When Walmart recently announced that they planned to offer their delivery services to other businesses, some were excited, others were scratching their heads.
For years, those of us in the transportation and delivery space have been predicting that Walmart would be the retailer most likely to compete with Amazon in terms of speedy delivery and fulfilling massive demand for consumer goods. Their physical stores nationwide could serve as distribution hubs for local delivery. Instead, their recent move appears to be their answer to Amazon marketplace – as it deploys an existing capability to create a new revenue stream, while opening a new market for last mile delivery drivers and potentially helping small and local businesses better compete. On the surface, the concept is well founded in the support of local small business. From insurance, safety, and logistics perspectives, however, there are a number of unanswered questions about the model.
Playing The Blame Game
Through its Spark delivery platform, the newly announced Walmart GoLocal will provide a white-label delivery capability for local businesses - no trucks or uniforms with Walmart’s name and logo on them, no apparent direct Walmart involvement in enabling the package delivery. This will safeguard their brand from bad press associated with any poor delivery experience. The small- and medium-sized local businesses using the Walmart capabilities will be front-and-center, likely blamed for anything that goes wrong with deliveries. If you order a cake from a local bakery and it shows up late and damaged, it’s a good chance you will call the cake company, not Walmart – they only enabled the local business to offer delivery.
Small businesses could also have to sign a contract releasing Walmart of any liability, putting them on the hook for lawsuit defense and settlement costs. It’s unclear whether the partnering businesses know what they’re getting themselves into, and/or if they’ll hold the proper insurance to protect themselves, including third-party liability insurance. In the case of a major lawsuit (i.e. one involving a death of a 3rd party), all parties - Walmart, the small business, and also the driver- will likely be involved in the litigation. Who is left holding the bag however will largely depend as to the contractual nature of all parties, as well as the insurance they may or may not carry.
“Uber-ization” of Last Mile Delivery
Walmart’s Spark delivery service uses an app to engage delivery drivers, very much like Uber. All drivers work as 1099 contractors. As long as they can prove they have personal auto insurance and a working vehicle, they can become delivery drivers. This approach creates a long list of exposures and liabilities. If a serious auto accident occurs, for instance, the personal auto insurer of the driver could potentially deny the claim on the grounds of business use. Many personal auto insurers have been enlightened to the GIG economy thanks to the likes of Uber and Lyft. If and when Walmart GoLocal gains traction, one can wonder how these insurers will continue to react as a myriad claims related to delivery accidents and issues begin to roll in? Will the local business owner be left to absolve these claims? Or will Walmart arm their 1099 labor force with the type of on-dispatch auto coverage that has evolved within the Transportation Network Companies world?
With this app-based worker model, the app company cannot control their contractor drivers the same way a traditional employer does. Amazon delivery service partners (DSPs) for instance, contract with Amazon and, in turn, their drivers are W-2 employees of the DSP. Amazon now requires their DSPs to implement various fleet monitoring techniques and technologies which can have an impact on improved safety and performance metrics, which is especially important in the world of express deliveries. An app-based 1099 contractor model would have a difficult time mimicking this approach. Walmart GoLocal will have to figure out how to walk the line between ensuring safety and delivery quality as you would with employees, and the flexibility that makes 1099 contract work so appealing.
Walmart Spark’s model could also incentivize drivers to deliver more quickly by paying contractors for these on-demand deliveries by delivery or trips volume. This can encourage speeding and reckless driving, which can lead to costly, dangerous accidents and extensive liabilities. There is a reason pizza places stopped promising delivery in 30 minutes “or it’s free”. In this case, Walmart wants to enable 2-hour local delivery while using a labor force with the potential to have limited controls.
As GoLocal gets rolling nationally, Walmart would be smart to learn from Amazon’s teething-pains. Success will rely heavily on their ability to ensure contractors are incentivized to make swift, but safe, deliveries. The opportunity for small businesses to access a competitive ecommerce platform and delivery services they never would have been able to develop otherwise is exciting and promising. However, there are inherent risks and liabilities that could fall primarily to the local retailers and the app-based drivers enabling the service. It will be interesting to see how Walmart tackles these issues while staying clear of any direction and control issues the utilization of a 1099 labor pool could present.
If you would like to discuss coverage options, our experts are ready to provide recommendations, please reach out below.
Want to learn more?
Find me on LinkedIn, here.
Connect with the Risk Strategies Transportation team at transportation@risk‐strategies.com.
Email me directly at bpaulozzi@risk‐strategies.com.
The contents of this article are for general informational purposes only and Risk Strategies Company makes no representation or warranty of any kind, express or implied, regarding the accuracy or completeness of any information contained herein. Any recommendations contained herein are intended to provide insight based on currently available information for consideration and should be vetted against applicable legal and business needs before application to a specific client.