“So, you’re like the Uber for Couriers?
I’ll explain why Passel is different from any type of courier, why we have a sustainable business model that can scale, why we’re part of the sharing economy, not the gig economy and last but not least, how our business model can support the local community.
What is meant by “uber for couriers”?
Commonly referred to as “crowd-sourced” couriers, these businesses rely on a network of on-demand people who activate an app and then either are allocated or bid for deliveries. Drivers expect to make a level of income commensurate with a courier while they are working.
The pitch from the founders usually includes “we’re not freight guys, but think we can do it better”. The theory is that, by not having to hire drivers or engage sub-contractors, and by throwing an algorithm at the problem, the “Uber for Couriers” can avoid the costs and complexity associated with managing a fleet and therefore offer a better service for less.
Shyp and UberRush were two of the bigger examples of this model that differs very little from traditional couriers. Most couriers, especially in Australia, are sub-contractors, or similar, already.
Traditional courier companies may not have started with an app, but they all employ various levels of technology including mobile apps, GPS, live routing and real-time delivery data. All courier companies have augmented their despatch officers with technology for many years, dating right back to 2-way radios, maps on the wall and early GPRS technology. If you then add some brilliant people with an excellent awareness of how couriers and traffic work, and you get quite a good solution.
The courier industry is not the taxi industry.
One of the fundamental challenges in attempting to disrupt the courier industry is that it has been continually evolving already, and is not a lazy market full of industry-dominant companies making fat margins or excessive overheads and inefficiencies.
If you talk to anyone who spends more than $100 a week on couriers, they will be able to show you a pile of business cards and competitive quotes from any number of local courier companies. In my previous role at Myfreight, I would receive at least two calls a week from local couriers interested in securing our business, and all would guarantee to be both cheaper and better than the incumbent.
Logistics can’t scale the same way software can.
The second fundamental challenge in disrupting freight companies is that we work in an industry that involves moving physical items. To deliver one parcel requires one driver. To simultaneously achieve two deliveries to two different locations requires two drivers. While it is possible to optimise routing (for example, UPS drivers don’t turn left), if one driver is to complete two deliveries, they must be sequential.
A million people can download an app simultaneously, but if you want a million deliveries to happen simultaneously, you need a million drivers.
The consequence of this inability to scale is that costs go up the more deliveries are completed. And in Australia, a full-time driver running their own van, would legitimately expect to earn between $200 and $300 a day. If you have enough deliveries to keep two drivers busy, you need to spend $400 to $600 a day.
This doesn’t apply to distribution businesses, of course. When a driver has 4 hours to deliver 20 items, or 10 hours to deliver 300, the run can be optimised, and the driver’s effectiveness increased.
We’re talking about on-demand, point to point deliveries.
The gig economy is heating up.
The challenge for the Uber for Couriers model is that they are competing for drivers in the gig economy against traditional courier companies who will guarantee a driver’s income, against Uber/GoCatch/Lyft where the cargo gets into and out of the car themselves and also UberEats, Foodora, etc. who pay their drivers very well and only require short trips.
The timing of Uber’s closure of UberRush is also interesting. It is anticipated that Uber will IPO in 2019. Or 2020. Or 2021. Regardless, the business now has to focus no losing less money and building a business that will scale profitably at some time in the future. It is obvious that UberRush does not fit this plan. Worldwide, hundreds of startups followed UberRush into the courier market using a business model that is not sustainable and perhaps will never be profitable.
Another challenge faced by all courier companies is stringing together jobs to optimise driver income. A delivery from Point A to Point B is excellent. It’s even better if the next job is a pickup from Point B, or close by. If that’s not the case, then there is dead time for the driver while they head to the next pickup. Traditional courier companies are extremely good at minimising this downtime, and their focus on industrial clients ensures deliveries are often between areas where they have customers.
Since this article was written, we have also seen a shift in government attitudes to the gig economy, with various jurisdictions classifying Uber and Hermes drivers as sub-contractors or employees rather than self-employed people. This will push costs up, and reduce the “competitive advantage” enjoyed by companies who don’t take due care of their labour.
The uber for couriers companies tend to focus on SME’s and to a lesser extent, retail, which means deliveries tend to be to areas in which the driver is unlikely to gain a pickup. If the Uber for Couriers company isn’t compensating the driver for that dead time to the next job, the driver is going to start looking at alternative sources of income.
This leads us to part of the attraction for drivers in the Uber for Courier model. They aren’t beholden to a single source of income and can quickly switch to another App and see what jobs are available. The downside for the company is that, in a volatile supply and demand environment, they risk finding themselves without drivers in the event of a spike in job requests.
I’ll be interested to see how Mystro fairs. Currently, it only allows drivers to optimise Uber and Lyft, but if they get that working correctly, it will soon be disrupting the on-demand courier and food delivery companies as well.
So, why isn’t Passel an “Uber for Couriers”?
We used to refer to Passel as a “genuine crowd-sourced solution. We don’t do that anymore. We learned that people either didn’t understand what that meant, or assumed it meant Uber.
We now call Passel a service where shoppers deliver to shoppers. Because that’s what we are!
We call our registered members Passers. Passers are people who either work in retail shopping centres, are likely to visit their local shopping centre or like the idea of picking up an extra $10 now and then.
When presented with the opportunity, they’ll make a delivery on their way home in exchange for a $10 reward – either a gift voucher or a bank transfer. Every person heading home from the shops possesses an excess capacity that is under-utilised. Passel is helping people take advantage of that.
We’re part of the sharing economy, not the gig economy.
Why is this model effective, and how do we avoid some of the pitfalls of the Uber for Couriers model?
1) Our Passers aren’t drivers working shifts. They do not expect to earn an income. This keeps the cost down, however, they are still fairly compensated for a small inconvenience. $10 is plenty of incentive to make a quick detour on the way home.
2) We don’t compete for drivers against Uber, UberEats, etc. This results in reduced cost, and we don’t suffer from reduced availability of Passers, especially at peak times such as lunch and dinner.
3) Passers are regular people, not couriers and this results in a more delightful delivery experience for both the sender and the receiver. Our Passers aren’t in a rush or on the clock. This single delivery means something to them, and they don’t have to drop and dash off to the next pick up.
4) We are not vulnerable to seasonal supply and demand challenges. In fact, the busier our retail customers, the better we perform. Picture a shopping centre the week before Christmas or the day before Mothers Day, and you get the idea.
5) The target market for Passers is women, so with each pickup, we bring an extra potential purchaser into our customers’ store. This is yet another benefit to the retailers. When was the last time a courier bought something?
An extension to point 5 is our focus on hyperlocal deliveries. One of our goals is to support local retailers, precincts and shopping centres. These are locales that have been largely bypassed in the rush to online retail. By partnering with retailers who have stores spread in the suburbs and regional areas, we hope to play a small part in encouraging them to maintain their presence and continue to employ people on a local level.
Genuine crowdsourcing isn’t easy!
None of this is to say that Passel is not without its challenges! Currently, our average delivery time from booking is 2 hours and 8 minutes, and we want to get that down to 90 minutes. The best way to fix that is to encourage more people to become Passers.
We don’t carry alcohol, tobacco, firearms or food, which reduces our potential market. We have to ensure our Passers are continually engaged, or they’ll delete the app! It is not possible to have a genuine crowdsourced business without a decent-sized crowd. 50% of Australian retailers can’t yet ship from store.
I think these are great, big, hairy and fun challenges to overcome, and we are well on the way to proving we can do it.
But, sometimes, I think our biggest challenge is the statement:
“So, you’re like the Uber for Couriers.”
Hopefully, this article has answered that!
Updated 6/7/18 – new tagline, update on Hermes and Uber, delivering on trams!