Authors: Dr. Laetitia Dablanc and Dr. Jean-Paul Rodrigue
a. The Rise of E-commerce
The growing share of e-commerce in total retail sales has several impacts on urban freight distribution. This ranges from more urban deliveries (and pick up), changes in the types of vehicles, operators, time and place of deliveries, technological and economic innovations, labor disruptions, and adaptions in local traffic and planning policies. Most dimensions of urban freight distribution have been impacted by e-commerce. It represents a much larger share of deliveries in cities than its share of retail value. It is expected that the volume of parcel deliveries linked to e-commerce will continue to increase in the range of 5 to 10% per year. For freight deliveries, e-commerce relies on a fundamentally different set of requirements:
- Order size. E-commerce orders are dominantly of small size, with the average order of fewer than two items. They fall into the category of small sortable packages where an order includes of series of items that can be placed in boxes of less than 22 kg (50 pounds), which can be placed in a conveyor belt.
- Scope of inventory. E-commerce retailers tend to have an extensive variety of items available for sale. Since warehousing space is cheaper than retail space, it is possible to maintain more diversified inventories.
- Instant (Fast) deliveries. The effectiveness of e-commerce is based on its capability to deliver orders quickly, at times, in less than 48 hours. Timely deliveries and being able to track packages are part of the expectations of customers.
- Demand volatility. The demand for online goods is random and subject to time variations, such as seasonality. This results in a constant stream of orders for deliveries bound to random destinations.
Urban freight distribution is the result of logistics decisions specific to the sectors of urban activity. Each sector relies on specific logistics chains meeting production or distribution requirements. Two opposing forces are at play.
- Massification. It implies consolidated and less frequent deliveries in larger vehicles to achieve economies of scale. This is notably the case for grocery retail in dense urban areas, with a decrease in independent stores and an increase in chain retail. This is especially true for large cities, where independent retail is in decline. While an independent store can see several deliveries per day, a chain supermarket will receive only one or two since deliveries are consolidated on pallets in a large truck.
- Atomization. It implies a fragmentation and customization of deliveries made on a case-by-case basis, with higher frequency, and in smaller vehicles. E-commerce supply chains are the main forces towards fragmentation since it relies on individual parcel deliveries. This is particularly the case in the development of instant e-commerce deliveries to fulfill an online order within 24 hours.
E-commerce offers advantages for the whole commodity chain, from consumers being exposed to a wider range of products to manufacturers and distributors being able to adapt quickly to changes in demand. Therefore, it is a key driver of change for freight distribution.
b. Fast and Instant Deliveries
Fast delivery services provide the delivery of a selected range of high demand items to meet a delivery window of usually less than 48 hours.
Instant delivery services provide on-demand delivery within two hours by connecting shippers, couriers, and consumers via a digital platform.(Dablanc et al., 2017)
Fast and instant deliveries are an advanced form of distributional consumption that requires coordination and positioning of the procurement. Fast deliveries are more massified in part because they tend to apply to the retail sector with a greater opportunity to consolidate them. Fast delivery platforms have become an add-on to a regular e-commerce transaction with the e-retailer able to offer a faster delivery window because of a better command of logistics. Instant delivery platforms are focused on a specific market segment, including prepared meals, parcels, and grocery home deliveries. Some are involved in more specific businesses such as large items (furniture), highly valuable items, and items requiring special care (jewels, flowers, pastries). The main companies are the following:
- World brands: Amazon Prime Now, UberEATS
- US brands: GrubHub (JustEat-Takeaway now), Postmates (now owned by Uber), Instacart, DoorDash
- Chinese brands: Meituan-Dianping (linked to Tencent), Ele.me (Alibaba)
- Latin American brands: Rappi, IFood, Pedidos Ya (part of iFood now)
- European brands: JustEat Takeaway, Delivery Hero, Deliveroo, Glovo
- Many domestic brands, many start-ups in all regions.
This sector is rapidly growing, and the current pandemic has increased further its development. Some indicators provide a sense of this rapid growth:
- UberEats world has increased its sales by 130% in the third quarter of 2020 compared with the third quarter of 2019, a clear effect of the covid-19 pandemic.
- DoorDash has increased its order bookings by 198% year on year for January-September 2020, also a clear effect the pandemic.
- Meituan (China) now employs one million delivery free-lancers a day (The Economist, April 2020).
- In June 2020, Just Eat Takeaway bought GrubHub for $7.3 billion, in July Uber bought Postmates for $2.65 billion.
- DoorDash raised $1 billion in 2019.
Profitability has remained an enduring challenge for fast and instant deliveries. In this highly competitive environment, several strategies have been used to ensure continuity in operations:
- The first strategy is to push towards economies of scale. In Europe, Takeaway bought Just Eat in January 2020, becoming the world’s second-largest meal delivery platform. It then bought GrubHub in June 2020. Similarly, Uber bought Postmates in July 2020. IFood bought PedidosYa.
- Another strategy is to ensure an ongoing capitalization by subscribing to capital markets by issuing shares, bonds, and asking for direct investments. For instance, VCs. Doordash raised $1 million in 2019.
- Platforms also secure a more stable and predictable demand level for their services through strategic partnerships with retailers or restaurant chains. Amazon and Deliveroo have established a partnership in the UK, which has raised concerns from regulators such as the Competition & Market Authority. Carrefour works with UberEats in France. In the United States, Walmart collaborates with Postmates while McDonald’s has established partnerships with UberEATS and Doordash. In China, Alibaba has a specific relationship with Ele.me.
There are also circumstances where instant delivery platforms prefer to leave a country, which is a sort of implicit market sharing between competitors. In Latin America, Glovo left Chile and Brazil, in Europe, Deliveroo left Germany, while Foodora left France.
New socially and environmentally conscious platforms have emerged, such as Urb-It, a Swedish company operating in London, Paris, and Stockholm. Deliveries are made only by foot, bike, or public transport. There is on average a better pay than regular platforms such as UberEats or Deliveroo. About 50% of the couriers for Urb-It are women, underlining a different recruiting strategy. Some platforms also use an alternative hiring model, such as cooperatives (e.g. Olvo, Applicolis: associated with a cooperative, couriers can become partners by buying social shares). These are niches are more costly to operate, but are growing as customers are seeking alternative models. During the COVID-19 pandemic, lockdowns incited many instant delivery start-ups to offer their services to local retailers that had to curtail their regular operations, turn to online sales and face a surge in home delivery demand they did not have the capacity to meet.
c. An Emerging Workforce
The rapid growth of urban deliveries due to e-commerce and the related fast and instant delivery services has required recruiting an entirely new workforce. While large e-retailers have a reliance on own-account deliveries and their hired workforce, the use of third-party services is growing to cope with fast growth and the intense specialization of the customer base. Most couriers (delivery workers) are self-employed and sometimes are just private individuals, with no official registration as self-employed or freelance entrepreneurs. One can distinguish between “pure” crowd-sourcing (use of available transport capacity of private individuals on the way to work or elsewhere, such as for DHL MyWays, Cocolis, Shopopop) from ‘regular’ crowd-sourcing, which represents the use of dedicated delivery workers: either private individuals (such as for Amazon Flex) or free-lance contractors, self-employed couriers (such as those working for Deliveroo in Europe).
Courts and highest courts in several countries have recently converged in issuing decisions that consider delivery workers are actual employees, and not true independent workers. In France, the Cour de Cassation (highest court) on March, 4 2020 considered that Uber (and UberEats) workers are actually employees because of economic dependency to Uber The same court on December 2018 had considered that TakeEatEasy delivery workers were employees because of GPS tracking and sanctions. In California, legislation AB5 followed a 2018 California Supreme Court ruling considering that contractors that are part of the core business of their client should be considered employees. Uber and Postmates took legal action, and put forward proposition 22, proposed to a referendum at the last US elections. Proposition 22 was adopted, reversing AB5. In Spain, on September 23, 2020, the highest court (Tribunal Supremo) estimated that Glovo delivery workers were actual employees.
On-demand instant deliveries are a fast-growing segment of e-commerce deliveries, which raises several questions:
- Huge turnovers of delivery couriers and very rapid changes in the nature, role, and function of the delivery workers (from part-time to full-time).
- Business models adapting constantly, including partnerships with large shippers, retailers, mergers. Access to an ongoing source of capitalization is key to ensure the expanses linked with the setting of these distribution networks.
- Emerging legal issues, such as increased illegal work through the sharing of licenses and registrations; illegal use of motorbikes in some countries.
This new sector also provides opportunities for low-skilled jobs in city centers and shows immense potential for the transmission of logistical skills through training programs. There are also opportunities for developing the use of electric two-wheelers, and of new mobility modes (bike sharing). More socially responsible platforms may be growing in the future, following court decisions related to the legality of the type of work offered by the “gig economy”.
- Boysen, N., R, de Koster and F. Weidinger (2019) “Warehousing in the e-commerce era: A survey”, European Journal of Operational Research, Vol. 277 (2), pp. 396-411.
- Dablanc, L., Morganti, E., Arvidsson, N., Woxenius, J., Browne, M., Saidi, N. (2017) The Rise of On-Demand ‘Instant Deliveries’ in European Cities. Supply Chain Forum – an International Journal. Vol 18(4), p. 203-217.
- Dablanc, L. (2019) “E-commerce trends and implications for urban logistics”, in Browne, M., S. Behrens, J. Woxenius, G. Giuliano and J. Holguin-Veras (eds) Urban Logistics: Management, Policy and Innovation in a Rapidly Changing Environment. London: Kogan-Page. pp. 167-195.
- Dablanc, L. (2020) Instant delivery in Paris: results of the 2020 survey on delivery workers. ttps://www.lvmt.fr/wp-content/uploads/2020/06/Rapport-enque%CC%82te-2020.pdf