We all breathed a sigh of relief in late July when UPS and the Teamsters settled without a strike. Any work stoppage, even a short one, would have created chaos and disruption across many industries, including ours. But the threat of disruption for traditional carriers did not end with the UPS settlement. In fact, you could say it’s still early days for a last-mile logistics industry ripe for disruption and that disruption is likely to accelerate.
With the onset of Covid-19, e-commerce exploded. Consumers traded trips to the store for shopping online, and that trend has continued unabated in our post-covid world. That creates a challenge for traditional carriers like UPS and FedEx and an opportunity for carriers like AxleHire to disrupt last-mile delivery.
The Challenge for Traditional Carriers
National carriers like UPS and FedEx were built for a business model developed 50 years ago — delivering primarily B2B using centralized hub-and-spoke distribution networks. They own large warehouses with complex and expensive automation and maintain extensive fleets of vehicles. This asset-heavy approach, along with a unionized W2 workforce (that just got a hefty raise at UPS) and a delivery model that is not optimized for residential delivery, creates a high fixed-cost base that is baked into the price of every parcel delivery.
In B2B delivery, the norm is to drop multiple packages at most stops. Drivers take the same route every day, mainly dropping at known locations. Capacity is limited only by how many packages can be wedged into all the nooks and crannies in the back of the truck, which can be upwards of 200 packages per day, depending on size and shape.
Residential delivery is a different beast. That single stop, many package drops model becomes single stop, single drop. As a result, capacity is limited not by the truck's size but by the number of stops (maybe 80-100) a driver can make in an 8-9 hour shift. Trucks routinely go out with less than full capacity utilization. Fixed routing becomes problematic because delivery locations change daily. Residential locations often have the added complexity of gate and access codes and special delivery instructions. All these factors work together to reduce efficiency and raise costs per package. That’s why you’re paying residential surcharges to the major carriers.
Consumer surveys consistently show that consumers want fast and free delivery, which is a mismatch with the increasing costs of relatively slow (up to 5 days) major carrier ground delivery. There’s a better way…
The Opportunity for Disruptors
Residential delivery is better suited to a different operating model — asset-light and technology-driven. Routing should be dynamic and optimized for where packages must be delivered today rather than the mostly static routing prevalent in B2B delivery. Vehicles should be smaller and more fuel efficient, allowing the carrier to optimize space utilization by matching loads more precisely to vehicle capacity. Rather than a static workforce, carriers can tap into a ready-made supply of gig drivers and their vehicles in most urban areas. Carrier technology should give drivers new tools to deliver to hard-to-find and hard-to-access locations.
At AxleHire, we don’t own millions of square feet of warehouse space or tens of thousands of diesel-guzzling delivery trucks. We operate from small leased commercial spaces in the heart of the metro areas where your customers live, and we leverage gig drivers and their vehicles to execute the last mile more efficiently. As a shipper, you only pay for the resources you use, not the fixed assets we need to pay for. Our dynamic routing technology allows us to reduce unnecessary travel miles and optimize the capacity of each vehicle, providing more cost-effective deliveries and reducing CO2 emissions.
There are caveats. The AxleHire model works best with small boxes (roughly a cubic foot or less) and flexible polybags. For the right package in the right location, AxleHire can provide same- or next-day delivery with a higher on-time delivery rate than the national carriers at a price point comparable to 2-5 day ground rates.
The Future of Last Mile Delivery
Last-mile delivery is ripe for disruption. Due to their size and organizational inertia, legacy national carriers and their technologies are lagging behind companies like AxleHire in terms of speed, transparency, service, and cost for delivery to customers in urban metro areas. Regional carriers like AxleHire make up the fastest-growing segment in last-mile delivery, and we expect that growth to continue. In fact, we intend to drive it.
There will always be a place for traditional carriers in terms of sheer volume and their ability to ship disparate-sized and shaped packages to disparate locations. If you’re shipping a poly bag of yoga pants to an exercise instructor in Billings, MT, you’ll send it via one of the major national carriers. But if those yoga pants are going to a customer in Los Angeles, Chicago, or dozens of other urban metro areas, you might have better options with a regional carrier.
Disruption is ongoing in last-mile logistics, creating opportunities for online brands to provide enhanced service levels at a competitive cost. Contact one of our logistics professionals to learn how to take advantage of the opportunity.
