Ecommerce boom and last mile demand
By Jason Burns, QCS Logistics Partner and CLDA Treasurer
From the ecommerce boom and increased demand for final mile delivery to recent rulings regarding worker misclassification and regulations on driver hours of service (HOS) and food and beverage transportation, the Customized Logistics & Delivery Association (CLDA) Annual Meeting & Expo last month in Las Vegas focused on the issues, opportunities and trends impacting the same-day delivery and transportation services industry.
Here are some key takeaways from this year’s conference, which was themed “Leveraging the Last Mile.”
HOW WILL INDUSTRY ADJUST TO SAME-DAY ECOMMERCE BOOM?
The U.S. internet retailing market size reached $240 billion in 2014. While ecommerce is driving volume it’s not necessarily impacting the bottom line. To meet the demands of the digital delivery age, shippers continue to expand their B2C delivery service and LTLs and traditional courier companies are getting pressure to complete more last mile residential deliveries.
E-commerce now comprises 15% of all retail sales in the $35 billion less-than load (LTL) trucking industry segment, driving smaller order quantities and more logistics around last-mile delivery. A recent article in the Wall Street Journal highlighted the LTL’s struggle to haul consumer goods through neighborhoods to manage more time-consuming home deliveries rather than simply moving goods from one loading dock to another.
The shift to ecommerce from brick and mortar retail has escalated demands for local shipments to businesses and residences. More consumers are shopping on-line for larger items, such as couches, mattresses and large-screen TVs.
CLDA Past President Kirk Godby describes CLDA members as the perfect solution to partner with LTL carriers and other national shippers to handle these on-demand and same-day deliveries. “As companies continue to want to deliver things cheaper and faster...we have the drivers, equipment, technology and expertise already in place to handle that last mile for shippers and LTL carriers,” Godby said.
LOGISTICS INDUSTRY FACES PARADIGM SHIFT
The courier and logistics industry continues to struggle with this paradigm shift. While last mile is becoming the predominant need in on demand delivery service, LTLs are turning more and more to develop partnerships with regional and local carriers to manage the last mile, including white glove delivery and setup.
Adds Godby: “The explosion of e-commerce has escalated demands for local shipments to businesses and residences. ... That’s right in the wheelhouse for CLDA members.”
Aside from having more small deliveries on a route, rather than a strict dock-to-dock delivery schedule, LTLs and regional carriers now need to adopt more administrative tasks to schedule the deliveries at the correct time (when someone is home to receive it), and manage routes and damage claims.
At the moment, there are not many opportunities where shippers, many of whom are following the Amazon free-delivery model or charging a modest delivery fee, are recovering the fees needed to deliver this business profitably.
How you answer the question of last mile depends on the company, and what type of business you operate, and most every company has a different answer. As conference keynote speaker James L. Welch, CEO of YRC Worldwide Inc. said, companies need to “Be true to thyself” in determining if this is the right kind of business to pursue.
For young companies that haven’t had the time to develop a real foundation in any particular vertical market, last mile could be a great opportunity to position their businesses in a high-demand portion of the industry.
Likewise, larger companies that have a solid foundation in a number of verticals, with the resources, equipment and dollars to be able to jump on the final mile bandwagon, could see significant benefit from last mile as an added portion of their business. While those in the middle — traditional courier companies with a strong B2B base — may be less inclined to go after this type of business, especially as the cost of doing business may not be recaptured due to the delivery price being charged.
TOP REGULATORY CONCERNS IMPACTING LOGISTICS INDUSTRY
Misclassification of Workers & Independent Contractors
The customized logistics and delivery industry is keeping a close eye on rulings impacting big players in the last mile and gig economy such as Amazon, Fed Ex, Uber and Lyft.
A recent ruling in Massachusetts regarding Uber’s use of independent contractors was a topic of discussion at the CLDA conference. The company announced that it had reached a preliminary agreement with the plaintiffs in the Massachusetts case, filing a 153-page proposed settlement agreement. Outlining the terms of the deal, plaintiffs and their attorneys would receive a guaranteed payment of $84 million with the promise of an additional $16 million provided the company’s valuation continues to grow through an initial public offering. The nonmonetary portion of the agreement will require Uber to alter some of its business practices in such a way that workers are treated more like employees, such as having the right to challenge termination, but still remain classified as independent contractors. Uber settled a class action lawsuit regarding misclassification of employees in California for $250 million.
The laws surrounding proper independent contractor classification are confusing and often vague. Focusing on the impact of the latest Uber lawsuit on businesses that use independent contractors and what actions companies can take to protect themselves from IC misclassification risks will provide companies relying on independent contractors more clarity to stay in compliance.
Food Safety Modernization Act
The Food and Drug Administration’s new rules on sanitary transportation of human and animal food products have third-party logistics providers concerned about liability. The new regulations introduced as part of Food Safety Modernization Act (FSMA) require food processors, farms, distributors, brokers and transportation companies to comply with strict safety standards to address foodborne illness, protect American consumers from unsafe imported food, biotechnology and nutrition labels.
The regulations are intended to prevent practices that put the safety of food at risk, such as inadequate refrigeration or cleaning of vehicles. With the rules defining brokers as shippers, many 3PLs may soon become responsible for requirements tied to equipment, training and record keeping — all things they haven’t been accountable for in the past.
Food and beverage transportation specialists already are operating with many of these sanitation requirements, such as vehicle preparation, product handling, transit temperature and maintaining proper paperwork. When managing food shipments, it will become even more important for 3PLs and shippers to work with carriers who know the industry, products and rules to which they are held accountable.
Federal Motor Carrier Safety Administration
The Federal Motor Carrier Safety Administration approved a new rule requiring truckers to electronically record their hours behind the wheel. Rather than logging hours manually, transportation service providers will be required to install an onboard electronic logging device (ELD) which tracks a driver’s Hours of Service (HOS) and Record of Duty Status (RDS) under the new government rule aimed at enforcing regulations designed to prevent fatigue. Electronic logging devices automatically record driving time by monitoring engine hours, vehicle movement, miles driven, and location information.
Companies have two years to begin using the devices. The rule permits the use of smart phones and other wireless devices for recording driving hours so long as they satisfy technical specifications and are approved by the agency.
MOST EXCITING DEVELOPMENTS IN COURIER & LOGISTICS INDUSTRY
Last year, talk of drone delivery, self-driving cars and 3D printers were the predominant developments that are likely to have far-reaching impact on the courier and logistics industry.
This year, Hyperloop One, the supersonic transport system proposed by tech billionaire Elon Musk, conducted its first open-air test in North Las Vegas while the CLDA conference was in town. The test, in a sled accelerated to 116 mph (187km/h) in 1.1 seconds, was an early step toward building a new kind of high-speed transportation.
The open-air propulsion system would be used to transport people and items in a frictionless environment. Once completed, the Hyperloop would fly along at 400 miles per hour, or a 30-minute commute between L.A. and San Francisco.
“Hyperloop has the potential to solve many of today’s most complex long-distance transport issues,” developers said.