I recently bid on a pram on eBay that looked like a great deal, until I got to the checkout. It turned out that the delivery costs were greater than the price of the item because the seller lived in Perth. I abandoned the transaction.
A few days later, I was searching online for a new sofa and was surprised to discover that most Australian retailers only offered “buy online, pick up in store” (BOPIS). That same week, I saw a “free shipping” offer from a leading online wine club only to discover at checkout that it only applied to residents of South Australia.
This series of frustrating experiences got me thinking: despite the online commerce revolution, what has changed about shipping and local delivery? A massive opportunity exists to reinvent delivery services, especially around what is often referred to as the “last mile” of online retail, to meet the needs of customers who want everything on demand. Enter crowdshipping, or peer-to-peer delivery platforms such as Australian based MeeMeep and Zipments, and similar international start-ups Deliv, Nimber, andCargomatic.
Crowdshipping works like this: when an individual or business wants an item delivered, the platforms crowdsource the job to a network of approved drivers who are not employed by the company but have capacity to courier goods. The sender selects who they want based usually on the price, specific package requirements and the courier’s online rating (how people rate a driver’s service).
ASSET-LIGHT BUSINESS MODEL
The power of the crowdshipping model is that it does not require the asset-heavy infrastructure of warehouses, vehicle fleets, fuel costs and employed drivers that traditional logistics companies have to pay for and manage. Instead, they use technology to create access to an abundant source of underutilised assets to create a powerful new cost-effective logistics system. It’s an asset-light model, akin to the likes of Uber and Airbnb, with low overheads meaning it can scale relatively fast depending on demand.
The supply of “shippers” tends to fall into three categories: the subcontractors of mainstream brands such as Allied Express, StarTrack and DHL who, at best, earn 30 per cent of the face value of a delivery job but often far less; professional drivers employed by courier companies who have capacity from downtime between jobs, empty space in their vans and idle return trips after a drop off; and casual drivers, such as university students, retirees or freelancers. The key benefit for drivers is that they control when they work and how much they earn.
Rob Emmett, the 47-year-old chief executive and founder of Melbourne-based start-up MeeMeep, decided to test first hand how attractive the crowdshipping model would be to existing couriers. He visited a GraysOnline warehouse. Emmett noticed a driver called Steve standing around drinking several cups of coffee and asked him what he was waiting for. “To pick up a clothes dryer,” Steve replied. Emmett wondered if he knew the total delivery cost. He did. The customer was paying a $70 delivery fee of which Steve would be paid a paltry $3.80. “Would you like to earn several times this amount for doing essentially the same job and also help customers save on shipping fees?” Emmett asked. Steve looked bemused but was converted when he learned how the MeeMeep platform worked.
“We predicted that a new pricing point would emerge between what a sub-contractor receives and 85 per cent of what the mainstream operators were charging.” Emmett said. “If this model worked we could consistently deliver a savings of between 40 per cent to 60 per cent to customers.”
His predictions were spot on. If you compare on Temando (a price comparison site for courier delivery) the exact parameters of some jobs completed on MeeMeep – from lounge suites to artwork delivery – against quotes from delivery companies the average MeeMeep job cost was 55 per cent cheaper. Up until now, the faster you got something, the more expensive it was but crowdshipping turns that cost model upside-down.
IBIS says door-to-door pick-up (from homes or places of business), transport and delivery of letters, documents, parcels and delivery market (excluding fresh goods) is estimated to be worth $80 billion in Australia alone.
Crowdshipping start-ups will take market share from traditional players, but how much larger will they make the delivery market by providing new and cheaper solutions?
Australian retail sales are expected to hit $33.3 billion in 2015 but think how much is lost due to lack of flexible, fast and cost-effective delivery options for the last mile.
Another online service with friction points around shipping is auction markets. On eBay, about 800,000 local pick-up-only items are listed each month in Australia. Eighty per cent of shoppers will only bid on a pick-up-only item that is within 60 kilometres of where the item is listed and where they live. In other words, shipping (or lack of) is limiting the size of the market.
MeeMeep formed partnerships with GraysOnline and eBay in 2012 and 2013 respectively to help expand the possible selling radius while increasing people’s confidence about buying online.
“We are excited to see how MeeMeep can improve both the buyer and seller experience in regards to trading items that are available for local pick-up,” says Patrick Luetjens, senior manager for consumer selling at eBay.
In the near future MeeMeep could be to delivery what Paypal has become to payments; to the customer it is simply a button that becomes a seamless part of the checkout screen. But how could crowdshipping affect the future of offline retail as well?
“There are all sorts of businesses from white goods to pet sellers to furniture retailers that simply do not have a shipping solution,” explains Ari Kestin, chief executive of Norwegian crowdshipping platform Nimber.
“We have auction houses who love the idea of knowing exactly who and what vehicle their expensive painting is being transported by.”
Kestin’s point got me thinking about how, for senders, crowdshipping requires buyers to trust in a marketplace of individuals rather than handing over responsibility to a company to fulfil delivery, even though we don’t know the UPS guy who delivers our item. “There is something hidden in crowdshipping that you won’t see in a business model,” explains Kestin. “People like dealing with real people.”
Marketplaces that can plug into existing demand to create liquidity fast and over the long term will be highly disruptive. With crowdshipping, there is little demand creation. Aside from same-day and bulk items, you’ve also got immediate-delivery categories such as restaurants and dry cleaning. And then there are bricks-and-mortar shops.
Deliv, a Silicon Valley crowdshipping start-up that recently received $4.5 million in funding, has partnered with Westfield, Simon Property Group, Macerich and General Growth Properties (GGP) which collectively manage over 660 malls. The partnerships with Deliv allows multiple retailers to work together in a single delivery system to have their own personalised system of couriers.
For example, a family purchases some big bags of dog food, some clothes, a few boxes of nappies and, say, a new piece of luggage from multiple retailers in the same mall. Rather than lug all the bags from store to store, the customer can get all the items delivered to their front door in less than two hours.
A similar model could empower Australian bricks and mortar retailers, no matter what size, to compete with online commerce by using their physical locations as assets. Stores could evolve into showrooms and local distribution centres, creating a significant logistics advantage over pure online players.
When you consider Amazon only has 53 “fulfilment” centres you can see the opportunity for retailers to “out-Amazon” Amazon. As Deliv chief executive Daphne Carmeli says, “Retailers’ inventory, by nature of where they put their stories, lies within five miles of consumer populations. Their inventory is already where it needs to be.”
In this sense, crowdshipping is not just unlocking the idling capacity of drivers but the latent value that exists in physical retail infrastructure. Indeed, if we zoom out, crowdshipping is a perfect example of the transformational lens we can apply to waste in a supply chain that was invisible before and that uses technology to become productive, in this instance by generating real value for the courier, the customer and the retailer.
This has been reposted from: Australian Financial Review