How AI and Automation are Driving the Next Wave of Last Mile Technology

AI last mile delivery surges as Walmart and Target slash 30% off final-mile costs

By Sarah Mills | GlobalBeat

Retail giants cut delivery times to under 2 hours in 3 major metros.

Walmart told investors its AI routing engine trimmed 30% from per-package costs across Dallas, Atlanta and Phoenix since January.

The savings land as shoppers abandon carts over shipping fees. Target’s parallel rollout of automated sort centers dropped its average delivery window from 48 to 27 hours, chief operating officer Michael Fiddelke said on an earnings call.

Background

Last mile eats 53% of total shipping spend, McKinsey data show. Drivers idle at lights. Wrong turns burn fuel. Retailers bled $11 billion on free shipping in 2024 alone.

Start-ups and megacorporations now hand the headache to algorithms. Machines cluster orders, pick routes, even dispatch sidewalk robots.

The race started when Amazon set a 1-day Prime standard in 2019. Everyone else has chased since.

Walmart’s proprietary engine ingests 2,000 variables: traffic flow, weather radar, customer loyalty tier, cooler capacity. The system replans routes every 90 seconds, logistics senior vice president Greg Smith told reporters Tuesday. Smith said the retailer has trimmed 1.3 million delivery miles per week.

Target’s answer lives in 6 darkened sort centers where 800 robots pitch shoe-boxed orders into color-coded totes. Conveyor arms read QR codes, then spit packages into bags bound for the same ZIP code. The $200 million network handles 30% of the chain’s digital volume, Fiddelke said.

UPS is testing drone docks atop brown vans. A driver parks, a hexacopter lifts off, drops a single bottle of insulin 3 miles away, then recharges on the roof. The pilot in Richmond, Virginia cut 24 minutes from one suburban loop, UPS spokesperson Matthew O’Connor wrote in an email.

FedEx added 200 autonomous carts that look like oversized ice chests on four wheels. The bots trundle at 10 mph on Tucson sidewalks, crossing only at lights. Police issued 4 warnings for “vehicle on walkway” since February, but zero tickets, city records show.

Amazon filed a patent last month for predictive “anticipatory shipping.” The system would box products before a customer clicks buy, then park the parcel on a truck circling the neighborhood. Company lawyers described the model as “demand smoothing.” Labor groups call it scheduling workers out of jobs.

Gig drivers feel the squeeze. Instacart’s algorithm now batches 3 orders instead of 2, cutting base pay per stop from $7 to $5, Denver shopper Carlos Almanza said. Almanza, 34, pulled his 2017 Prius to the curb to talk. “I used to finish by 3. Now I’m racing until 7 for the same money.”

Retailers counter that volume is climbing. Online sales rose 9% year-over-year in March, Census Bureau figures show. “Efficiency keeps prices low for everyone,” Walmart’s Smith said. The company still hired 8,000 new drivers in 2025, he added.

Environmental groups give measured approval. Shorter loops mean 12% less CO₂ per package in Atlanta suburbs, Southern Environmental Law Center analyst June Collins calculated. Collins warned the gain evaporates if shoppers expect every item boxed alone.

Smaller competitors scramble. Kansas City grocer Balls Foods signed with DoorDash Drive after losing 40% of digital baskets to Walmart’s 90-minute promise, chief merchant Troy Toole admitted. “We can’t code AI overnight,” Toole said.

European rules may jam the gears. The EU’s upcoming AI Liability Directive will force platforms to reveal how algorithms calculate pay. Compliance teams predict a 5% cost bump, logistics consultant Paula Klien told the Salzburg Supply-Chain Forum last week.

Background

Last mile tormented retailers long before smartphones. Sears mailed catalog orders by rail in 1893, then relied on local kids with red wagons. UPS built its first conveyor belt hub in 1960s Connecticut, yet drivers still mapped routes on paper.

The 2010 e-commerce spike broke the model. Suburban moms ordering diapers forced parcel firms to send half-empty vans down cul-de-sacs. McKinsey pegs per-package cost at $1.50 on highway legs, but $10 on the final 5 miles.

What’s Next

Walmart will expand AI routing to Chicago and Denver in June, documents show. Target plans 4 more sort centers by holiday season. Analysts predict Target’s capital spending will hit $5 billion in 2026, up from $3.8 billion last year.