While couriers have long been used for local or “last mile” business-to-business deliveries in the US, and for consumer deliveries in densely populated areas of the world such as Europe and Asia, the average American thinks only of big name players like FedEx, UPS, or a name such as Con-way that they saw on the side of a semi-trailer truck on the highway, when it comes to delivery. Couriers don’t only do next-day local delivery at rates lower than FedEx or UPS. They are able to provide a wide range of service levels for (quite literally) any product a business or consumer purchases. Because of their size and focus on a limited geography, couriers are able to do things that large national carriers cannot. First and foremost, they can tailor their service based upon the shipper’s desires, where national carriers cannot for reasons of efficiency and scale. Looking for same-day delivery of headphones from a retail storefront to a consumer, scheduled delivery of pharmaceuticals to drugstore within a thirty-minute window, or two-person delivery and installation of a washer and dryer with removal of the old one? The local delivery and courier industry has these unique service levels covered.
It’s time shippers reevaluate their delivery strategy because technology adoption and advancement have solved the local delivery and courier industry’s traditional shortcomings, making couriers a better alternative to the national carriers or even a dedicated fleet, and allow shippers to provide a better customer experience:
• Geographic Coverage – With a national carrier, a shipper only needs to work with a single company to offer delivery in the top 25 markets. Since couriers focus on a limited geographic area, a shipper looking to have a national local delivery network would need to potentially work with several dozen couriers. More transportation providers means more points of contact and potential failure, parties to interface with your supply chain, and a generally more complex operation.
Many shippers choose to reduce what they have to deal with by working with a managed transportation services (MTS) provider that specializes in local delivery or “the last mile”, such as RR Donnelley or Ensenda. A growing trend among progressive companies that do not want to outsource, for example, Restoration Hardware, is to use technology that streamlines communication and collaboration across internal teams and with their couriers, minimizing the need to scale using people. Until recently, these companies had two choices: develop and maintain software in-house, which was the approach most long-standing users of local delivery chose; or, significantly customize existing transportation or fleet management software (TMS or FMS) and integrate it with customer relationship management (CRM). However, over the past few years a segment of local delivery software specialists, which includes us (Grand Junction), has emerged in the supply chain management software industry.
• Visibility – When a retailer, for example, uses a national carrier, their customers get real-time, detailed tracking information throughout every step of the delivery process. Historically, couriers have struggled to provide anything other than proof-of-delivery, and even then up to 48 hours after the delivery’s completion; however, technology has enabled couriers to provide a competitive customer experience. Through the adoption of mobile technology for drivers and emergence of sophisticated dispatch software, couriers have the information to manage their business better and provide FedEx or UPS-like visibility.
A major challenge for shippers comes when they need to actually gather and present courier-provided information to their customer, or even make it useable internally to monitor and manage their couriers. Quickly it becomes apparent that the shipper’s IT team has a lot of work in front of them not only to build courier integrations, but maintain them on-going. Unfortunately, very software providers, even the well-known TMS providers, manage these integration as a part of their solution, and companies often turn to EDI vendors. Grand Junction does, however, have pre-existing integrations with >600 couriers and tools to monitor and drive scanning compliance, which makes the data usable and complete.
• Quality –The local delivery and courier industry long had a reputation for being low quality because it operated in an extremely low-cost and unsophisticated model. Where the national carriers hired full-time drivers, and invested in training and technology to help them perform better, couriers did everything they could to keep costs low from using independent contractors, who regularly came and went while working for multiple companies, to running their business by phone and paper. It’s not surprising quality suffered. Today the industry is very different. The same technologies that have addressed the visibility challenges have given couriers information to better monitor driver performance and quality.
Shippers, however, still need to monitor quality and work with their couriers to achieve the customer delivery experience they want. Unless the vehicle has a recognizable name on the side, a customer is more than likely to hold the shipper accountable for delivery issues. Heavy users of couriers, such as Office Depot/Max (a Grand Junction customer), recognize this is the case and use automated alerts and business intelligence on top of real-time information to proactively monitor quality and performance throughout the delivery process.
While companies such as Amazon, Restoration Hardware and Office Depot/Max may be far ahead of their competition by being early adopters of couriers, the bottom line is that technology makes it possible for any company to enjoy the advantages couriers have over the large national carriers without having to make hard tradeoff decisions. Now is the time to reevaluate your customer delivery strategy and consider couriers. As a result, you can improve customer satisfaction and have the ability to implement same-day, storefront, scheduled, and two-person deliveries–– all while saving money.
I was recently visiting with a multi-billion dollar home-ware retailer talking about their supply chain and how they deal with local delivery. I was surprised to hear they work directly with individual independent contractors (ICs) instead of working with local delivery companies or having a dedicated fleet with employee drivers. It’s a tempting practice for any shipper (retailers, distributors and 3pls) since it removes some cost from the equation. In particular, shippers avoid workers compensation insurance and payroll taxes since that burden falls to the individual drivers. Also, the retailer is dis-intermediating the local carrier and the dollars that normally would go into the pockets of the local carrier end up as a cost savings for the retailer. This direct to independent contractor model has been around for years but is increasingly visible since it’s the model used by ride share companies like Lyft and Uber.
The challenge is that going directly to independent contractors is in most cases illegal. It’s a very fine line between having an employee and working with an independent contractor. Each state has different rules for qualifying workers as independent contracts vs. employees which creates a blizzard of requirements to manage to avoid stiff penalties and class action lawsuits. One common thread is that the worker needs to get orders from multiple shippers to classify as an independent contractor . Does anyone truly believe that a local delivery driver running routes every day for the same retailer is an independent contractor? Across the country, state tax agencies and workers compensation boards are charging companies with mis-classification of workers, especially when it comes to transportation and delivery. Even worse, liabilities shift from the local carriers to the retailer when working with independent contractors, opening the door to even more lawsuits. Finally, recruiting, training and managing independent contractors produces hidden costs that tend to be ignored.
All in all, I’ve seen this model explored by a good number of retailers but they dismiss the strategy when the true costs and liabilities are uncovered. I’d expect the same for the this retailer once the legal counsel or risk officer get in the loop.
I recently had a conversation with an executive at a well-known distributor about why they used FedEx for customer deliveries instead of the local delivery and courier industry. Despite agreeing with me that couriers would provide greater flexibility, faster service and, in many instances, more competitive rates, he quoted a line used decades ago to explain why customers paid a premium for IBM: “No one ever got fired for using FedEx.”
This underlines a valid concern about the difference between a large national transportation provider’s- whether a parcel carrier such as FedEx or UPS, or less-than-truckload (LTL) carrier such as Con-way– customer experience and the experience provided by couriers. When one of these companies delivers, customers get real-time, detailed tracking info; deliveries are consistently made on time and without damage; drivers are professional and courteous; and, should any quality issues come up and a customer need to call, the company offers great customer service.
So how do couriers compare? Historically, couriers have struggled to provide the same quality. However, they have built the foundation over the last decade from which they can start to build a comparable customer experience because of two factors: the adoption of mobile technology, and the use of full-featured dispatch software. Both of these capabilities now give couriers the information to manage their business better and provide FedEx and UPS-like visibility to shippers and end customers.
Despite these improvements, the industry’s fragmentation means that a company with a courier network covering the top 20 markets might require several dozen integrations to achieve visibility, as well as investing in the systems and people to maintain real-time, accurate, and standardized information. With FedEx, UPS, or even a national less-than-truckload (LTL) carrier such as Con-way, only a single integration is required to gain the same level of visibility.
When it comes to those other elements of FedEx and UPS’s customer experience—rapidly identifying and resolving quality issues, addressing a driver’s performance issues early, and providing responsive customer service—couriers have a long way to catch up. Amazon has invested millions in building the software and the team to help them get close to the couriers they use for Prime deliveries, while other companies with longstanding courier relationships, such as Cardinal Healthcare, have built systems themselves or customized existing ones, and tasked resources in each market to work with its couriers. The bottom line is that, without a software platform that specializes in local delivery and couriers and is specifically geared toward controlling quality, closing these customer experience gaps can take a long time, require significant expertise, and cost a lot of money. Can you afford to take that risk?
Same-day delivery might be a hot topic in the press, but in private, most of the executives I speak with dismiss it. Having spoken with execs across businesses of every type and size, I hear a few myths repeated consistently.
Myth 1: Consumers don’t need or want things within a few hours of ordering.
The myth in this statement is really the phrase “within a few hours of ordering.” When most people think of the future standard for same-day delivery, they think of a service like eBay Now, Google Shopping Express, or Deliv, where the product is delivered within a few hours (not surprising considering the amount of press these companies have received). However, the same-day delivery standard will be an AM/PM service—order something in the morning, receive it by the evening, and vice versa.
Myth 2: UPS, FedEx, or the US Postal Service are the best options to make same-day deliveries.
None of these companies are viable options today. The local delivery and courier industry is a ready-to-go option, very experienced option. It’s full of small, nimble, and highly flexible companies, accustomed to operating nearly 24/7, on most holidays, and meeting their customers’ needs as opposed to requiring their customers to meet their operational practices. And, while they’ve historically been involved in business-to-business deliveries and struggled with quality, over the last few years, couriers have gone “mainstream.” Want proof? Just look at the way Amazon has steadily shifted more and more of its next- and two-day deliveries onto couriers and off of UPS and FedEx.
Myth 3: The economics around same-day don’t work because no-one will pay for it.
If you look at the “all-in” (i.e., fulfillment and delivery cost) of a two-hour same-day delivery performed by a courier for a package, it can cost more than $30 a delivery. However, if you consider the AM/PM service level, the cost starts to become reasonable. At higher shipment volumes using couriers, the delivery cost component starts approaching $15. And, while it would certainly require a big change in fulfillment strategy and more cost than fulfilling from a DC, companies could reduce their delivery costs even more by shifting next- and two-day volume onto couriers and off UPS and FedEx by using in-market facilities / stores.
Myth 4: Same-day delivery is something only retailers need to worry about.
If Amazon is doing same-day delivery, everyone should pay attention. As shown by its rapid expansion across categories from appliances to groceries, Amazon has its eyes on everything which anyone buys. And that even includes business to business purchasing, as illustrated by the company’s launch of Amazonsupply.com in 2012, which set it on a collision course with B2B industrial products distributor Grainger. Retailers AND distributors need to start figuring out a same-day strategy now, or they risk losing sales growth and market-share.
Last week I was talking to the owner of a small retail store in Oakland, California. He offers TV stands and mounts, sells many of them online, and ships about a dozen a week to customers around the San Francisco Bay Area. He uses UPS for all of his national and local delivery needs because that’s the only shipping method he knows. We talked about the possibility of using local delivery companies and couriers to do his deliveries. There are significant advantages over UPS, FedEx and the Post Office: a scheduled delivery time to his customers, lower packaging requirements and importantly, lower cost. After paying all the surcharges, he pays UPS almost 30% more for a delivery than he would pay using local delivery.
I was amazed when the owner told me that no courier had ever walked in his door to offer delivery services or even call him. He also wasn’t aware that couriers did deliveries that weren’t urgent, perishables or papers or envelopes. This illustrates a major shortfall in the local delivery and courier industry–the lack of high quality sales and brand awareness. Most of the over 4,000 courier companies in the US are started by entrepreneurs who ‘carry a bag’ to get established in the early days of the business. At some point, the owner needs to focus on operations (recruiting, technology, dispatching, and payroll) and moves away from sales. What happens? Sales stagnate. In addition, most local carriers are small companies, so they don’t invest much in branding and marketing. The result is that courier companies tend to stall out below $5 million in annual revenue, leaving many local delivery opportunities to less efficient options, like UPS and FedEx, fleets or leased vehicles, and less-than-truckload providers.
Given that local delivery is a rapidly growing $46 billion industry, it’s only a matter of time before a national brand emerges, spending on marketing and high quality sales to establish a nationwide local delivery provider. To date, OnTrac in the West is the closest to achieving that status– Amazon uses them heavily, and you probably didn’t even notice. The two most likely paths for the emergence of national providers of local delivery are for a new entrant to establish a national brand or for a Wall Street-style industry consolidation (roll-up). Both paths would require investment up front in marketing, branding, and sales, but the winners would emerge as the leaders in this increasingly important industry.
Need a cab? No problem! Need a driver? Let me get back to you.
The local delivery and courier industry’s shift towards using independent contractors as drivers has had unexpected results. The movement started because owners wanted to increase flexibility, avoid tax, and reduce insurance costs. But as a recent article in the San Francisco Chronicle pointed out, the shift to an independent contractor model has combined with a mobile app to create a highly flexible and available workforce that is no longer captive.
With the rise of Uber, Lyft, and others, taxi companies in the San Francisco Bay Area are losing access to their independent contract drivers at an alarming rate. Many taxi companies are unable even to put cabs on the road, since so many drivers have switched to the upstart providers. Gone are the days where drivers were forced to work for taxi companies to get access to fares.
The non-captive nature of the independent contractor workforce in the taxi industry made it ripe for disruption. When the ride-sharing services launched, they never had to endure the huge costs of hiring employees to match up supply and demand. Once consumers had new options, they moved towards the new providers and the drivers followed.
The local delivery industry is about to experience exactly the same disruption. In fact, this industry is even more ripe for disruption since it is a larger market ($46 billion), it has no national branding (the taxi industry at least has Yellow Cab), and the model has already been proven with the ride-sharing services.
So what can courier companies do? One bit of advice is for local delivery owners to embrace, participate, and potentially even lead in these changes. Taxi companies fought the changes and as a result may be going the way of local book stores and video cameras.
UPS and FedEx didn’t stick to their service levels this holiday season. Although they had unprecedented package volume, both these companies have decades of experience handling volume spikes. So how did this failure happen and what does it mean for the delivery industry?
Historically, UPS and FedEx have had a fairly predictable mix of residential and business deliveries. The rapid growth of e-commerce, however, is driving more and more residential volume. As the mix shifts, the volume “spike” associated with the holidays gets worse every year. In 2013, the numbers were dramatic – not only did the percentage of residential deliveries hit an all-time high, but overall volume was also up, as consumers did more of their buying online.
As the local delivery industry moves forward, this phenomenon will be the new normal. For UPS and FedEx, there is a huge cost to handling volume spikes. Why? Carriers need larger facilities, more aircraft, and more drivers during a spike, logistics that they don’t need during the rest of the year. As spikes grow more overwhelming, this under-utilized capacity will become more costly to maintain. Based on the new normal, and the widespread failure over the holidays, here are a few predictions for what’s ahead:
Expect to see UPS and FedEx roll back delivery promise times next year in order to avoid failures and reduce infrastructure investment;
Expect Amazon to continue investing in its network of local carriers as an alternative to UPS and FedEx and an outlet for spikes. And expect other retailers to follow suit faster than they have in the past: They learned the hard way with Prime that they can’t sit back for too long;
Amazon will roll out its own fleet in dense areas both to reduce dependency on UPS and in support of same-day delivery. The Amazon Fresh vehicles (https://fresh.amazon.com/) are a clear sign that the company wants to create a closed network that’s a competitive advantage;
UPS and FedEx will need to innovate further on delivery options, including Sunday, same-day, and scheduled delivery, to meet growing customer expectations and alleviate volume spikes.
Is Uber expanding from the taxi sector into the local delivery industry? And if so, can Uber leverage its existing network of drivers and technology to perform deliveries?
The answer to both questions is no. Turns out, this was a simple publicity stunt for Uber, rather than a bold move into a new market or a test of its infrastructure to service local delivery. Instead of leveraging a network of independent drivers, the company is using Home Depot to deliver the trees!
For companies which are looking to venture into local delivery, this marketing ploy is a cautionary tale. Vehicle requirements, handling concerns, regulatory issues and operational challenges may compel passenger delivery marketplaces (such as Uber, Lyft, and Flywheel) to recruit an entirely new group of drivers to provide professional, yet cost effective, delivery services.
The clearest operational challenge is that packages do not co-mingle well with people. If you hired Uber to take you across town, would you be willing to wait in the car while the driver went into a building to pick up or deliver a package? Not only does the lack of co-mingling destroy delivery density, but it also drives up package delivery costs. The result is that Uber will require a new set of drivers and new routing technology for multiple pick-ups and drop-offs. And it’ll need to support a wide range of service levels from same-day to scheduled.
Do these challenges prevent Uber from moving into delivery? Absolutely not. The on-demand ride service remains the odds-on favorite to disrupt the local delivery industry, because of both its technology expertise and the strength of its brand.
An easier route for Uber is to work with existing local carriers and their drivers, who work as independent contractors. By leveraging these folks’ operational expertise, it will be able to make deliveries cost effective right off the bat. And, unlike the tree delivery story, this is a business model that’s not just for Christmas!
Amazon’s recent unveiling of its drone project on 60 Minutes is another indicator of how important same-day delivery is to its go-forward strategy. Amazon views its competition as retailers in the mall, and it’s doing everything it can to eliminate any reason to go to the mall. Sunday delivery, locker pick-up boxes, and same-day delivery are all moves to close the gap between shopping online with Amazon and brick-and-mortar shopping. To date, Amazon’s version of same-day has been the AM/PM model, where orders run twice a day from a central hub. This model is certainly low-cost, but it does not allow for the premium same-day service levels now being offered by eBay, Google, and others who leverage local store inventory. The drone project is an attempt to fill this gap by skipping the AM/PM model and going directly to buyers for faster delivery.
Here’s the rub: The majority of online buyers are in urban areas where drone delivery is unrealistic, since remote-controlled helicopters cannot enter a building, take the elevator, and visit the third floor. And this points to one of Amazon’s weaknesses relative to other retailers. Its lack of forward-deployed storefront inventory prevents it from offering very rapid (one-hour) delivery programs to the masses. Amazon’s rural (Kentucky) and distant suburban (Tracy, California about 40 miles outside the San Francisco Bay Area) distribution centers are fine for AM/PM same-day programs, but this limits who can be served with one-hour-or-less delivery. Traditional retailers already have local inventory in their stores poised for one-hour delivery of e-commerce orders, something Amazon will never have. If successful, this drone project will allow for one-hour-or-less delivery in close proximity to its distribution centers, but, unfortunately for Amazon, the number of people close enough to benefit is a very small percentage of buyers. For once, traditional retailers maintain the upper hand when it comes to one-hour delivery, and this drone project, even if successful, will not change that.
Today, consumers have a few options when it comes to how they want their online purchases delivered. The service level choices are typically next-day, second-day, or economy, all of which are offered by FedEx, UPS, and the U.S. Postal Service. Omni-channel retailing, which ties together online shopping and local retail stores, is leading to the emergence of new delivery options. Retailers are also being pushed by eBay, Amazon, and Google. Storefront pick-up, hotshot (delivery within a few hours of ordering), AM/PM (order it in the morning, and receive it that same afternoon), and scheduled delivery are all new service level options that are emerging for consumers.
Once a retailer ties its local store inventory to online shopping, it’s ready to offer storefront pick-up (also called “will call” or “buy online and pick up”). It is also ready to offer a variety of other service levels, all of which are accomplished through local delivery programs. eBay Now offers one-hour delivery, and Google Shopping Express offers an outstanding scheduled delivery experience.
My bet is that all of these players will eventually offer the more cost-effective AM/PM same-day delivery service and charge a premium for the others. You can download a checklist of what’s needed to offer same-day delivery by clicking here.
How these local delivery programs that leverage local inventory are going to be rolled out remains to be seen. UPS and FedEx do not offer these services and have labor forces and infrastructure that don’t match up well (sort centers, scheduled line hauls, and aircraft are no help in local delivery). Dedicated fleets are a possibility for very large retailers with high online sales volume.
More likely is the use of the local delivery industry, which already provides all of these programs, for companies such as Grainger who are selling to business buyers. Delivery service choice for e-commerce is a great thing for consumers, but who are the losers here? That would be online retailers with no local inventory and retailers that fail to leverage their local inventory.
Sunday package delivery is a natural extension for Amazon, but it will be interesting to see if it can grow Sunday delivery with the U.S. Postal Service. Amazon uses local carriers for Sunday delivery programs in some markets, and these carriers are likely to be more cost effective and flexible (with service, labor, and cut-off times) than the USPS in the long term. This move should make other retailers very nervous and ultimately serve as a wake-up call. Amazon has the huge advantage of scale/shipment volume, and local delivery programs like this, combined with its emerging same-day service, will give it even more of a lead. Who else has the volume and leverage to get the USPS to operate on Sundays?
Amazon is offering Sunday service to solidify its position as the “I want it now” retail option, but it actually has two other motivations. First, if successful, Sunday service will remove huge spikes in its distribution centers. With no outbound delivery available on Sundays, Mondays are huge days in Amazon distribution centers in terms of labor cost and facility activity and capacity. Sunday service will smooth out those spikes.
Second, Amazon is growing at such a tremendous rate, it will one day in the not-too-distant future outgrow UPS’s capacity or fill one of their vehicles for the day. It is very motivated to develop other carriers, and the USPS is one such alternative. This is also why Amazon is such a heavy user of the local delivery industry. Rewarding the USPS with this Sunday partnership creates goodwill with the USPS, which can be leveraged in the future.
Uber is doing an amazing job disrupting the local delivery industry – at least the local delivery of people. But while it’s been applauded for opening up users’ access to taxis, what many analysts have ignored is its significant effect on drivers. Not only has Uber enabled drivers to escape from working for a taxi or black car company, but it has also empowered them to truly strike out on their own and be successful.
It’s inevitable that the local delivery industry also will soon be ‘uberized.’ Today, although local delivery drivers operate as independent contractors, they are dependent on delivery companies who drum up business using modest sales organizations and local brands. If local drivers had direct access to this pipeline, they would jump at the chance to control their situation more tightly and would probably benefit economically, since local delivery companies retain 30-40% of revenue.
The rise in driver independence is being driven by three changes. Firstly, low internet and mobile technology costs now enable every driver to receive orders electronically. In the old days, delivery firms needed to provide Nextel phones or two-way radios. Secondly, local delivery companies have pushed more and more costs onto local drivers. By forcing them to work as independent contractors, delivery companies have freed them up to provide delivery service to anyone. And the last change? Powerful brands, which aggregate the delivery orders and tender them directly to local drivers. That is where Uber, or another strong brand, will step in.
There are segments of the local delivery industry that are protected (for example, sorting for routes and store replenishment programs need cross-docks). However, when it comes to on-demand delivery, local carriers are at high risk of being disintermediated.
Recently, eBay announced the acquisition of UK-based Shutl. We think highly of Tom, who’s the CEO, and Steve and Mike here in the US. They are going to be an important part of the puzzle for eBay as they try to get a piece of the $900 billion online-to-offline buying market, which Forrester Research estimates will account for nearly 50% of retail sales by 2013. Without any inside knowledge on the reasons behind the acquisition, it appears to be an effort by eBay to establish a brand that will allow them to participate in transactions that do not happen inside the eBay marketplace. This strategy has been wildly successful for PayPal on the payment processing side and may translate well to the same-day delivery side when that market takes off.
From a local delivery industry standpoint, the acquisition is great news. When Shutl goes live with expansions in the US, they will use local delivery companies to do deliveries that were formerly handled by UPS or were picked up in the store. eBay and Shutl are at the front end of driving more and more volume to the local delivery industry, forcing the industry to improve quality even further. We expect the other large players trying to get into local commerce to move down a similar path.
Can you imagine ordering a pack of T-shirts (I prefer crew-neck) from the Gap online and getting that purchase delivered 15 minutes later? Believe it or not, that super-premium service level once existed in several major cities in the U.S., Europe, and Asia. It was called “B15” for bike messenger delivery in 15 minutes.
In the 1990s, before the widespread use of email and online document exchange, the local delivery industry was delivering all those documents that are now digital: contracts, mortgage paperwork, blueprints, advertising proofs, and banking materials, to name only a few. Competition was intense among local carriers, so service levels started to rise, and rates began to fall.
Eventually, local-delivery couriers started staging a pick-up person inside large buildings that had offices that initiated lots of delivery orders. These pick-up couriers would be immediately dispatched by radio to the floor where the order was ready, pick it up, and head down the elevator to hand off the package(s) to bike messengers and walkers, who headed directly to the recipient’s building. The walker or biker would hand the package to the drop-off courier staged in the recipient building, or deliver it directly themselves, resulting in an incredibly rapid delivery.
This service disappeared with the emergence of email, and was only ever possible in financial districts in major cities where high density and limited delivery area made it all possible. Will we ever see this level of service again? We think it could happen a few years down the road, as more and more commerce moves online. In dense urban environments and neighborhoods near sprawling shopping malls, the density and distance equation just might match up. With better technology and the emerging use of retail stores as pick-up points and growing delivery volumes, it’s more likely than you think.
The local delivery industry is uniquely capable of providing same-day (one hour or AM/PM), scheduled and two person delivery programs. UPS and FedEx simply aren’t capable of (or experienced at) providing these services. What about next-day delivery programs? Can the local delivery industry compete?
It’s hard to believe that anyone can compete against the military-like precision and or brand trust that UPS and FedEx have. The short answer is that, from a cost per package perspective, yes, the local delivery industry can compete; however, from a quality and brand perspective, there is a lot of work to be done.
First, the economics: Both UPS and FedEx are optimized to provide delivery across the country (intercity) through multiple hubs, automated systems, and on aircraft. They work with enormous cost structures to support, including largely unionized workforces, pensions, aircraft leases and large management structures. The local delivery industry is made up of scrappy local entrepreneurs with simple cost structures and a workforce largely made-up of independent contractors (ICs) not employees. The low overhead and flexible workforce combine for a very cost effective operation. As a result, the local delivery is significantly less expensive than UPS and FedEx for next-day services at scale—roughly 2,000 packages in market in a day.
On quality, the local delivery industry has come a long way, but there is a lot of work left to do. Many local carriers have quality metrics that meet or exceed the quality of UPS and FedEx; however, challenges remain for the industry as a whole. It remains very fragmented with each market having dozens of carriers. There also is a serious lack of brand and industry awareness. Combined, UPS and FedEx spend almost $900 million on advertising and brand-building per year—according Hanover Research. The local delivery industry, as a whole, spends near zero, and the result is that UPS and FedEx are unchallenged as the only game-in-town when it comes to next-day. They have established a trusted brand that allows them to be forgiven for quality issues. The typical consumer is predisposed to be wary of the unknown local delivery company doing a delivery where with the UPS and FedEx brands, the default assumption is success.
Since the economics are there to use local carriers, major shippers’ use is increasing, which in turn forces quality improvement. Amazon, OfficeMax and others use of local carriers is evidence that the local delivery industry is ready for prime-time when it comes to next-day and other premium service levels. These companies have shifted more than 100 million annual small package deliveries away from UPS and into the local delivery industry. Expect more to follow that lead, particularly retailers moving toward an omni-channel model, as they offer same-day, scheduled and two person delivery programs.
The terms “last mile” and “local delivery” describe essentially the same thing. In telecom, the last mile is the wiring that connects the house to the telephone poles. In the power industry, the last mile is the last step in the delivery of electricity (after passing through high-voltage transmission lines and transformers).
In the supply-chain and logistics worlds, “last mile” or “local delivery” refers to deliveries made to a business’s customers, typically from stores or distribution centers to nearby business or consumer buyers. I prefer “local delivery.” Local delivery encompasses a wide range of service levels, including same-day, scheduled, or next-day, and is accomplished using local delivery companies (also called couriers or local carriers) in pickup trucks, cargo vans, box trucks, and sometimes even drivers’ personal vehicles. Over the past five years, local delivery has become more and more associated with e-commerce deliveries.
As far as distance and geography, a local delivery initiates and terminates in a single market. A pick-up from a distribution center just outside of Philadelphia and a delivery to the other side of the city is a local delivery. But a delivery originating just outside Philadelphia and delivering to Boston is not. That Philly-to-Boston (intercity) delivery typically goes through a cross-dock in the local market before it is really a local delivery.
All of this may sound obscure, but local delivery is critically important because it’s the one step of the supply chain that actually touches the customer. That makes quality critically important, and service levels become competitive differentiators. And since the last mile represents about 28% of a typical company’s transportation spend, cost control is very important. According the U.S. Census, more than 4,000 local delivery companies serve this market, with annual revenues of $46 billion.
The last mile is a vibrant, yet largely invisible, industry, with a rising level of importance.
Few people have heard of Grand Junction, and we’re OK with that. We’re the engine behind the emergence of same-day delivery in the U.S. and Canada, and the architect of many recent quality improvements in the local delivery industry that have allowed it to become a true alternative to UPS and FedEx, private fleets and the trucking industry. Our software-as-a-service (SaaS) platform processes a local delivery every two seconds, 24 hours a day.
Why are so many using the Grand Junction platform for local delivery? Over the last 12 years, we did the hard work of integrating the entire local delivery industry, whose members are sometimes called “couriers” or “local carriers.” It was hard work, since nearly 60% of the industry runs on proprietary or small providers’ software. These integrations are rich, flexible, ever evolving, and require a lot of effort working one-on-one with carriers to keep them running.
We’ve also professionalized the local delivery industry by taking the innovative approach of giving tools to local carriers so that they can self-manage quality, leaving less for the shipper to manage and a better experience for the customer. We believe this approach is a first in supply-chain software. Prior to Grand Junction, local carriers did not have tools such as CRM, GPS tracking, learning management, or alerts to manage by exception. As a result of our efforts and innovations, the local delivery industry, which was formerly the backwater of transportation, is moving up to prime time. OfficeMax, Lagasse, a certain large technology company whose site and app you use regularly, Ensenda, United Stationers, I.O. Metro, and others are managing or introducing local delivery programs using Grand Junction’s platform.
Local carriers are the only game in town if you, as a shipper, are looking to offer same-day, scheduled, two-person, or AM/PM delivery programs, and Grand Junction makes it possible for shippers to roll out these programs quickly and with confidence. This “Last Word on the Last Mile” blog is a place for folks to join in the conversation about local delivery. I promise not to talk much about Grand Junction and will mostly share my 15 years of experience, making observations about this rapidly evolving market as the changes are taking place.
About this Blog
This blog is written by Rob Howard, Founder and CEO of Grand Junction. It's a place to share observations based on 15 years of experience in the rapidly evolving local delivery industry. Thanks for reading.