Before COVID-19 struck, same-day last-mile shipping was already the fastest-growing segment of transportation. Thanks to the pandemic, demand has exploded for traditional next-day parcel carriers and on-demand delivery companies alike – and it’s only going to get busier as we approach the holidays and peak season.

How to Choose an On-Demand Delivery Provider

Increased home delivery demand

Millions of consumers are sheltering in place, working from home, and turning to online shopping for weekly staples like groceries, dry goods and home supplies – things they’d normally buy in-person at Walmart or Safeway.

The impact on parcel and package firms has been intense. Home delivery volumes skyrocketed almost overnight while business-to-business volume has cratered. Parcel and courier providers have been slammed, overwhelming capacity in their fixed-asset networks.

By the end of March, residential home deliveries ballooned to 70% of UPS’s volume, according to comments from UPS executives in the company’s first-quarter earnings call. At FedEx, a similar market dynamic occurred, straining capacity and service levels of both FedEx’s express delivery network and its ground business. As people have continued to rely on home delivery through the second quarter, UPS’s average U.S. volume climbed 23% from a year earlier, and FedEx U.S. ground deliveries jumped 20%.

It’s a surge that continues through the remainder 2020 with no end in sight. Last-mile residential deliveries are among the most costly and difficult to handle. Parcel carriers are responding by implementing “peak” surcharges for various shippers and types of shipments. Without them, the economics of the traditional hub-and-spoke model simply can’t support the heavy residential focus, especially at scale.

Parcel carriers respond with higher prices

With these difficult challenges, traditional carriers responded with new surcharges and stricter package guidelines. On May 31, UPS implemented a 30 cents per package surcharge on ground residential and SurePost deliveries. The surcharge kicked in for shippers whose weekly volume was 25,000 packages or more than the shipper’s February average. UPS also added a large parcel surcharge of $31.45 per shipment – applying to shipments with a length of more than 96 inches or length plus girth over 130 inches.

On June 8, FedEx instituted peak surcharges for FedEx SmartPost packages (a contract-only service) of 40 cents per package. It also implemented peak residential delivery and oversize shipment charges of 30 cents and $30.00, respectively, per Express or Ground shipments. FedEx’s peak surcharges applied to high-volume shippers who do 40,000 or more in combined Express and Ground shipments per week and exceeded 120 percent of their average weekly volume in February.

For peak season, the surcharges will escalate. Some shippers could see as much as $4 per package from UPS and FedEx has already boosted additional surcharges on some international routes. And with neither carrier committing to increasing capacity, there will be plenty of people looking to alternatives to get their things delivered.

A better way to handle unexpected peaks

The pandemic has re-exposed and highlighted two well-known weaknesses in the supply chain.

First, companies normally forecast peak surcharge pricing based on seasonality. But when disruptive events drive unexpected spikes in demand, those predictions are useless. Second, and even more problematic, the fixed-asset hub-and-spoke systems of the traditional parcel, courier and trucking operations can’t scale when surges overcome them. Unfortunately for shippers, the remedy for both problems is the same: increase prices.

On-demand delivery systems are changing that. With crowdsourced home delivery, the latent capacity of the network is always available and can be activated as needed to meet demand.

As evidence of on-demand’s pricing stability, Roadie has continued to hold the line on pricing for same-day last-mile delivery – despite a 10x surge in volumes. Likewise, no size and weight surcharges have been instituted as seen with couriers, parcel carriers and ride-share operators.

Crowdsourcing is enabling flexibility during peak as well as cost-control; our network of 150,000+ vetted drivers covers some 13,000 cities and towns representing 89% of U.S. households. And it’s all built on a reliable, robust, mobile-app-based technology platform.

Think of on-demand delivery as a way to deploy just-in-time delivery capacity within days or even hours to manage peak demand – without surcharges.  And that capacity can be scaled back just as quickly as volumes return to normal.