By Ignasi Ragas Prat, Economist specialized in Transport and Urban Economics

The surge in home delivery of items bought on e-commerce platforms is aggravating congestion and pollution problems in most cities. While delivery at home is just one of the multiple options to receive B2C purchases, other options being pick-up at lockers or at brick & mortar shops (click & collect), it is by far the one that has greater environmental impact. Consumers’ choice for home delivery is mostly driven by convenience at zero extra cost for the buyer, but at an external cost which is burdened by the environment and the community.     

Home delivery using less-polluting vehicles such as cargobikes can reduce the environmental impact of last mile delivery, as well as bring other benefits in terms of quieter and safer streets and employment opportunities. However, last mile deliveries using cargobikes involve additional logistics costs per delivered unit because of two major drawbacks:

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  1. Usually they involve an additional transhipment and handling
  2. Cargobikes have a much lower payload. These drawbacks are hardly offset by lower investment and fuel costs. 

In many European cities, cargobike operations have been driven by city regulations restricting last-mile distribution using ICE vehicles in some areas, by one-off government subsidies in the context of pilot projects, and by social & environmental action by some delivery companies interested in enhancing their green credentials.

These approaches seem not to have enabled robust and long-term sustainable business cases. In fact, cargobike delivery companies are usually non-profit or cooperative undertakings with limited capacity to invest in vehicles, IT systems, and efficient hubs to make their operations more efficient. When not employed at socially responsible undertakings, cargobike drivers may work under precarious contractual conditions and little pay. And quite often, cargobike operations have been discontinued once one-off subsidies have been spent.     

This situation hampers the development of cargobikes beyond niche areas (i.e. areas where municipal regulations discourage or restrict the use of other vehicles, such as the case within historic districts or pedestrianized areas, thus making last-mile delivery in these places more expensive), or niche markets (i.e. markets where environmentally conscious consumers are willing to pay a mark-up ). 

So as to grow beyond these niche markets and become a mainstream industry that provides attractive investment opportunities and reasonable working conditions, last mile distribution using cargobikes should find long-term sustainable revenue streams to build a more robust business model.

Considering that B2C home delivery comes with an external cost borne by the community, it makes sense that this cost is internalized by the actors who take the decision to receive their purchases at home instead of collecting them at physical pick-up and drop-off (PUDO) stations. This translates to taxing home delivery of e-commerce purchases. Waivers for elderly people, PRMs, people living in distant places and others could be included in the scheme. Consumers opting for collection at PUDO stations or brick & mortar shops would be exempt from the tax or charged a reduced rate.  

And it also makes sense that revenue from this tax is earmarked to support low impact last mile delivery solutions though involving higher operational costs, among them cargobikes. This would generate more stable and predictable revenue streams to the cargobike delivery sector, less reliant on one-off government subsidies and major players’ greenwashing schemes.   

The proposed tax could work in a similar way as tourist taxes that are paid by visitors, collected by hotels, transferred to government or tourism boards and spent in tourism-related schemes. In this case, the tax would be paid by the consumer receiving home delivery, collected by transport companies, transferred to the government or “green mobility boards” and spent on supporting low-impact last mile delivery. In both cases, revenue and expenditure remain within the same system.  

In addition, this tax will send a useful price signal to consumers: “home delivery doesn’t come at zero cost” and induce a shift to click & collect and combining the purchase of several items in a single delivery. These changes in consumer behavior could generate additional business opportunities for low-impact last mile delivery companies in terms of combining cargobike operations with PUDO stations as well as providing tailored solutions to e-retailers.

You can contact the author Ignasi Ragas Prat, here.