Inside Logistics

Can Uber conquer the package delivery business?

Materials Handling, from the May-June 2014 Print Edition


July 17, 2014
by Dave Luton

Dave Luton

Dave Luton

The small package transportation business is one of the mainstays of logistics delivery services. In many countries it started with the post office and was taken up by a large number of large and small transportation firms.

Recently Uber, maker of a taxi-finder app, has announced plans to enter the small package delivery business. There has been speculation about its possible success but little comment from a serious logistics perspective.

This is not the first time firms in the people transportation business have entered the small package business. In fact, most firms transporting people—including stage coaches, railway and air passenger transportation and even bus lines—have offered freight services. In most of these the freight is carried in the belly space of a passenger transport vehicle and is ancilliary to the main business. Overall, these carriers make up only a small portion of the overall package delivery marketplace. So this begs the question: Will a concept like Uber be a mainstream or niche player like traditional passenger oriented parcel delivery services in the small package delivery business?

To answer that question we have to strip away some of the non-logistics speculation. We must examine what Uber is from a logistics perspective, what it brings to the market place and finally what transportation niches are open to be exploited by the concept.

Uber is a broker of transportation services for people. It hires independent contractors using an innovative web-based dispatch and payment app. Using proprietary mobile phone technology it provides an integrated dispatch and payment system that answers the question: “How long will my pickup take?” Maping technology allows it to show the progress of the pickup vehicle, and the driver can inform the customer on arrival.

The other innovation is the electronic mobile device (credit card) payment which is entirely handled by Uber. The system uses standard payment but employs variable demand pricing (at peak times you pay more) and does not permit tipping. It also allows passengers to give feedback on driver service and performance.

With this capability Uber has successfully penetrated the cab market in several cities around the world. The cab market is a local, time-sensitive, high-density, dispersed-demand (mainly city) transportation market where pickup and delivery are performed on the same trip.

While the same niche exists in the small package freight market, it is relatively specialized and reserved for goods that can bear the high cost. People are willing to pay a lot for important deliveries, for example, chocolates to your significant other on Valentines day or roses for your anniversary; if you are away on business, you’ll be willing to pay a significant delivery cost to ensure it gets there.

There are also important differences between people and freight transportation. For goods transportation the freight does not load itself. People, on the other hand, are used to walking to the down to ground level and going to the curb for pickup. That is a huge and important difference, particularly in the downtown core of most cities. If you want to hear tales of woe, ask any small package operations manager about deliveries to the 12th floor of a downtown office or apartment.

And of course there is parking. Ever try to find a parking spot mid-day in the Toronto financial district? Stopping is one thing, parking for 15 to 20 minutes is another. The tickets add up quickly. It’s so bad some local courier companies have gone back to bicycles.

Once we get out of the downtown core, small package companies all use a hub and spoke delivery system. Uber, in its current form, does not have a hub, and that will prevent it from entering the non-specialized commodity, small package freight delivery market.

Add to that the need for protective packaging and labeling, and I forecast Uber will remain a niche freight company in its present form and will not take business from traditional small package delivery companies.

What Uber is doing is not unique. To our traditional delivery companies I pose the question: Should you adopt some of the Uber dispatch features in your existing freight delivery operations. I could see an interesting application for them in the delivery of large bulky items like mattresses or appliances or their servicing and repair.

In my next column I will outline what Uber can do to be more of a competitive force.

Dave Luton is a consultant in the greater Toronto area. dluton@cogeco.ca