Uberisation of Logistics - Are You Too Late?

by Rob O’Byrne on 2016-09-29 03:07:08


Uberisation of Logistics

Published with kind permission of MHD Supply Chain Solutions Magazine

 

Uber this, Uber that… Ever since Uber reinvented taxi services by placing itself in between customers and private car owners, “uberisation” has become a craze. That doesn’t mean that everything will or even can apply the Uber concept, but it certainly doesn’t stop people from trying. From taxis to home deliveries, from laundry to legal services, uberisation is being applied into many different sectors. How close is it to significantly disrupting logistics? When supply chain leaders like Walmart start to test the waters by using Uber and its competitor Lyft to make last-mile deliveries, it’s probably time to take notice – or to start catching up.

 

Six Key Characteristics of Uberisation

 

Uber and Logistics

 

The Uber concept sounds simple enough. Indeed, it is simple, hence its attraction and its success. In its original taxi service format, a customer uses the Uber app on a smartphone to specify pickup location, and to ask for a car and driver. An Uber-listed driver takes the customer from pickup point to destination. The fare is calculated automatically by the Uber system, paid from the customer’s Uber account, and shared between the driver and Uber. However, “under the hood”, there’s rather more going on:

 

  • No assets. This is a fundamental feature of Uber and Uber-like systems. They neither own nor operate any assets, apart from their own offices and systems. Uber-listed drivers bring their own vehicles and must provide for the operability and maintenance of those vehicles.
  • Customer convenience. As an Uber customer, you get service wherever you happen to be (in a city or area served by Uber).
  • Lower cost. Uber service has been predicated on lower costs to customers, which, together with its convenience, makes the service doubly attractive to customers.
  • Gig economy. Uber drivers perform one-off services with no guarantee of repeat “gigs”, of stable employment, or of accompanying social security benefits.
  • Digitally driven. Smartphone geolocation drives Uber operations, tied into backend systems for centralised billing and payments to Uber service providers.
  • Credit card and PayPal payments are possible, but in any case they are made through the customer’s Uber account. No cash passes between the customer and the Uber provider. Even tipping is handled electronically.

 

Now replace “Uber taxi” by “generic service”, such as item packaging, pickup and delivery, errands, pizza, doctor house calls, and private jets, but keep all of the characteristics above. It’s not hard to see that uberisation can extend to a wide variety of activities and sectors. Walmart is using Uber itself to “uberise” its home delivery network, but logistics operators could become “Ubers” in their own right, offering no-strings, one-off, whenever and wherever logistics services. In that case, how far could they take uberisation and what would be the impact, positive or negative, on the market?

 

Who Started It, Anyway?

 

Before we delve into the possibilities for logistics operators, let’s take a look at the origins of uberisation. For one reason, it’s been around albeit in different forms for some time. Even if Uber named it, Uber did not invent it, but rather extended and enhanced the concept. For example, before Uber started in 2009, Amazon’s Mechanical Turk system was already functioning in 2007. A service provider was anybody with a PC, rather than a car. In cyberspace, geolocation mattered less, but the cashless, digitally-driven, gig economy was already in full swing.

 

A Quote from Travis Kalanick

 

Why did Uber start by applying the concept to taxis? The romantic version of the story is that the Uber company founders could not get a taxi on a snowy night in Paris, and decided to invent a system for an alternative taxi service. The story may be true, but the real lesson is in the underlying motivation. The Uber founders found the existing solution to be unsatisfactory. They made a new solution that they (as customers) liked better and that they (as entrepreneurs) could use to make money.

 

It could be argued that professional taxi drivers brought Uber on themselves by failing to offer a sufficiently satisfactory service. The same argument might extend to logistics in general. If existing providers cannot offer customers sufficiently flexible, granular (as in last mile delivery), and inexpensive logistics services, uberisation then looms larger as another choice. Yet it would be a mistake to think that such a threat (or opportunity) is an entirely recent development. Already in 2013, DHL Freight in Sweden piloted a mobile app called “My Ways” to connect shippers with individuals willing to deliver packages along their daily routes in return for a small fee. And errand runners have existed since time immemorial, a service now uberised by TaskRabbit.

 

Levels of Uberisation of Logistics

 

The Uber model depends on access to a pool of loosely-coupled service providers willing to provide their own assets or resources to get a job done. For Uber itself, there is a sufficiently big pool of people with their own cars, who collectively offer a high-enough level of availability to satisfy demand. DHL (directly) and Walmart (via Uber) have been applying the same principle. At this level, although providers must be responsible and trustworthy, the competences needed do not include much in the way of specialist skills or expertise. Driving ability and locating a delivery point are the main requirements.

 

For last mile delivery, uberisation has obvious attractions. In other parts of the logistics chain, the possibilities may be less clear cut. Cost-efficient bulk transport to regional distribution centres requires larger vehicles, whether trucks, trains, or boats. The available pool of such assets is not big enough or widespread enough to allow customers to summon a provider to their doorstep at the drop of a hat. Similarly, logistics activities requiring specific conditions or competences are less likely to be uberised in the same way as taxi services. Correct, guaranteed temperature-controlled storage, for instance, may be beyond the capabilities of individuals and their fridges or central heating. Manufacturing postponement tasks may require special equipment or a level of quality control that can only be guaranteed in a facility specifically equipped and staffed for such activities.

 

Nevertheless, some of the activities of third party logistics (3PL) providers are already similar to uberisation. These enterprises effectively connect freight service buyers and sellers, set prices, enable transactions, and take fees, leaving freight service sellers to handle the assets needed to ship and distribute freight. In this sense, uberisation of logistics already started some time ago.

 

Accelerating Factors

 

As a general change and for some time now, enterprises have been computerising different parts of their operations for reasons of speed, efficiency, and cost reduction. Even sales, that “person-to-person” activity, has been transformed by online ecommerce. When the sale is simple and standardised, a salesperson may add little or no value. An automated web-based sales system may do the job just as well and far more cheaply. A similar phenomenon is likely to occur with uberisation of logistics. If a task can be uberised, i.e. given to a non-specialised individual to be done inexpensively on a one-off basis, rather than maintaining someone else for the job in permanent employment, the temptation may be too great for enterprises to resist.

 

Introducing modularity to handle supply chain and logistics complexity also encourages uberisation. By making smaller parts of those operations into standard modules that interface with one another, a supply chain can become more “composable”. Personnel can be redeployed more easily between modules, training needs can be planned better, and human resource imbalances reduced. The greater the degree of standardisation, the easier it becomes to fill positions on a per-task basis with people with qualities such as intelligence, diligence, and enthusiasm, rather than having to search for candidates who possess specific logistics skills.

 

Lower Costs and Added Value

 

Cutting Costs

 

Uberisation also reduces the transaction costs faced by companies needing logistics services.  Traditionally, such companies hired logistics providers and employees on long-term contracts, because these worked out to be cheaper than short-term contracts and repeated price negotiations and hiring cycles. Now, especially with digital Uber-style platforms, such transaction costs have been significantly reduced. In addition, sellers no longer hold a monopoly on information concerning the nature or quality of their services. Digital platforms frequently include buyer review functionality, with which companies buying services on the platform can then post their ratings and opinions of the services consumed. Other buyers then get immediate insight into the suitability of different providers, driving transaction costs down further still.

 

Lower costs are not the only incentive for customers to prefer Uber-style logistics solutions. Effectiveness and convenience are also growing in importance to enterprises considering uberised services, because these items improve the satisfaction and loyalty of their own customers. Morten Villberg, DHL’s managing director to the Nordics and UK, remarked that while he did not consider Uber-style delivery services in Scandinavia (Nimber and Trunkbird, for example) to be threats in terms of pricing, he saw they had a potential competitive advantage in being willing to climb stairs and deliver right to the customer’s doorstep or desktop.

 

A Solution to a Structural HR Problem, but at a Cost

 

Other competitive factors may also stimulate uberisation of logistics. Peter Ankerstjerne, marketing director of facility management company ISS World Services, thinks that “10 years ago, price was 90 per cent of an outsourcing decision. Last year, it was around 63 per cent. The second largest concern was access to talent, and the third largest was innovation”.

 

The average age of logistics workers remains higher than that of many other sectors of activity and is also heavily skewed towards male workers. If companies cannot develop new talent and innovation internally, modularity and uberisation may help to solve it externally. However, direct application of the Uber concept as it applies to the taxi sector for instance may leave independent workers with other problems. While the Uber business model opens up earning possibilities, it does nothing to improve job security, superannuation, or stable work environments. Neither does it offer paid annual leave or encourage continuing professional development.

 

Uber’s Own Plans in Logistics

 

Uber has already branched out from the initial independent taxi concept. It has the logistics market in its sights and the parcel business in particular. The company has launched Uber Cargo in Hong Kong using cargo vans and Uber Rush in New York City using bike messengers. However, it also has the possibility of leveraging its existing network of taxi drivers to turn them into delivery agents as well. By combining people moving and parcel moving, Uber can also drive prices further down and compete more effectively with its direct rivals such as Lyft. The change that Uber made in its company tagline – “Where lifestyle meets logistics”, instead of “Everyone’s private driver” reflects these goals.

 

Logistics and Uber

 

Other Uber developments like UberEATS, a food delivery service, may lead to surprises for the logistics sector too. The originality of UberEATS is that instead of following the conventional sequence of taking customer orders, then preparing food, and finally delivering it, the order is inverted: the food is already prepared and held in Uber vehicles, ready for immediate delivery when a customer order comes in. If Uber vehicles can hold and deliver food in this way, who know what other supplies such mobile warehouses might also hold if the customer interest and levels of demand are right.

 

Finally – Are You Too Late?

 

Even if you have not uberised any of your logistics, there is no doubt that uberisation has already started without you. That of course does not stop you from changing your tactics and moving into an Uber mode, if this is applicable. On the other hand, it would be an error to try to ignore or block the Uber movement.

 

Taxi drivers around the world have tried, but the results have been globally unimpressive. Whether it’s because of the smart digital platforms and their operating efficiencies, the access to a workforce and assets as and when required, or simply because it’s the only way of staying competitive and satisfying existing customers, uberisation of logistics is set to grow. Does uberisation of logistics apply to your business? That’s the question to answer now, before it really is too late.

 

Best Regards

Rob O'Byrne

Email or +61 417 417 307

 

 



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