Delivery facing rapid change and growing demand in crowded metro areas

ford-transit-connect-vanDelivery is seeing a fast-changing environment, from packages to food. Delivery vans and small, high mileage cars (especially hybrids) are passing through a paradigm shift in who owns the vehicles and how they’re being used. While the U.S. won’t be switching over to delivery bikes and three-wheelers, commonly used in crowded Asian and European cities with narrow streets, competition for leadership in delivery services is getting fierce.

Some of this drive is coming from Amazon and Google taking on UPS and FedEx. The U.S. Postal Service is undergoing its own change. On the food side, the classic pizza delivery model is being taken over by app-based alternatives like UberEats, Postmates, and GrubHub. Companies entering the space also point to the state of fast-growing cities squeezed with bigger buildings, more cars and pedestrians, and less parking spaces. Delivery companies need to have smaller, nimble, and quick vehicles to meet surging demand. Younger consumers are getting spoiled by services like Uber and Lyft, where you can tap your phone and have a car in front of your place in less than 10 minutes. Older generations are tapping into these convenient services as well, in this new age of the on-demand economy.

Demand for quick delivery is driving change, along with the challenge of driving and parking in crowded city streets. Some of the carriers also support sustainability, removing vehicles from roads and switching over to alternative energy sources for their vehicles. UPS and FedEx have led the way here. Independent contractors delivering restaurant meals and fast food are preferring to drive a Toyota Prius or a small gas-engine car to keep costs contained.

The Ford Transit Connect van (as shown in the photo above) has been a hot commodity for deliveries. The 2017 model has an EPA-estimated rating of 29 highway mpg when equipped with the available 1.6L EcoBoost I-4 engine. It has substantial storage capacity for such a small vehicle – with 103.0 cubic feet of storage capacity designed for easy maneuvering and parking on tight city streets. The Azure electric Transit Connect van left the market in 2012 and doesn’t appear to be coming back. The other increasingly popular model for urban deliveries has been Mercedes-Benz’s Sprinter utility van. The next-gen edition may get an all-electric powertrain, according to the Detroit Bureau. The automaker is designing the vehicles with both batteries and autonomous-driving features; these features will be available as soon as 2018, the publication reported.

The federal postal service, which was originally created in 1775, took on another form in 1971 when it was transformed into the U.S. Postal Service as an agency of the U.S. government. Within that decade, rival carrier UPS would experience substantial growth in the U.S. and overseas and Federal Express had its first profitable years.

A few years back, USPS was outsourcing a lot of its package delivery to UPS. That started to change recently, especially with the promotion of postmaster general Megan Brennan last year. Under Brennan, USPS has ramped up same-day delivery in order to compete with rivals FedEx, UPS, and Amazon for the growing share of packages with tight delivery schedules. During this time, USPS made a deal with Amazon.com to deliver groceries in selected cities for Amazon when the online retailer wasn’t able to meet that demand.

Amazon is investing heavily to compete with UPS and FedEx in same-day deliveries. Amazon is trying out a few new services including Amazon Prime package deliveries and Amazon Fresh food delivery. Amazon Flex and Middle Mile Providers have recently started up in a few U.S. cities. If you ever see a white Ford Transit Connect with an Amazon logo, that van will be delivering goods through one of the new services.

Dave Clark, senior vice president of worldwide operations and customer service for Amazon, commented on Amazon Flex at an industry conference last year. Amazon Flex is an app-based delivery platform that “enables people to be their own bosses while earning $25 or more an hour,” making Amazon Prime Now deliveries, he said. Drivers will use their own car and smartphone, similar to other popular delivery and ride-hailing services on the market. Amazon is usually promoting an offer for customers that includes free two-hour deliveries. The claim of paying drivers up to $25 an hour sounds quite optimistic, since drivers at other mobility services are typically making $10 to $15 an hour.

With Middle Mile Providers, fleet owners with carrier licenses through the U.S. Department of Transportation will be able haul loads for Amazon. Drivers must be employees of the delivery provider and will likely be required to carry commercial driver’s licenses. They need to drive a cargo van or similar vehicle with at least 200 cubic feet of volume. It appears to be in startup phase with job openings listed in Seattle for a division called Middle Mile Logistics Technology.

In June, Amazon launched a British version of its AmazonFresh food delivery service to break into the UK grocery market. AmazonFresh has previously been deployed in a few U.S. markets, too.

UberEats is counting on the food delivery service being worth the investment. Started in test mode about two years ago, it became its own mobile app in the spring of this year. Uber launched food delivery in Chicago, Houston, Los Angeles, and San Francisco earlier this year. The initial launch was in Toronto; other growth markets include Atlanta, Austin, Dallas, Melbourne, New York, Paris, Seattle, and Washington, D.C. After trying it out as part of the Uber experience, the company realized that didn’t make sense, with both of these experiences being separate from each other; they needed their own brand names and separate mobile apps.

Self-employed drivers are asked to gather in select parking lots for UberEats and pickup packaged orders for the day from partner food services. They’ll deliver lunch or dinner to workplaces or homes in the vicinity. That differs from other food delivery services where the driver will be picking up food orders directly from the vendors and delivering them to the customers.

Food delivery has been taking off like a rocket trajectory over the past year in transactions. Making the business profitable and finding the right financial backing has been tough. Bloomberg reported a story last week about on-demand meal delivery service Caviar’s parent company trying to sell it off and find better partners in food delivery. Payment processing company Square reportedly tried to unload Caviar early this year. Square reportedly had discussions with Uber, Grubhub, and Yelp between late last year and the start of 2016, but disagreements on pricing ended the talks. With Square backing away, startup Caviar is in a tough position in a very competitive market.

UK’s Deliveroo was funded about £250 million ($306 million) earlier this year, and Berlin-based Delivery Hero was rumored to be lining up an IPO, according to VentureBeat. In the U.S. GrubHub, DoorDash, and Postmates have grabbed a lot of attention; Uber and Lyft riders are known for tapping into these delivery services and tend to look for special discount promotions on meals. Private equity funds are coming in for these food delivery companies, but they haven’t been perceived yet as hot commodity investment opportunities like Uber has been able to win over. Postmates is working hard to be seen as unique in the marketplace – the only delivery service out there that will pick up orders from anywhere that the customer requests – a restaurant, donut shop, BevMo! liquor store, grocery store, 7-Eleven, or some other business.

The business model for food delivery companies was borrowed from Uber and Lyft, with a similar mobile app; driving directions and alliances with Waze and Google Maps; it’s all right there on the phone for customers, from ordering to paying; there are special offers with local and chain restaurants, juice bars, coffeehouses, and fast food stores; and all the drivers are independent contractors passing basic vehicle and driving record checks.

Google has been getting ready to take on Amazon Prime for a leading position in fast, on-demand deliveries and has backed away from food delivery. Brian Elliott, general manager of Google Express, told Business Insider that the company plans to spread its coverage from about 20 states and regions to the entire country by the end of the year. To get there, Google Express decided to close down part of its grocery business and stop selling perishables; these were pilot projects started earlier this year in parts of San Francisco and Los Angeles.

Fast delivery is becoming more important for firms to retain their market presence. Amazon was getting a lot more searches and orders placed on a wide variety of products like bottled water and flat screen TVs. Google Express was a way for Google to reinstate itself as the go-to choice for product searches, and to make it easier for people to purchase the goods they’d searched for.

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