The “Uberization of Freight” is a hot topic in logistics circles. My colleague Steve Banker wrote an LV blog post in 2016 that discussed the topic and its merits (see The Uberization of Last Mile Freight). It is a business concept that has been receiving large amounts of venture capital funding due to the great growth potential. After all, it is an economical solution to last-mile delivery of e-commerce orders – one of the most pervasive, high-growth service markets across the globe. Steve’s article notes a few important characteristics for the successful Uberization of freight for last-mile deliveries. Among them are short distances between stops (route density) and the participation of existing local fleets to manage the volumes and complexity. I agree with both of these requirements for success. In addition, there needs to be a high level of reliability to meet the delivery expectations of customers and to maintain the service expectations of retailers that utilize the service for last-mile delivery of e-commerce orders. These essentials are difficult to bring together in scale, over time, with high levels of service, at a reasonable cost. An intermediary that plans, schedules, matches, and coordinates all participants, while also assuming risk, is essential to success.
The DHL Parcel Metro Model
DHL eCommerce made an official announcement last week about the availability of its Parcel Metro service. The service matches retailer delivery requirements with a virtual delivery network that leverages local and regional delivery vendors along with crowd-sourced vehicles. The use of established delivery vendors and crowd-sourcing will allow DHL to support standard volumes while economically flexing capacity to align with changing demand. DHL offers consolidation services, the software and technology platform, and the contractual backbone. The Parcel Metro software solution manages delivery vendors and drivers according to characteristics such as service level, capacity, and route. Consumers can select their desired delivery window including next day, same day, and (coming soon) two-hours. Online shipment tracking is available to consumers. The ability for consumers to rate their delivery experience is also included, and this is likely to enable DHL to track and manage the quality of services offered. The service also includes risk management features such as shipment value protection and geo-coded and photo supported point-of-delivery. The service is currently available in Chicago, New York and Los Angeles, with launched planning for Dallas and Atlanta in Q2, San Francisco in Q3, and Washington DC in Q4.
Additional Requirements for Success
I believe the DHL Parcel Metro model is structured properly for success. However, success depends on proper execution and sufficient demand by retailers to support route density which will enable the cost-efficiencies necessary for economic viability. I expect demand from brick and mortar retailers to be strong due to the fierce competition they are facing from Amazon and the need for them to better leverage their retail locations in support of the value proposition offered by omni-channel commerce. The cost pressures from fulfilling ecommerce orders from the store is already high, making cost-efficient delivery a must for an urban last mile service such as DHL Parcel Metro.