Av Mikael Wällstedt | Article | April 17, 2017

Crowdsourced delivery – a threat or opportunity to traditional logistics?

Deliveries for a tenth of the cost of traditional delivery methods. How can traditional logistics companies compete with that? How could they possibly be an attractive alternative to someone who delivers a parcel for less than what their fuel cost? It is true that traditional logistic companies have proven work processes, structured organization and tools that offers tracking, convenience, security and quality. But is this worth ten times more? Or could the traditional logistics companies leverage crowdsourcing? Could they create something that offers both low cost and high quality by using this alternative?

So, what is the thing with crowdsourced delivery? The sharing economy phenomena isn’t new. Sharing common resources has been done since ancient times. Most apartment houses have common laundry rooms, young people hitchhike to transport themselves, and in large cities many people use carpooling. But what has happened in the last few years is that Internet and smartphones have enabled us to efficiently control and coordinate resources. Today it is easy to travel by using Uber, find lodging with Airbnb, or get your dinner on the table with foodora. In the same way, you can let one of your neighbors bring your delivery home, at a tiny cost, by using crowdsourced delivery.

Last mile delivery is the main bottleneck

When we look closer at the delivery chain, we quite quickly realize that long-haul transportations is not the challenge. Today’s puzzle is how to efficiently carry out the final transport to your home – often referred to as last mile delivery. An important driver for the emergence of new last mile delivery solutions is the rapid increase of e-commerce volumes with demand for same day delivery. We want our delivery directly – without undue delay. Three to five days is no longer acceptable. Also, a delivery window of several hours is not good enough. We want our delivery today and with a clearly communicated ETA, preferably specified within a 15-minute interval. We are seeing lots of innovative activity in this space. Many logistics companies are testing and evaluating new last mile technologies, including downs, robots, collection boxes, service points, and more.

Splitting the cake in another way

One of the beauty of crowdsourced delivery is that it gives us exactly what we want in terms of price/performance. It is a disruptive last mile delivery method which makes it possible to offer same day delivery at a reasonable cost. It is not possible to reach the same cost-efficiency with traditional delivery methods. The reason is that traditional logistics economics builds on the concept of maximizing usage of trucks, drivers and other resources. That means that you optimize by first filling your truck with packages. Then you deliver these packages, using a linear route, to each household, one at a time. With on-demand delivery, each household wants its package at the same time. If we apply the traditional model, we would need one truck and driver for each package, which does not make sense. With crowdsourcing, we can optimize in another way, thus cutting the cake in another way.

It may be cheap, but what about trust, service and quality?

If you order or want to send something, you probably care about it safely reaching its destination. Most people hate risks and hassles and just want to reduce cost. This is of course the Achilles heal of crowdsourced delivery and the strength of traditional logistics. They have structure, experience, processes and more, which provides trust.

The answer from year 1817

Regardless of whether the logistics companies like it or not, crowdsourced delivery is here to stay. There might be some challenges concerning security and quality, but it is just a question of time. A generation shift is coming with new attitudes towards the sharing economy. A traditional logistic company will see this trend both as a threat and an opportunity. A smart logistics company will view this trend in the light of David Ricardo’s law of comparative advantage, a theory he developed in 1817. It simply suggests that if a partnership is to be optimized, each partner should contribute with what he does best. It has appeared under many different names over the years. “Focused factory” is one of the modern names.

The idea is indeed simple – instead of competing and fighting crowdsourcing delivery, traditional logistics companies should embrace and leverage it. The combination of a trusted brand name, optimized structure, advanced workflow tools – along with ordinary people as the cost-efficient last mile delivery machine – would be a very efficient solution. There are many logistics companies that already know this and are now testing how to best merge the two.