities around the world. As a result of urbanization, there is a growing shortage of space, competition for its use, and bottlenecks in the road network’s capacity. Logistics service providers typically approach each delivery address separately. This results in a range of inner-city routes, which in turn contributes to problems in cities such as increasing pollution, high traffic loads, congestion, all of which are incompatible with the purpose of cities. A steadily growing e-commerce industry drives up the number of deliveries, especially in the Business-to-Customer (B2C) segment.

The logistics sector is exploring novel concepts and technology for last-mile delivery in order to improve efficiency. One solution introduces an intermediate step – micro-depots – in the parcel delivery process from the distribution center to the customer, in order to minimize the total transportation costs. According to Janjevic and Ndiaye (2014), micro-depots are defined as logistics facilities located in, or close to, the delivery area, in which logistics service providers can (un)load, sort and store parcels, and deliver from there to the recipient. Technically, the micro-depot divides the last mile of transportation into two stages: the second-last mile and the very last mile.

At the second-last mile, shipping containers filled with parcels are transported by truck from the depot of the Courier, Express and Parcel deliveries (CEP) service provider to the micro-depot, in case of a stationary depot, parked there for the duration of the delivery process. At the very last mile, individual parcels are taken from the micro-depot that can be a small-scale building and delivered to the recipients, for instance, by cargo bike. If a mobile micro-depot is used, the shipping container is relocated after each loop to meet and refill the cargo bike.

The use of micro-depots has two advantages:

consolidation of deliveries – the reason why micro-depots are also known as urban micro-consolidation centers (or micro-hubs); and
use of more environmentally-friendly vehicles (such as cargo bikes) at the last-mile delivery stage.

In general, studies evaluating the results of micro-depot implementation have shown that the use of micro-depots, along with the use of low-emission vehicles for last-mile delivery stage, may offer environmental, economic and social benefits. Successful implementation of micro-depots in inner-city areas is subject to a number of factors that need to be considered in advance; these are outlined in the following sections.

Types and characteristics of micro-depots

Micro-depot operations should be placed in high-demand, high-density areas with high-volume deliveries and should serve parts of a city where delivery activities are difficult due to limited curb space for large vehicles, limited access on and to streets, or restricted traffic conditions. A micro-depot can be either stationary or mobile. A mobile micro-depot is usually a shipping container temporarily positioned near the respective delivery area in order to save costs. Alternatively, stationary micro-depots can be set up in unused space on the ground floors of buildings, at train stations, or at off-street parking facilities.

Both types of micro-depots differ significantly in terms of required equipment, as well as of their impact on the cityscape. The availability of adequate space is the greatest obstacle to the adoption of stationary micro-depots. That said, containers also take up valuable space that could be used for other purposes, e.g. parking opportunities. Moreover, a container can detract from the aesthetics of the cityscape. This means that the container must be either hidden from view or integrated into the cityscape. It also means that city officials and residents must be involved in the decision process in order to arrive at a universally acceptable solution.

In general, the logistics sector is unwilling to pay for space, which is why using municipal properties is often discussed. In addition, the area used for a logistics operation must be available all year and always accessible during the day. This makes the choice of location critical at the planning phase of setting up micro-depots.

As for the dimensions of micro-depots and required equipment, the space should be at least 15-20 m² in size, depending on whether it is a mobile or stationary depot and on the volume of delivery orders. It must also have an easily accessible entrance, so that delivery vehicles may stop in front of the micro-depot and that (un)loading activities can be completed quickly. In terms of equipment, some micro-depots include changing rooms and sanitary facilities as well as rest rooms for riders, whereas others provide charging stations for e-cargo bikes and temporary storage facilities for personal (bike riders’, employees’, drivers’) possessions.

Operational models of micro-depots

Different operational models can be used to run micro-depots. Logistics companies may run the facilities themselves, which means that every such company needs its own depot or network of depots within the city (non-cooperative land use concept); alternatively, different companies can reserve a section of the depot for their logistical operations, while sharing bathrooms, kitchens, delivery facilities, and other amenities (cooperative land use concept).

The landlord model, where the municipality itself operates the micro-depot(s), is another operational concept designed for more efficient use of available space. Here, the municipality allocates public space for the installation of the micro-depot and invests resources in its operation. Of course, the municipality first has to ensure that the area allotted meets the logistic service providers’ needs. The advantage for the operator, i.e. the municipality, lies in the ability to regulate the depot’s use and thus determine who would use it. Fees, for instance, can be adjusted based on environmental factors, such as whether logistic companies use environmentally friendly forms of transportation for deliveries to and from the micro-depot.

Micro-depots are currently operated as single-company facilities (non-cooperative land use concept). The advantage of this approach for municipal authorities is that it takes less organizational effort for the municipality, apart from allocating public space. Shared micro-depots are yet to be established in cities worldwide, with facilities shared by multiple logistics service providers who operate either independently or under a single umbrella white-label organization. While municipal authorities often favor this concept, logistics companies mostly reject it. They consider the potential for traffic reduction to be low.

Conclusion

Micro-depots as the mid-point in the delivery process are a transferable solution for local authorities that has the potential to reduce the environmental impact of delivery services in urban areas. Studies evaluating the results of micro-depot implementation have shown that the use of micro-depots, along with the use of low-emission vehicles for last-mile delivery stage, may offer environmental, economic and social benefits.

Several factors are essential at the planning stage of building micro-depots. A micro-depot operates more successfully with support from city authority that provides space for their establishment. Another important consideration when establishing micro-depots is their location. A logistics facility of this type should serve parts of a city where delivery activities are difficult due to limited curb space for large vehicles, limited access on and to streets, or restricted traffic conditions. Furthermore, the operating model of a micro-depot should be chosen in such a way that it allows involving as many actors as possible, i.e. local authority, logistics service providers and citizens, as well as changes in the constellation of actors to ensure a good transition from the pilot phase to continuous operation.