Traditional Delivery Services are in a Flux and Uberization of Delivery

The package delivery industry finds itself in interesting times. On the one hand, it is being disrupted by crowd-shippers and new B2B marketplaces connecting business shippers with delivery partners. On the other, dominant players like FedEx and UPS are facing the heat in local delivery as they race to boost B2C and B2B volumes.

Traditional delivery models

FedEx has carved a niche in express, long-haul deliveries. Online purchases are reliant on local and regional deliveries. For online sellers, long-distance deliveries can be costly, not to mention, a time-consuming affair. Ecommerce relies on short-distance delivery, which isn’t exactly FedEx’s strength.

Here, UPS does a better job as small package delivery is its core business. A huge selling point of online merchants is their ability to deliver goods as quickly as possible to customers. Given the sheer number of online purchases made every day, merchants accord logistics a big role in retail success, which explains their dependency on traditional package delivery companies like UPS and other last-mile carriers. It is one of the reasons supporting UPS’ business.

UPS has one delivery network to manages its many businesses – ground, air, domestic, international, residential and commercial. A single network provides some competitive strengths in the form of better network efficiency and asset utilization. FedEx operates its various business units, such as ground, express, freight and services, independently. About 96.8% of FedEx clients use two or more of its business units, which is advantageous for the company.

The two delivery services may look the same, but they operate their business differently. And while both have benefitted from the surge in a B2C business, it has come at the cost of their B2B volumes. This is starkly evident in FedEx’s SME focus that affected some of the company’s larger customers in the coronavirus pandemic. FedEx and UPS have also increased home delivery fees in response to the surge in ecommerce-driven deliveries.

B2B vs B2C margins

In Q1 2020, UPS’ B2C deliveries were up 19% while B2B volumes were down 2%. However, operating profits were down by a whopping 50% to $364 million, with adjusted margins dropping to 3.5% from 6.6% over the same period last year.

On an average, only 1.5 packages are delivered per stop for B2C. In contrast, twice the number of B2B deliveries are delivered on average per stop. B2C isn’t as good for margins as B2B.

UPS does have a technology advantage: On-Road Integrated Optimization and Navigation (ORION). First deployed in 2013, ORION uses fleet telematics and advanced algorithms to provide UPS drivers with optimized routes. It uses real-time information to solve an individual route in seconds and find the best way for a route to run. According to the company, ORION results in savings of 100 million miles per year, and a reduction of one mile per driver per day annually, saving UPS up to $50 million.

However, UPS will need more than an industry-leading technology for steady margins, and it must act fast. B2C deliveries are likely to become increasingly important for couriers, but traditional carriers face the challenge of maintaining healthy margins. Divergent dynamics may come at the cost of their B2B focus, where a consolidated last-mile delivery system can drive higher margins.

FedEx has substantial investments in express air infrastructure. But in the current times, ground has taken over. An express package weighing 20lbs, that needs to be delivered within a day, costs $30-$40. Ground can ship for as less as $10, unless it is needed by 10 AM. If ground can accomplish what express can more cost-efficiently, it will cannibalize sales from express.

New players and crowdshipping

New entrants in the courier market can accelerate delivery operations at the cost of delivery drivers’ lack of financial knowledge

There are relatively new entrants in the courier market. One brands itself as an ‘on-the-way delivery network’, which allows the company to deliver packages at a very low marginal cost by people who can make some extra money, and who may be driven by the desire to support their local neighborhood. This new system of personalized freight delivery and informal logistics networks has its charms and drawbacks.

For example, it can accelerate delivery operations, allowing businesses to offer same-day delivery. It may improve the efficiency of last-mile logistics, benefiting providers and customers. A beneficial impact on energy use, emissions and traffic levels may also be seen.

However, fundamental weaknesses also exist. The possibility of theft, fraud, and lost or damaged goods is higher compared to a delivery network that has vetted, professional drivers.

Another downside is that couriers may be subject to exploitation. Separate trips or long detours may be financially burdensome on couriers. As couriers have joined the network voluntarily, crowd-shippers are not responsible, but they do contribute to exploitative practices.

For B2B deliveries, these risks are magnified. Businesses may prefer to partner with delivery services that have professional drivers who can fulfil deliveries smoothly in specific industries.

In this regard, we, at Rapidus, a matchmaking service focusing on local B2B deliveries, work hard to get it right. While it is neither the absolutely dollar-cheapest nor white glove, premium branded service, the majority of B2B customers describe Rapidus as “the best cost-effective local delivery solution” by offering a multisided marketplace connecting business shippers – medical, construction, engineering, retail, commerce and more – with delivery partners, who are both professional independent operators and courier companies. The company offers a full chain of custody, along with integrated technology solutions that make tracking deliveries easy and convenient.

Not all disruption is good

With traditional delivery services ramping up their B2C focus and crowd-shippers grappling with reputational and scalability issues, the advantage may lie with couriers that offer professional B2B delivery, can promise same-day delivery, and cater to several business verticals, while staying on the cutting edge of technological innovation.

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