How Uber could disrupt Fedex

Fedex has dismissed the possibility of its business being disrupted by the likes of Uber. But, writes Richard Hui of WarrantyLife.com, he should think again.

Uber may be dipping its toes into the estimated $80 billion local U.S. delivery market, according to a recent TechCrunch report. But the CEO of FedEx, Fred Smith, has said he doesn’t see the fast-growing startup as a threat. Smith makes some great points in explaining his stance, but I think he should rethink.

What is Uber doing?

Uber is piloting same-day delivery services in local markets with high-end merchants (think Neiman Marcus and Louis Vuitton) after previously testing and then shuttering an on-demand delivery service for low-end household products.

High-end retailers that have more margin to work with can afford to embed value-added services into the sale. With basic local rates ranging from $4 – $14 depending on speed and size of the package, light, small, high-value deliveries make a good entry point.

Smith points out that same-day delivery is nothing new, so FedEx need not worry. He also comments that e-commerce shopping is done mostly in the evening when people are home from work and as such supports long-distance ordering.

This is a fair assumption, however, as local area retailers need to compete, they will have to find ways to differentiate themselves and this is what Uber is counting on.

For example, someone home after work may want to order an item that gets delivered that evening, and that could be an interesting service feature for local merchants. Or parents may want to use their phone to order items while at their kids’ activities and have that order waiting for them at home.

Scheduling goods to arrive at certain times would certainly enhance the delivery experience and is something UPS, FedEx, and other similar services don’t yet do and would likely find difficult to organize given their current approach.

And to Smith’s point, if people are at work and not home to receive shipments from UPS or FedEx, how does that make the system any better for the customer?

It seems Uber has the leg up here.

As retail evolves, so do Uber’s fortunes

As retail struggles to find an identity amongst rapidly changing technology and consumer buying habits, it will be difficult to know where things will end up. Will Uber play a niche role or become a mainstream delivery service? Much of that can depend on how local retail adapts to the online/mobile market.

As an example, Best Buy in Canada is moving to a model where local stores are becoming distribution centers to compete with online competitors, which is a potential fit for the Uber local delivery service. Best Buy is also opening up its locations to allow Marketplace type suppliers to stock inventory in its locations for shipping, pick up and returns.

At the same time, Walmart is consolidating product into larger warehouses to upgrade its efficiency in shipping.

Clearly things are in flux.

What will be difficult to dislodge for Uber is the efficiency of the distance shipping the large carriers can provide. Consolidated warehouses that are strategically placed to deliver fast (not same day) shipping power most of deliveries today and remain a cost effective way to do things in today’s market dynamic.

Uber can’t match that now, and as long as that is the case, incumbent carriers will hold the advantage of servicing that market and take in the majority of business.

However, if speed plays a factor in retail, much like how the speed of a website, smartphone, or laptop can affect our satisfaction, then faster same-day delivery is a standard people will want.

Those that can produce that result efficiently at a competitive price will win the day.

Tipping the scale

Carriers should watch closely as companies like Uber experiment with a localized model that lowers shipping costs and improves delivery time using real time, data driven technology to enhance the service.

If revenue shifts away from long distance, it becomes more difficult for FedEx and UPS to maintain infrastructure if it isn’t being supported in the volume being enjoyed today.

Not investing in local delivery or experimenting with it could hurt the large carriers in the long run. Carriers need to pay attention and look how they can change and compete with the new way. Burdened with a traditional way of thinking and existing infrastructure, it will be challenging to evolve against newer players.

Future expansion areas?

Beyond what Uber is doing today, where could it go next? Commercial trucks hauling goods oftentimes aren’t full or are in a system that provides jobs on demand, a perfect fit for Uber. Ships and airplanes could be additional areas with extra space that could be used to carry cargo. If Uber gets the last mile delivery worked out, perhaps it can figure out the in-between, or invest in infrastructure that can cover the gaps.

With the model Uber has, it is in a unique position to enter into these established markets in a disruptive way. Localized delivery is a step in that direction and a piece of the puzzle Uber needs to put in place to one day go after the carrier business.

* Richard Hui is CEO of WarrantyLife.com. He previously started three profitable retail businesses and has been involved in several other startups throughout his career.