The Local Delivery Industry Is a True Alternative to UPS and FedEx
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; but 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, but challenges remain for the industry as a whole. It remains very fragmented, with each market having dozens of carriers. There is also 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, whereas 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.