FedEx and UPS Compete With the USPS for Last-Mile Delivery

(This article was originally written by Jennifer McKevitt for Supply Chain Dive).

  • UPS and FedEx will soon offer a Zone 1 option for packages that have previously been diverted to the U.S. Postal Service for last mile delivery, DC Velocity reported last week.
  • The move is driven by the increasing flow of e-commerce goods, which the big two delivery services formerly believed demanded more in travel costs than they were worth. 
  • Both companies have since recalibrated their service offerings to include Zone 1, or local delivery, intending to recoup revenue formerly shared with USPS. In turn, the parcel carriers are investing more heavily in urban and automated distribution hubs.

Last-mile delivery is an ongoing logistics puzzle as delivery companies continue to struggle with how best to manage the growing e-commerce-fueled market. 

That UPS and FedEx are moving to fully handle their own e-commerce deliveries rather than rely on USPS' network shows they expect revenues from high volumes to finally outpace costs. In large part, that's because more than before, consumers appear to be willing to pay for convenience. A recent survey by McKinsey found that while 70% of the e-ecommerce market is satisfied with the cheapest form of delivery, 23% are willing to pay extra for same-day delivery and another 5% would pay more for a guaranteed time of delivery.

Yet, many of the costs associated with last-mile delivery come from missed deliveries, inefficient routes, and the challenge of meeting high consumer expectations. USPS' need to run local routes meant such challenges were but marginal costs for the carrier. To compete, UPS and FedEx have sought to improve efficiency at sorting facilities, explore cheaper last-mile delivery options (such as bikes), or create in-store pickup programs to ensure package safety and reduce missed deliveries. 

Overall, addressing this final challenge appears to be within the wheelhouse of both UPS and FedEx, and is an important step to the carriers' transition to boost profits from e-commerce.