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Last-mile 2.0 in post COVID times: Operating with lesser cash, gig workforce and demand

This article was co-authored by Anand Ganapathy Chennira, Chief Operating Officer, Micelio. It was originally published on

  • Last-mile 2.0 would essentially need to steer through these unprecedented times by surviving the crisis, transforming and evolving their business strategy, and emerging as resilient businesses when some normalcy returns.
  • COVID-19 would transform the way last-mile companies were doing business.

Last-mile in passenger and goods movement has conventionally been a gap in India. The demand in this segment has particularly grown with the growth in the public transport network and doorstep deliveries.

As per the Census, 40 percent of India’s urban workforce i.e. about 50 million workers use a motorised mode of transport to travel to work. Almost half of these 50 million commuters use some form of public or shared transport, which always involves an access and dispersal trip i.e. a first- and last- mile mode. In the last few years, several mobility start-ups have recognised the big market opportunity in the last-mile commuter segment and have entered this space with technology-enabled solutions.

Fueled by the growth in e-commerce, a similar and even stronger trend has been observed in the last mile segment of goods movement with the emergence of several final-mile delivery start-ups. Overall, some 100 plus start-ups have emerged in the last few years and are offering/developing products and services for and around the last mile passenger and cargo segments.

These last-mile mobility start-ups have typically adopted three foundational principles in their business models — (i) Developing asset-light business models that sweat already existing assets, are predominantly localised and utilise gig workers; (ii) Using technology to optimize operations and providing convenience/predictability to consumers; and (iii) Betting on electric vehicles for their competitive advantage in opex, an increasing demand from businesses and corporates for zero-emission mobility services and to some extent on account of ‘ease of entry’ offered by EVs.

COVID-19 has hit several of these start-ups. Faced with an existential crisis, many start-ups will certainly need to revisit their foundational principles in the with- or post-COVID world. While the use of technology can only be expected to increase and perhaps drive the interest of solution providers, rethinking and readjustment of business models and EV-centric approach will be necessary.

There will be five big impacts of the COVID-19 crisis that will drive this readjustment.

The first and foremost will be the impact of social distancing. Post lockdown and in the near future, stringent government regulations on the number of riders/passengers on two-wheelers and three-wheelers will severely affect last-mile passenger services that were targeting shared rides. This, however, will not affect the delivery companies, which would be able to operate with one rider/driver.

While this may be a more near-term impact of social distancing, the more concerning impact will be the overall reduced demands on account of lesser commute, lesser use of public transport, and lesser purchases of non-essential commodities. Companies will need to get back to the drawing board to redefine their business models.

The second impact of COVID on the start-ups will be the tight cash situation. Most start-ups do not have a runway of more than 6 months and will be severely stressed to remain in existence. Measures that help conserve cash in the next 6 months will critically drive the transformation of the business models. Start-ups that are focused on EVs will be equally hurt in the short-term but may find it easier to raise funding after few months. EVs are seen as a long-term opportunity and serious funders will still place their bets on this segment, but more likely on companies that have a proven cash flow model. The overall size of the funds, however, is expected to reduce drastically.

The third rethinking for last-mile mobility start-ups will essentially come from the impacts due to reduced gig workforce. Shortages of drivers at least till the end of 2020 may lead many companies to consider business models with a definite percentage of FTE riders and lower share of gig workers. Companies will hence need to derive the optimum ratio of FTE and gig riders for their specific business needs driven by considerations of predictability of staff being available, leaving with notice, labour issues like insurance, provident fund, and performance efficiency.

The fourth impact can be expected on the choice of fuel-technology mix of fleets. There could be near-term considerations for adding ICE vehicles to the EV fleet to complement EVs during high demand periods and address technology constraints related to charging and battery discharge. There could be a departure from an all-electric fleet thinking.

Lastly and most importantly, the last mile companies would have to react to the market changes that will be driven by reduced disposable incomes in the hands of consumers. This will translate into demand for affordable products and services that provide value for money. Consumer expectations will more likely adjust to lower performance and reduced range that still meet their needs as against a costlier higher performance vehicle.

COVID-19 would transform the way last-mile companies were doing business. They would be challenged to operate in conditions of lower demand, cash and resources. They would have to redefine themselves to meet the realities of new mobility norms in the with- or post-COVID world.

Last-mile 2.0 would essentially need to STEER through these unprecedented times by Surviving the crisis, Transforming and Evolving their business strategy, and Emerging as Resilient businesses when some normalcy returns.

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