Methods and systems are provided for detecting overlay end points which are a single physical hop away and employing a simplified overlay header instead of a regular overlay header for communications with the identified end points. The simplified overlay header may carry overlay protocol related forwarding and peer information and may be designed to carry locally significant forwarding information which avoids overlay lookup related overhead on encapsulation and decapsulation operations. The simplified overlay header may be handled in the same forwarding pipeline pass as the handling of the inner frame and may work across different forwarding engines. Upon detection of a single hop link/keepalive failure, the backup overlay (original overlay header) may be used for forwarding.