Retailers Need a Fresh Perspective on Crowd-Sourced Delivery

Amazon has confirmed plans to supplement its existing last-mile delivery strategy by directly hiring thousands of temporary in-house drivers to cope with peak demands this holiday season. In addition to its existing group of independent Delivery Service Partners (DSPs) using Amazon Flex and external providers such as UPS and FedEx, Amazon will be forking out as much as US$19 per hour for each new driver within this seasonal reserve fleet. Also, each driver will be provided with an Amazon Prime–branded van.

This decision is largely motivated by the need to take back control of logistics operations at a time when the e-commerce giant is also downgrading its revenue forecasts for this holiday season. But Amazon is nearly always a special case in the world of e-commerce. For most retailers frantically preparing for the e-commerce holiday rush, being able to deploy their own fleet of last-mile couriers to cope with increased demand is simply not possible—partly because most retailers do not own a fleet of vehicles, as Amazon does. They must therefore spend even more on costly external providers.

High external logistics rates and the need to scale up operations for the holidays therefore makes a perfect storm of e-commerce chaos for most online retailers. This chaos continues to fertilize the ground for holiday disruption on which retailers and technology providers have been preparing to capitalize for years. By next year’s holiday season, the delivery market will surely be a different place than it is now.

Of course, many alternative methods of last-mile delivery, such as drones and unmanned ground vehicles, are still years away from full-scale, reliable deployment in major cities. However, the solution that tackles the last-mile conundrum in the most promising way today is surely crowd-sourced delivery. Using digital platforms to intelligently and automatically connect shipments with a fleet of private, independent, and even nonprofessional drivers has garnered marketwide attention. Companies such as Postmates and Deliv are attracting major investment from the likes of Google and UPS, for example, and will therefore allow other retailers to compete with Amazon’s Flex service and its network of DSPs. As part of the wider Freight-as-a-Service (FaaS) trend emerging generally in the wider supply chain, these digital services continue to be hailed as a major disruptive paradigm in last-mile delivery.

By assigning delivery orders to drivers in the local area using a digital platform enhanced with machine learning and analytics, retailers and shippers can potentially eliminate the need for their own fleets of vehicles, saving millions of dollars in Capital Expenditure (CAPEX) and staffing costs while maintaining an efficient and flexible delivery service at a cheaper rate than offered by major external providers. Further, digital platforms that are offering these services provide visibility on the status of delivery for the customer—an increasingly desirable feature for the demanding shoppers of today.

However, like any hyped technology in its early stages, crowd-sourced delivery has faced major setbacks. The closure of the Uber Rush platform in June 2018, along with other startups with similar models, serves as evidence that marketwide last-mile delivery operations may not be as ready for “Uberization” as many first thought. Unlike similar ride-sharing and food delivery models, crowd-sourced logistics faces inherent challenges relating to driver availability and to the unpredictable and sporadic nature of parcel delivery demand. This dramatically reduces its reliability and therefore viability as a primary last-mile delivery solution for online retailers or shippers.

While food delivery is a flourishing use case for crowd-sourced delivery (due to its highly predictable delivery demand and density of orders), projects like Uber Rush have so far failed in their attempt to disrupt e-commerce delivery more widely. Nevertheless, the reality is that the last mile is in dire need of disruption, and so new ways of thinking about crowd-sourced delivery are required by retailers who cannot wait years for drones and robots to replace dedicated delivery fleets.

We are still in the early adoption phase of crowd-sourced delivery and FaaS, generally—meaning there are inevitable issues associated with driver and demand density, even in major urban centers. To overcome these major barriers, retailers should be exploring how crowd-sourced logistics can be leveraged to supplement, rather than replace, existing dedicated delivery fleets that are inherently inflexible and subject to high CAPEX and payroll costs or high premiums for outsourced courier services.

Platforms such as Deliv and Postmates need to realize that they may not be a direct replacement for existing last-mile delivery operations yet but instead offer a way to manage fluctuating demand—to which inflexible dedicated fleets are incapable of responding or which are too expensive. Being initially adopted as a scalability tool is how these platforms will reach the critical mass of usership. Once this occurs, crowd-sourced delivery can then become a central pillar of a retailer’s last-mile strategy.

As more shippers adopt this hybrid method of last-mile delivery, more demand will be created, therefore increasing the supply of available drivers. Further, platform operators such as Deliv and Postmate can gain even more data to feed the machine-learning engines on which future improvements rely, thereby benefiting all users.

It is unrealistic to think that e-commerce companies are ready to rely solely on crowd-sourced logistics and FaaS for the delivery of all their nonfood items. Platform providers therefore need to first demonstrate the value of this model as a complementary strategy to dedicated fleets. To do this, they need to use seasonal peaks and demand surges to demonstrate that scalability and mitigating risk is best achieved through crowd sourcing. Only then will this much hyped delivery method become the game-changing trend it has been forecast to be.

This insight is part of ABI Research’s coverage of Smart Retail. It precedes a report to be published in December 2018 titled Supply Chain Trends and the Technology Landscape.