By Satish Jindel
UPS built a formidable B2B parcel delivery model since its founding in 1907. It was impossible for many competitors to survive UPS’s great reputation for service and lower costs, resulting in a competitive moat for the company. The highly engineered operation was so productive that the carrier was able to pay unionized drivers top wages and benefits.
A newcomer appeared in 1985. RPS prevailed against all odds by introducing new features and technology that appealed to the business customers, while copying UPS’ operational practices and using an independent contractor model to achieve lower cost. Growth in annual revenue from $35 million 40 years ago to more than $35 billion, now as FedEx Ground, is evidence of its success.
However, since RPS establishment, the parcel market has evolved into three segments: large and high value parcels; traditional B2B with multiple parcel deliveries per stop; and small-box, low-value residential delivery with one parcel per stop.
Since the lightweight B2C e-commerce segment represents over 70% of the parcel market, UPS’s (NYSE: UPS) and FedEx’s (NYSE: FDX) traditional labor structure centered on driving around a large van is too costly to meet the needs of B2C retail shippers.
B2C parcel delivery is best suited for gig workers, who like flexible work hours.
And with UPS being the only unionized private parcel carrier, it has a bigger challenge than FedEx halting the loss of B2C delivery business to large retailers and new startups. UPS has to find a path for growth that better utilizes the higher-cost Teamster drivers for residential deliveries.
To stop losing market share and achieve sustained profitability, UPS should incorporate the best features of the Teamster operation combined with the use of lower cost last-mile delivery agents using personal vehicles, a delivery model it is familiar with after acquiring Roadie in 2021. Roadie specializes in delivering from neighborhood stores to nearby consumers.
The innovation would be to use Teamsters drivers, operating large package vans capable of carrying several hundred small parcels, as an extension of the middle mile. They would deliver the parcels to more than 5,600 UPS Stores across the country instead of to individual doorsteps. Independent gig workers would pick up packages there and use their personal vehicles for final-mile delivery within a five-to-10 mile radius, avoiding the need for a long commute to a UPS sortation center.
Since B2C parcels rarely result in undeliverable parcels, those parcels can be brought back to The UPS Store the next day to be returned to the sender.
This unified delivery model will also enable UPS to replace the U.S. Postal Service for last-mile delivery. The parcel giant dropped the Postal Service in January over rising prices, but now says it has a tentative agreement for letter carriers to resume deliveries for Ground Saver, its economy product. With UPS Stores as pick-up points and gig workers, UPS won’t need the Postal Service anymore.
Furthermore, this strategy would even allow UPS to bring Mail Innovation (another postal workshare product) volume within the network, further increasing delivery density and eliminating the cost of about 25 separate facilities with linehaul operations.
The strategy will increase the number of parcels handled in the extended middle mile by the Teamsters drivers, with The UPS Stores replacing dedicated delivery units — the final stop in the USPS network for a package before delivery — and Roadie agents doing the last-mile delivery instead of the Postal letter carriers.
Our recent commentary, “FedEx’s Road to Future: Adopt gig worker model to dominate B2C delivery” has received a huge response. Many have commented that they wish FedEx would act on the recommendation. With the market place changing rapidly, there will be a huge first mover advantage.
Both FedEx and UPS need to act rapidly. UPS already owns the Roadie network of last-mile delivery agents, but it has to get Teamsters leadership to cooperate on a united strategy for moving lightweight, low-value e-commerce shipments.
Getting cooperation from The UPS Stores should be a no-brainer. As franchisees, their owners are self-motivated to grow their business and will embrace this fresh B2C delivery model.
Meanwhile, the independent delivery agents at Roadie can directly work for UPS bringing lower cost B2C parcels to their neighborhood. They will have to drive fewer miles and feel safer because they will be familiar with the delivery area and even some of the parcel recipients.
UPS paid $67 million for the Roadie brand, but that is insignificant compared to the brand value and consumer familiarity with UPS. The united model will help UPS/Roadie attract more online retailers as customers, more gig workers to be last-mile delivery agents, and more consumers who will feel more at ease seeing delivery agents wearing a recognized brand shirt instead of non-descript persons who work for random, independent parcel carriers.
This united approach will help the Teamsters maintain a role for its drivers in the rapidly changing parcel market and make it easier for UPS to agree on a new labor contract in 2028.
Using Roadie’s 30,000 last-mile delivery agents, supported by UPS’s automation, digital technology, new middle mile network and The UPS Stores will take the wind out of many new start-ups like Jitsu, Veho, Gofo and UniUni, and even derail plans by DoorDash (NASDAQ: DASH)and Uber Eats (NASDAQ: UBER) to enter the B2C parcel market.
It will even head off plans for Amazon (NASDAQ: AMZN) and GrubHub to deploy a similar model for last-mile delivery for their own online orders, or those of third-party businesses.
UPS has a very short window to figure out this new unified model — which leverages UPS’s middle-mile strengths, crowd-sourced drivers, The UPS Stores and the UPS brand — and reverse its fortunes in the B2C e-commerce market.
(Satish Jindel, President of ShipMatrix, Inc. was a founding member of RPS. He has a track record of forecasting big changes in the parcel sector well before they occur, including the integration of FedEx express and ground networks and the spin-off of FedEx Freight. Robert Persuit of ShipMatrix contributed to this article.)
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