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The pandemic and major geopolitical shifts continue to wreak havoc on the supply chain from top to bottom. Companies in the last-mile space are still struggling to keep up with increased e-commerce customer demand, with lack of labor a continued challenge. The driver shortage is spreading companies thin, opening the door to corner cutting that can redound as higher insurance premiums due to increased risk. Simultaneously, driver retention rates are plummeting, raising the question—what are UPS and the United States Postal Service (USPS) doing differently that enables them to keep drivers long-term?
Labor Retention Issues
As in so many industries, COVID-19 amplified already-existing labor issues in last mile delivery. Many drivers lack good pay, benefits, or other rewards essential for retention and a sense of career growth. For a business model focused on chasing a quick dollar, cheap labor is the cost to keep the machine running. Insulated from the fray, companies like Amazon continue to thrive even as massive turnover rates place new and inexperienced drivers behind the wheel and increase the risk of accidents and other hazards.
Insurance companies offering commercial auto coverage have taken notice. Thoroughly scrutinizing drivers to create base rates and overall premiums for delivery service partner (DSP) companies, they debit and credit based on the average MVR (Motor Vehicle Report), an employee’s driving history provided to the state’s DMV. In this way, companies continuing to curb costs by hiring unskilled drivers will continue to drive rising commercial auto premiums not only for themselves, but industry wide.
The Amazon/Uber Model Creates Hidden Costs
Idling along under the cheap-labor issue is another unsustainable system that many companies model themselves after, hobbling their business and the economy in general – free shipping and so-called gig work.
Customers now expect free, two-day-or-less delivery via services like Amazon. But the true consequence of this is found in market manipulation, which raises the overall cost of goods and redirects the extra expense to the sellers, distributors and unknowing customer.
While labor has always been the backbone of the transportation industry, the Uber-ization of workers - engaging them as independent contractors rather than actual employees - allows companies to save money on things like benefits while off-loading liability. With no real connection or commitment to its workforce businesses wedded to this model are actually exacerbating their labor retention issues and ultimately creating more costs for themselves.
Putting Labor First for Long Term Success
Instead of signing on to a self-destructive delivery model, last-mile specialist should consider what is working for successful companies like UPS and the USPS.
Both the brown truck and our nationalized mail service have driver employee roles that feature room for growth, reliable scheduling, regular bonuses, health care and numerous other benefits. Rigorous procedures and thorough safety measures also help these operations continue flourishing. Their success is a strong indicator that a business model putting drivers first may be a key part of the answer to the labor shortage hurting the rest of the industry.
A Labor Solution is an Economy Solution
Last mile delivery as conducted today is driven by customer expectations and seller offerings. This dynamic tends to create a delivery system with ever-changing routes serviced by a rotating cast of drivers. The USPS and UPS, however, meet that demand with optimized routes and dedicated drivers, eliminating randomization, route unfamiliarity, and related hazards. DSPs and others third party logistics (3PL) companies must couple better delivery planning practices with better hiring practices— more experienced drivers lower risk, resulting in lower insurance premiums for the organizations and while making roads safer.
Last-mile delivery is labor-driven. With demand likely to remain high, DSP and 3PL companies would be best served to map a route to a business model that invests in practices that increase retention of quality drivers and reduce routing chaos. Maintaining a stable labor force that can have long-lasting careers in the last-mile space will ultimately result in a stronger, lower cost, more effective industry, helping our economy
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Connect with the Risk Strategies Transportation team at transportation@risk‐strategies.com.
Email me directly at bice@risk‐strategies.com.