Transportation & Logistics International - Winter 2017 - 11
deliveries by undercharging." In the
same article, Dan Murphy, a global retail
consultant for firm Kurt Salmon, put
the dilemma perfectly: "You are selling
tenners for a fiver, but you're convinced
that if only you can sell enough, at some
point it will become profitable."
Let's tie those statements to density
and rate of a delivery to show why these
two factors are so important:
1. Rate: There is no such thing as
bad freight, just bad rate. Emerging
startups in the U.S. are offering
services and cost structures that
are below a sustainable model. Undercharging is what Robbie Feather
called it for the U.K. grocery stores.
The rates these startup businesses
have to charge to make the option
attractive for consumers are ultimately hurting their businesses. All
the undercharging makes it almost
impossible to maintain low density
or an average volume of deliveries.
// Many argue traditional logistics companies
have what it takes to take command of the
growing on-demand delivery segment.
Which brings me to the next point.
2. Density: Startups looking to enter the logistics and delivery market have entered certain sectors,
grocery and food delivery for example. However, these segments
will never create the density of
deliveries that are needed to sustain the business. Some segments
of delivery just aren't as profitable as others. Because the rate
needs to be so low (selling tenner
for a fiver) to attract consumers,
the business has to deliver more
packages or make more deliveries to make it worthwhile for the
drivers and, of course, to sustain
the overall business.
If we look beyond the complexity issues with logistics, to things like traffic,
technology, and the rate of freight, startup companies have a lot to overcome
and figure out.
Startups and their investors believe (or
believed) companies would succeed once
they grew to enormous scale, but entrepreneurs and investors are beginning
to find that the economics of making a
delivery service work are far from easy.
Take WebVan, for example, a last-mile
grocery delivery service known as the
biggest dot-com bust. According to The
Wall Street Journal, the online grocery
company went through more than $800
million in capital, went public, filed for
bankruptcy and ultimately ceased operation. So what went wrong? The problem wasn't in the technology (which
may have been ahead of what the Internet could handle in the early 2000s), it
was the space WebVan was entering and
the execution. A lot of things have to go
right for this business model to be successful. All of today's ideas could survive
in the market, the question is how much
money is out there to invest in startup
companies until one figures it out.
While today's emerging startups have
some capital and smart technological
innovations, they don't have the infrastructure, the industry experience and
the ability to scale fast enough to disrupt
the traditional competitors.
The growing on-demand delivery
segment is where traditional logistics
companies can excel because complexity
abounds here. The established companies
in this space already have the critical
infrastructure, including qualified drivers,
efficient vehicles and safety programs in
place. Not to mention an essential understanding of the complexities and moving
parts that startup, non-industry players
just don't have. This combination is a
non-starter for these startups to really be
able to disrupt the market.
Joel Ritch is a 30-year industry veteran and
the CEO of Progistics Distribution, a last mile
distribution and logistics company.
WINTER 2017 TLIMAGAZINE.COM