The ‘Last Mile’ or ‘The Last to Bite the Dogs’?

With a fiery post on LinkedIn, Felix Dossmann, founder and CEO of the exemplary start-up for the Last Mile, Grünfuchs GmbH from Göttingen, has announced the insolvency of his company. This is not necessarily the end for the innovative city logistics provider, as operations continue normally, but it has certainly caused quite a stir in the scene. Of all companies, it is the Grünfuchs, one might say. The core question of this insolvency is: Is it possible to make money solely with the ‘Last Mile’?

By: Andreas Müller

(Basel/Göttingen) After this year’s trade fairs and conferences resumed fully and without restrictions, there was a feeling that the ‘Green Fox’ was omnipresent. Hardly a trade fair, conference, or event where Felix Dossmann was not seen marching around with his green plush fox on his shoulders, sharing about his start-up Grünfuchs on stage. Instead of white mice, only green foxes were seen in logistics. The quaint city of Göttingen in Lower Saxony became the focal point for well-executed logistics on the ‘Last Mile’. The company has almost no free space left in its display cases for the many awards it has received for sustainability in logistics.

And now the shocking news: This exemplary company for the ‘Last Mile’ is said to be insolvent? Until now, the company has been extremely innovative. For example, with a co-developed micro-sorting system for packages, it is possible to sort packages fully automatically even in the smallest spaces. Just recently, Dossmann announced the expansion of his business into the Cologne region.

Can you make money solely with the ‘Last Mile’?

Was it all just a show, or does this case demonstrate that it is difficult or even impossible to earn enough money on the ‘Last Mile’? In his post on LinkedIn, Dossmann refers to a lack of investors. But one must either find investors or enough customers. Both would be ideal, but only with the latter can one earn money in the long term, and they must also be willing to pay a reasonable price for the service offered.

But this is precisely the problem in this segment of logistics. “The last to bite the dogs” is a saying, and in a certain sense, it can also be applied to the ‘Last Mile’ of logistics. For a package from A to B, the share of the ‘Last Mile’ is approximately five percent (estimated). With an assumed package price of an average of five euros, only 25 cents would remain for the last part of the delivery. Of course, this cannot be calculated this way, but it clearly shows where the problem lies. And even if one euro is left for the ‘Last Mile’, it never covers the costs.

The large parcel services in Germany have well-timed systems, which also include deliveries to city centers. Money can only be made with huge volumes and a high degree of automation in all processes. Deviating from this costs additional money and is only done when the service provider conducts pilot trials in city logistics.

Another area of activity for city logistics providers is delivery for local businesses, whether for pharmacies or retail. Thus, one slogan from Grünfuchs is: “sustainable.local.smart” or another, even more illustrative: “locally bought – locally delivered”. But even here, the necessary margins are hard to achieve. Who would pay ten euros in delivery costs for a pack of aspirin worth five euros? However, the ratio is similar for food deliveries. Whether money is actually made here is uncertain, as this area of city logistics has also been shaken up several times. Local businesses usually bear the costs of delivery but understandably want to keep the price for the service as low as possible.

This is how you know him: Felix Dossmann with his plush Grünfuchs at trade fairs and events

Delivery vans or cargo bikes in the city?

To cover the ‘Last Mile’ in the city with cargo bikes, especially for parcel services, a restructuring of processes is needed. What was previously covered by a delivery van from a regional hub now requires one or more so-called mini-hubs in the city. These can be containers in parking lots or possibly box garages, etc. From there, several cargo bikes are needed for this volume, or a cargo bike handles multiple routes.

Even if it initially seems that this would incur higher costs, there are indeed advantages that speak for the cargo bike. It is more maneuverable, can avoid traffic jams, and also allows for more flexibility in recruiting staff, as no driver’s license is required to operate a cargo bike.

The MDR has illustrated this with an example in Magdeburg, the capital of Saxony-Anhalt. This report clearly shows that the one who controls the shipment from A to B has the advantage and thus control over all processes. Handing over to an independent deliverer introduces an additional interface, which increases the potential for errors and/or IT effort. The report also highlights other aspects surrounding the ‘Last Mile’ and cargo bikes.

Investor Environment

In his post, Dossmann also writes that the environment among investors is overall a challenge. Naturally, rising interest rates and energy costs are cited as barriers for investors. However, rising interest rates also provide more opportunities for investors to invest their money profitably (i.e., to make it work), even conservatively. This reduces the risk appetite compared to times when money in accounts even shrank without intervention.

It is also noticeable that skepticism towards start-ups has grown. A lot of money has been burned worldwide in young, dynamic companies, where in the end, only the founders really made money. A classic example of this is WeWork (report in Capital magazine), the mother of all co-working spaces, where investors have been left sitting on billions. Many start-ups in the life sciences sector have also proven to be “million-dollar graves”.

How can anyone still be willing to spend money on a company from the ‘mundane’ logistics sector, even if it is innovative? Innovation should be rewarded. Perhaps smaller steps need to be taken, or should one, on the contrary, think big and roll out the Grünfuchs across Germany as quickly as possible? There are investors who like it when one thinks big. In any case, it is to be hoped that Dossmann and his ‘foxes’ find a solution and continue!

Many companies successfully on the move

However, there are also many companies successfully operating on the ‘Last Mile’. The business models there are varied and usually not only focused on deliveries in the city area. Diversifying into multiple legs can cover the ‘Last Mile’ and lead to success through a mix. Ultimately, it is a business with small margins, and a low cost structure and a high degree of digitalization form the guarantee for success or survival. Without support from municipalities, logistics on the ‘Last Mile’ can never be successfully operated alone, for example, in reducing service providers allowed to operate in a city to create bundling effects. But wouldn’t that be an intervention in the free market economy? And even then, the large parcel service providers would likely still have the upper hand if it came to that.

Here is Felix Dossmann’s post, Grünfuchs GmbH on LinkedIn for further reading

Photos: © Grünfuchs