Grand Junction - Local Delivery Reinvented


Category Archive: News

  1. The New Battleground for Customers

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    Over the years, logistics companies and carriers have waged war on various fronts. Pricing is an obvious one, and service level is another (next-day air, next-day AM, same-day), but today these have largely normalized across competitors. Now a new front has opened: customer visibility and experience.

    Shippers—whether retailers, distributors, or manufacturers—are increasingly looking for real-time visibility into where their shipments are in the supply chain in order to identify issues that cause production or availability problems—problems that may ultimately affect their sales. At the same time, customer visibility and experiences provided by ride-sharing companies (Uber, Lyft) and food delivery companies (Instacart, Grubhub) are increasing customers’ expectations. These experiences are rarely seen (yet!) in logistics but, as with fast shipping, are likely to become standard.

    Here’s a partial list of capabilities that drive a great customer experience and are not widely available in logistics. Over the next few years, they will become important for shippers and the carriers they work with if they are to meet evolving customer expectations. (Remember when Amazon Prime seemed like a luxury, and how within six years customers would no longer accept 5-to-7-day delivery?)

    1.  Photo and name of the driver, and vehicle information – Uber has set the standard on this one;

    2.  Real-time driver location – GPS location of driver when inbound for delivery or pickup;

    3.  Estimated delivery time;

    4.  Scheduling – customers should be able to schedule a reasonable time window for their delivery or return pickup (i.e., not the typical cable company four-hour window);

    5.  Driver quality score – know others’ ratings of the driver or carrier;

    6.  Real-time survey – capture feedback immediately after the delivery or pickup is complete;

    7.  Easy customer support access – access that doesn’t require a phone call or a cumbersome contact form, and that reaches the shipper, not the carrier, directly;

    8.  Centralized delivery visibility – one shipper-controlled place for the customer to track deliveries, as opposed to providing a tracking number and making the customer go to the carrier, as is typically the case today;

    9.  Simple online claims submittal and processing – for example for damages, lost items, etc.; and,

    10.  Notifications subscription – customers pick and choose when and how (text or email) they are notified/alerted to events (out for delivery, delivered, etc.).

    As in every competitive environment, there will be early adopters who provide these capabilities before the rest. The early adopters will build market share, potentially gain pricing leverage, and also become stickier relative to the laggards—the capabilities mentioned above have been key ingredients in Uber’s rapid rise. Some of these enhancements are easy (e.g., online claims submittal), but most are difficult due to most companies having old legacy technology and not investing in new technology for logistics.

    Even UPS, who proudly claims to spend more than $1 billion on technology every year, is moving slowly toward this next-frontier customer experience. In 2011 UPS started Fast Forward, which allows recipients to choose a delivery window in certain situations. And in 2016 they rolled out a map for recipients to see the real-time location of their delivery. But these services are only available for non-business customers of Next Day Air and International shipments—both of which are less than 1 percent of their business. This slow progress is an indication of how hard it will be for even large carriers, and therefore their shipper customers as well, to meet emerging customer expectations.

    The irony is that the very technology investments that allow carriers to provide visibility to their shipper customers, and in turn to their end customers, also improve efficiency and reduce costs for the carriers themselves. To provide a high-quality customer experience, carriers need to get their own houses in order first. Real-time operational visibility, systems integrations, and paperwork elimination are all drivers of cost reduction as well as prerequisites for shippers to give customers a great delivery experience.

    The very largest carriers and shippers with in-house technology teams may be able to improve their systems on their own, but the bet here is that most will need to adopt external technology to keep up. Who knows how long it will take for an Uber-like experience to become a requirement for shippers, but good times are likely in store for supply chain software companies that can meet these visibility needs.

  2. Why Retail Stores Won’t Support Same-Day Delivery

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    The Gap recently announced it will close more than 400 stores. Meanwhile Amazon is headed in the opposite direction, announcing that they are opening urban “micro warehouses” across the country, from which they’ll perform same-day local delivery of their most popular inventory. It’s amazing to watch the fortunes of two retail behemoths, and essentially all of brick-and-mortar retail, changing before our eyes. To understand why it’s happening, let’s compare Amazon’s customer fulfillment strategy to brick and mortar’s long-standing approach.

    Amazon is focused on improving their already industry-leading delivery service levels by rapidly expanding the number of markets in which they offer same-day delivery. Both on-demand (i.e., get your order in one hour) and AM/PM service (i.e., order in the morning, get your order in the afternoon or evening) require inventory close to the customer. Consequently Amazon has added urban micro warehouses in low-rent metro areas that provide easy inbound and outbound logistics. These micro warehouses are optimized for rapid fulfillment, and aren’t burdened with the worries of a retail environment like cosmetic appearance, displays, or public restrooms.

    Conversely, most existing retail brick-and-mortar locations are set up all wrong when it comes to rapid fulfillment and local delivery. Here’s why:

    1.  Cost – retailers pay high rents to maximize foot traffic, but Amazon can locate in low-rent districts;
    2.  Consolidation – Amazon consolidates inbound logistics at a single location in an urban center, whereas retailers usually have many dispersed locations;
    3.  Location – Amazon can locate their new facilities based purely on order history, whereas retail stores have numerous logistical and practical constraints when choosing a new store location;
    4.  Access – retail stores in malls and downtown areas are a nightmare for same-day delivery, as many people will be needing to quickly pick up and deliver throughout the day;
    5.  Design – retail stores have the consumer in mind for everything they do, whereas Amazon micro warehouses have fulfillment in mind for everything they do. Optimizing for both consumer sales and fulfillment efficiency is nearly impossible; and,
    6.  Scale – many retailers do not have enough large-footprint locations to effectively roll out same-day or local delivery services.

    My local Gap store is in a downtown San Francisco mall, where it is impossible to find parking and get quickly in and out. This store will never be efficient for local delivery, and I estimate that 70 percent of existing retail locations have similar challenges. Some retailers such as Costco and Home Depot have warehouse-like, rapid will-call programs (i.e., order online and come pick up) and reasonable access (i.e., outside city centers, large parking lots)—and could to get into the same-day and local delivery game. But even these retailers will struggle to match Amazon’s micro warehouse model, as they need everything from space to pack packages to more staff.

    Don’t get me wrong: not every brick and mortar location is in trouble in the age of e-commerce’s meteoric rise. Profitable, high-foot-traffic stores will persevere, and they also have value for e-commerce in that they provide branding, a showcase for inventory, and will-call. However, the popular assumption that brick-and-mortar retailers can leverage existing local inventory to effectively compete with Amazon on same-day delivery is simply not true.

    How will retailers compete if they can’t leverage their stores? I’d expect new consolidated urban fulfillment centers to emerge. These would provide urban warehousing, fulfillment, and local delivery services as an outsourced service for multiple retailers—or anyone wanting to forward deploy their inventory. This way the retailers can pool volume and achieve per-delivery cost and service levels comparable to Amazon. Prologis, Alibaba, and FedEx come to mind as possible entrants into this new market, but only time will tell.

  3. Uber and Google Team Up on Same-Day Delivery, Shaking Up the Last Mile Landscape

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    Uber has announced that it will provide drivers for Google Express, which has managed its own delivery operations until now. Google will maintain the pricing, the storefront, and the merchant partnerships while Uber provides the drivers through their UberRUSH offering. If this partnership comes to full fruition, it will be a big shift in the last mile logistics / same-day delivery landscape, with huge implications for competitors.

    For Uber this is pure upside, as it accelerates its long-anticipated entry into package delivery. The volume that Uber gains by serving Google is hard-won volume, as matching up supply (orders) and demand (drivers) is expensive and operationally challenging, especially in the early days. But this is offset by the fact that Google essentially took on the cost of creating the market, then handed off the resulting upside (volume) to Uber. And Google will continue to generate even more volume for Uber as long as Google Express keeps working with merchants. Most importantly, Google’s retreat eliminates them as a competitor to Uber for last-mile delivery. Wow, well done Uber.

    For Google, the partnership represents a significant retreat—although it’s clearly not a case of giving up, since Google’s venture arm has invested over $200 million in Uber– and may be an early signal of its changing aspirations in e-commerce. As I said in a post last year, Google Express is an important element in Google’s battle for relevance in e-commerce, and to date it has had an economically unsustainable model. It’s true that by outsourcing to Uber, Google Express is more focused and economically viable. But now that it’s without a proprietary delivery mechanism, will retailers continue to want to sign on with Google Express?

    If I was a retailer, in the long run I’d prefer to work directly with Uber, as that would mean I could potentially serve all of my buyers with last mile delivery—not just the portion buying through Google Express. As UberRUSH expands and Google no longer has a unique (and subsidized) last mile offering, Google may find that interest from merchants wanes. With respect to e-commerce, they could be left on the outside looking in.

    Let’s take a quick look at what this news means for some other winners and losers:

    Losers

    Postmates – Clearly, Uber’s assault on Postmates is under way. Postmates may struggle to raise its rumored financing at anything other than a down round.

    Deliv – Like Postmates, and even with a recent round of funding that included UPS, Deliv doesn’t have the capital to compete with Uber for drivers and retailers. As a retailer, would you rather spend time integrating Uber or Deliv into your shopping cart?

    UPS and FedEx – Neither have made much of a move into on-demand, but Uber’s creation of a non-union driver force and diversification of its delivery options makes a collision down the road more likely. (And this potential collision is undoubtedly what drove UPS to make its investment in Deliv.)

    Winners

    Consumers – Uber will be pouring billions into subsidizing package delivery and raising delivery service levels for consumers the same way they did for passenger delivery. We all may benefit from the lower costs and better service.

    Drivers – Although it’s hard to combine passenger and package delivery, independent contract drivers now have new volume—and thus more ways to make money—flowing through their apps.

    There is a long and challenging road ahead for Uber, as I discussed last year, but they look like a hands-down winner in their partnership with Google. Meanwhile, most everyone else now faces a more challenging landscape.

  4. 2016 Predictions for Uber and the On-Demand Economy

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    2015 was a banner year for Uber and the on-demand economy— endless press coverage, incredible valuations, adoption and expansion by noteworthy retailers, companies refocusing or dropping by the wayside, and a blizzard of lawsuits. Here are my predictions of what will make 2016 another interesting year:

    Consolidation – Expect a bunch of acquisitions. Specifically, Google Express buying Instacart to reinvigorate their last mile, Uber doing their first acquisition, and some bottom feeders being ‘acquired’.

    Disappointing Progress on Storefront Delivery – Retailers will continue to experiment with storefront on-demand delivery programs to counter Amazon’s aggressive same day strategy but low volumes, spotty service and high costs will make progress frustratingly slow. Expect to see companies like Deliv announcing new customers but volume remaining minimal and retailers struggling to justify their investment.

    Amazon’s Logistics – As retailers continue to slow roll same day delivery in 2016, Amazon will do the opposite. Expect to see more and more stories about how Amazon’s logistics is their long term advantage in e-commerce. More and more Amazon customers will quietly be getting free same day delivery, extending Amazon’s lead.

    Tipping – Driver retention and recruitment will force Uber and Lyft to introduce tipping in their apps. As drivers recruited in 2015 get through the end of the year tax season and realize their effective earnings are surprisingly low, expect driver turnover to increase. Drivers will move to where pay is best. Uber and Lyft can increase driver pay without damaging their margins or increasing prices by opening up tipping for drivers.

    Last Mile Software – The supply chain software industry will start introducing product extensions to serve the last mile and storefront delivery. Expect Transportation Management Systems (TMS), Point of Sale Systems (POS) and Warehouse Management Systems (WMS) to build or buy to add to their functionality in this area.

    Emergence of AM/PM – The buzz in 2015 was all about on-demand (i.e., 1-hour) delivery. That service level has its place in food delivery and with high priced items that have plenty of margin to absorb delivery costs, but it is not the long term winner in local delivery because of its cost, disruptive effect on store operations and lack of consumer need. Expect 2016 to be the year that low cost AM/PM delivery emerges, and for “order in the morning, get it in the afternoon” to establish itself as the standard same-day service level.

    Forward deployed inventory – Sprig (sprig.com) uses forward deployed inventory (each vehicle carries it’s own inventory) to achieve rapid delivery. Expect UberEats, Amazon and others to increasingly place inventory near buyers either in micro warehouses or in driver’s vehicles.

    Valuation Pressure – Tighter purse strings and sliding valuations mean that the “Uber for xxxx” companies funded in the last three years will face potentially fatal funding and valuation pressures.

  5. eBay Now / Same-day Shuts Down, Who’s Next? Why eBay Bowing Out Does Not Spell the End of the Hype Around Same-Day Delivery

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    eBay recently announced they’re shuttering their same-day delivery offering, eBay Now (http://finance.yahoo.com/news/ebay-stops-the-clock-on-1-hour-delivery-142950607.html ). Re/code also pointed out that Google is losing some executives in their same-day offering Google Express (http://recode.net/2015/05/19/googles-e-commerce-plans-are-in-question-as-executive-departures-mount/ ). Does this  indicate the beginning of the end of the same-day delivery hype? Is Google Express next to bow out? I’m saying no to both questions, and here’s why.   

     eBay Now ran a flawed and expensive delivery model from day one. eBay Now paid their drivers to enter retail stores, purchase an item, and then deliver it, all in less than one hour. That was a very high-cost model, since eBay picked up the entire cost of fulfillment and delivery. The one-hour service level also limited eBay’s ability to reduce costs by building routes and comingling packages. Add in the retrenching efforts at eBay, and it looks like they had the wrong model and no appetite for fixing that model.

    Google Express does share some unsustainable characteristics (they cover the cost of picking inventory out of local stores), but they also have operational and volume advantages that eBay Now never did.  Google Express offers a scheduled same-day delivery which is about 40 percent less expensive than eBay Now’s on-demand offering because they can establish efficient routes.  They also are using their significant heft to work on retail partnerships to eliminate their fulfillment costs and are considering alternative delivery models to lower costs, such as comingling orders with existing local carriers. Google Express is also an important part of Google’s overall e-commerce strategy, as it brings retailers who don’t offer that service into the fold. Expect Google Express to stay in the game with some further changes to improve sustainability.

    As far as the same-day delivery hype, with Amazon relentlessly pushing toward same-day as their standard, rising customer expectations, and continued investment in this space, the hype isn’t going away anytime soon. 

  6. Postmates and the Fallacy of the $1 Delivery

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    San Francisco based start-up Postmates (www.postmates.com) recently announced an $80 million round of funding and plans to offer $1.00 on-demand delivery (http://blogs.wsj.com/digits/2015/06/25/postmates-raises-80-million-in-push-toward-1-deliveries/ ). It’s a good thing they raised more money because they’re going to burn through cash quickly offering 1-hour delivery at that price point. Considering both the steep path from where they’ve built their business  (food delivery to consumers) to their ultimate goal (on-demand package delivery for the masses) and the reality of delivery economics,  a $1 delivery is an impossibility. And let me present my unique same-day credentials: I have designed and implemented high-volume same-day and local delivery programs for huge retailers such as Amazon, IKEA, OfficeMax and Home Depot.

    Postmates assumes that drivers collect tips to supplement their payment from Postmates, which is about $0.80 per $1.00 of delivery fee they collect. It’s highly doubtful drivers will get tips from delivering a package. When was the last time you tipped your UPS driver? This is particularly true in a B2B environment (where most of the current local delivery volume lies). Postmates is applying their current food delivery model, where tipping is the norm, to a package delivery model. Wishful thinking.

    Postmates also mentions the creation of density as their path towards $1.00 delivery nirvana. Even the highest volume, best-run shippers in the world are unable to reduce costs to the point that $1.00 delivery is viable. Amazon, for example, pays couriers about $2.75 per package for their basic same-day delivery program and 2 to 3x higher for the equivalent to Postmates on-demand service level. It seems implausible that Postmates will ever come close to attaining this type of scale and, even if they did, they would still need to heavily subsidize delivery. Postmates would need to collect other fees from retailers, which would be counter to the $1.00 delivery claim, or they would be well down the path to an unsustainable economic model, which their investors are unlikely to support.

    Why is Postmates making this $1.00 delivery offer?          Marketing and PR.

    It’s a highly questionable ploy to entice retailers into conversations and stir up the national media with an outrageous, seemingly impossible (because it really is) claim. This approach runs the risk of alienating potential retailers once the real fees come out and also begs comparison to Kozmo and other dot.com silliness, which is not good for their brand or for the tech industry as a whole.

  7. Top 10 Reasons Why Uber, Lyft and Other On-Demand Companies Will Struggle with Package Delivery

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    It’s a popular belief that the on-demand passenger delivery companies (Sidecar, Lyft, Uber) will soon — and easily — transition their technologies and driver networks to offer package delivery services. These companies do have great brands, cash to spare, and world-class apps, but that transition is going to be harder than most realize:

    1. Pickup – Passenger pickup is straightforward, especially when everyone involved has a mobile phone, is ready and waiting, and has access to photos of who and what to look for. Package pickup is much more complex and involves parking (commercial license plates), waiting in lines, and far less help in identifying the right package.

    2. Drop-off – Package delivery requires customer signatures, scan compliance, taking packages into buildings to seek out the correct addressee, and liability insurance if an item is damaged or mis-delivered — all new procedures for Lyft, Sidecar, and Uber.

    3. Comingling – Human passengers are unlikely to put up with a driver stopping to pick up or drop off a package. That means that drivers will find themselves forced to choose between passenger or package delivery, eliminating potential density benefits. And given that choice, most will probably find passenger delivery more lucrative and more interesting.

    4. Drivers – Drivers who do passenger delivery are not automatically suited for package delivery. Parking, pickups, drop-offs, liability considerations, and the lack of social interaction may be frustrating for drivers used to dealing with live cargo.

    5. Pricing – There are already local delivery companies in every market, making 1 billion package deliveries every year. They may lack strong brands, but they are a tempting alternative for shippers because their price points are already optimized, and they are experienced specifically in the package delivery business.

    6. Enterprise Tools– Retailers and other potential volume shippers need enterprise tools such as dashboards, package scanning, established pricing structures, and payment processing tools. These are beyond the capabilities of the current crop of consumer apps and will take time to develop.

    7. Customer Service – When an Uber driver encounters traffic with a passenger on board, no problem, as the customer is aware of the challenge in real-time. A customer waiting for a package, on the other hand, has a much lower tolerance for traffic, pickup, and drop-off challenges that can make a driver late. Before they are ready to deliver packages, Lyft/Uber drivers will need more elaborate customer support tools, and the companies behind them will need to direct far more of a focus toward operations and customer service.

    8. Exceptions – Package delivery generally comes with a predetermined time window, whereas passenger delivery is more open-ended. It will take time, and probably a lot of disgruntled customers, before Lyft/Uber customers readjust their approach to the realities of package delivery.

    9. Packaging – Passenger delivery has a unique set of concerns (cleanliness, politeness) that don’t translate seamlessly to package delivery (packaging quality, damage claims, controlled substances, perishable substances).

    10. Operations – On-time percentage? Damage rates? Signature capture rate? Scan compliance? Stops per hour? Refused deliveries? Package delivery comes with a universe of operational metrics that passenger delivery providers aren’t yet equipped to address.

    For these reasons and more, look for on-demand app-based providers to hesitate, falter, and even damage their brands while trying to break into the business of local delivery.

  8. The Most Important Kind of Local Service

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    I’m going to take a brief break from talking about local delivery to discuss the local community. We started Grand Junction to improve the local delivery industry and, by extension, the communities the local delivery companies serve. We also wanted to make a direct impact on our community, so from day one we made a commitment to contribute 1 percent of Grand Junction’s revenue to those in need. Our employees nominate beneficiaries, then allocate points to determine how the annual pool is allocated. It’s been fun to watch the process and to see the variety of nominations. Here’s the list of the beneficiaries from our 2014 Fund:

    1. Alameda Arson Victims Fund: Provides assistance to several businesses in downtown Alameda, California, who were the victims of random arson.

    2. Food Runners: Picks up perishable and prepared food from participating restaurants, bakeries, etc. and delivers it directly to neighborhood food programs.

    3. Give Me Shelter Cat Rescue: Prevents cats with treatable conditions from being euthanized by finding them loving, permanent homes.

    4. Induz: Engages low-income students with the arts, doubling their likelihood of graduating from college.

    5. Raphael House: Helps at-risk families achieve stable housing and financial independence while strengthening family bonds and personal dignity.

    6. Habitat for Humanity Greater San Francisco: Provides local families with a springboard to secure, stable futures through affordable home ownership, financial literacy, and neighborhood revitalization.

  9. $5.99 for Same-Day Delivery… What’s the Right Price and Service Level?

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    Is that the right price point? Amazon’s version of same-day delivery is “if you order it in the morning, you’ll get it in the afternoon” (at Grand Junction we call that AM/PM same day). AM/PM same day is lower in cost than the one hour or ASAP delivery services you see elsewhere, since it allows for consolidation of multiple orders and the establishment of an efficient route (like a bus ride). One-hour or ASAP delivery requires a direct, immediate response with little room for consolidation (like a taxi ride).

    While Amazon is charging $5.99 per same-day delivery, their actual cost is even lower. With their new forward-deployed warehouses, technology-enabled fulfillment, and tremendous volume, Amazon has the most efficient and high-scale supply chain possible. There is plenty of room for Amazon to drop that price. In fact, Amazon could go as far as giving AM/PM same-day delivery away for free for Prime customers, since the cost for AM/PM same-day is not much more than the cost for the next-day ground delivery they currently give away for free.

    If Amazon commits fully to the new AM/PM same-day service level, imagine their advantage: the highest service level in the market, performed at a price no competitor can match.

  10. Independent Contractors Are a Ticking Liability Bomb

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    I recently visited a multi-billion dollar home-wares 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 local delivery companies, or having a dedicated fleet with employee drivers. It’s a tempting practice for any shipper (retailers, distributors, 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 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 rideshare companies such as Lyft and Uber.

    But going directly to independent contractors is in most cases illegal, as in the recent federal court ruling on FedEx’s Home Delivery operation. 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 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 who 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.

  11. Independent or Dependent? Use of Contractors Exposes Courier Companies

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    Need a cab? No problem! Need a driver? Let me get back to you.

    The local delivery and courier industry’s shift toward 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.

    http://www.sfgate.com/bayarea/article/App-based-ride-services-lure-drivers-from-S-F-5197168.php

    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 toward 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 in, and potentially even lead in these changes. Taxi companies fought the changes, and as a result may be going the way of local bookstores and video rental outlets.

  12. UPS and FedEx Don’t Allow Santa to Keep His Promises

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    http://www.cnn.com/2013/12/25/us/ups-delays/

    UPS and FedEx didn’t stick to their service levels this holiday season, even though they had unprecedented package volume and decades of experience handling volume spikes. 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 underutilized 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;

    1. 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;

    2. 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; and,

    3. 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.

  13. Odd Bedfellows: Amazon and the Postal Service on Sunday

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    http://www.nytimes.com/2013/11/11/business/postal-service-and-amazon-strike-deal.html

    Sunday package delivery is a natural extension for Amazon, but it will be interesting to see if it can grow Sunday delivery with the US 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 cutoff 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.

  14. Psst…Amazon Drone Announcement Actually Reveals Weakness

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    http://www.cbsnews.com/news/amazon-unveils-futuristic-plan-delivery-by-drone/

    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 pickup 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.

  15. What eBay’s Acquisition of Shutl Means

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    http://www.wired.com/business/2013/10/ebay-buys-shutl/

    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 as to 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.

  16. The Quietest Company in Same-Day Delivery

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    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 US 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? 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. Retailers, 3PLs or “app” start-ups looking to offer same-day, scheduled or 2-person delivery now have a single point to access couriers and roll-out nationwide delivery.

    We’ve also professionalized the local delivery industry, and upped the game in terms of quality, 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, Transforce,  and dozens of other retailers, distributors and 3PLs  are managing or rolling out 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.