The inception of companies like UberEats, Amazon, and Deliveroo in the past couple of decades, presented a fresh opportunity to many blue-collar (and some white-collar) workers: becoming delivery drivers. While the concept of doorstep delivery has existed for a while, the advent of the digital era has turned it into a lucrative business.
Earlier, deliveries used to take a lot of time and were costly. After these companies came about, delivery time reduced, and the product was reasonably priced (due to heavy initial discounts for new firms or economies of scale like Amazon).
Unfortunately, today, the market for riders has become oversaturated. How did this process innovation lead to an excessive supply of drivers? What other factors are impacting the last-mile delivery of products?
These are the reasons for the oversupply of delivery drivers in the market.
Crowdsourcing deliveries initially turned out to be a brilliant strategy for firms. In many countries, there was an abundance of people who were able and willing to work. By hiring these local (but non-professional) individuals on a non-permanent basis to conduct deliveries, firms could reduce costs while catering to larger markets.
Due to technological improvements, companies could have accurate GPS tracking of riders and advanced data analytics of their performance. Today, the market has gathered too many riders without utilizing them in the right manner. The prevalent reasons are:
COVID-19 Boom and Consequent Slump
During the pandemic, most people were trapped inside their homes. The need to try out new cuisines and purchase various products became more of a necessity than a once-in-a blue moon activity for many. As a result, delivery apps started gaining significance by bridging the (road) gap between buyers and sellers.
As the situation normalized and people started heading back to work, the demand gradually decreased. But the number of delivery riders that had been hired remained the same. Many had turned this into full-time jobs, but when market demand died down, they were left stuck in the same field.
Low Barriers to Entry for Delivery Drivers
Gig economy work demands a low skillset for employment. The delivery industry has limited barriers to entry, making it easier for large groups of people to apply. Additionally, the high initial pay that came about from COVID-19 made it more appealing, with the added benefit of having a flexible schedule. It is also noticeable that many drivers in developed countries had an immigrant background with limited access to resources and saw this as a chance to earn money.
Too Many Service Providers
To forego a business opportunity like this would be a major mistake in the eyes of an entrepreneur. One after the other, many startups were founded and crushed in the hopes of creating the next big delivery service. Some eventually succeeded, and their primary focus was on catering to as large a number of clients as possible. Hence, they frequently onboarded riders, even when the demand in some areas did not match the supply of riders. Each rider took this positively and registered on as many platforms as they could.
Shifts in Demand
Demand for goods through parcels is generally restricted to certain times. For food deliveries, it will be the lunch and dinner rush that accounts for most orders. For product deliveries, it will be either late at night or weekends, which account for most orders. The fall in demand is observed in off-peak times where many riders have to deadhead, where they roam around while waiting for more orders to come through.
The seasonal effects on consumer behavior during various events and the holiday season can alter demand. While this increase is only temporary, firms hire more riders to compensate for the surge in demand. Once it normalizes, the supply of workers remains the same, but demand no longer matches it.
