Last-Mile is Eating First-Mile Margins

The cost of fast, convenient delivery is chewing through profits across Australia’s supply chains.

The promise of free shipping has become a competitive necessity. Same-day delivery is no longer a premium service – it’s an expectation. And while customers celebrate the convenience, someone along the chain is footing the bill.

That someone is rarely the customer. And increasingly, it’s not the retailer either. The cost is being pushed backwards through the supply chain, absorbed by operators who lack the scale to say no or the margin to sustain it.

Last-mile delivery now represents over 50% of total shipping costs across Australian supply chains. This isn’t just the most expensive part of the journey – it’s dictating the economics of everything that comes before it. Procurement decisions, warehousing strategies, and linehaul pricing are all being reshaped around the need to subsidise what happens in the final kilometre.

The numbers tell the story:

• Free delivery has fallen from 81% of retailers (2018) to 70% (2024)
• Average minimum spend thresholds have climbed 20% in six years
• 68% of shoppers will abandon their purchase if delivery doesn’t meet expectations

The Margin Collapse

A parcel delivered to a suburban address can cost $15-25 in fulfilment. If the product itself carries a $10 margin, the economics are underwater before the customer even opens the box.

Where the pressure lands:

• Warehousing providers face tighter contracts and stretched payment terms
• Linehaul operators absorb costs they can’t pass on
• Manufacturers are squeezed on procurement pricing
• Mid-tier operators lack the leverage to push back

For large integrated players, this is manageable. They’ve got the volume to offset losses and the capital to ride out margin compression. Some are even using free delivery as a weapon, leveraging their scale to crowd out competitors.

For mid-tier operators, it’s existential. Business leaders across Australian industry are reporting their worst outlook for profitability in a decade, driven by input cost inflation and weakening demand. The response from many retailers isn’t operational efficiency, it’s cost recovery, which means further pressure on the operators who service them.

The Demand Paradox

Online spending in Australia hit $69 billion in 2024, up 12% on the previous year. E-commerce continues to grow, and with it, the volume of deliveries requiring that costly last-mile touch. Customer expectations aren’t moderating. They’re intensifying.

But the financial model supporting those expectations is fracturing. Retailers can’t sustain indefinite margin erosion. Logistics operators can’t keep taking contracts that don’t cover costs. And mid-tier players, the ones without the scale or capital reserves of the majors, are being quietly pushed out.

The question facing the industry isn’t whether last-mile demand will continue to grow. It will. The question is whether the current cost distribution model can survive that growth. Right now, it can’t. And unless the industry confronts who actually pays for convenience, the margin erosion will accelerate and the operators caught in the middle will continue to disappear.