UPS Buys Way into Last Mile with Roadie

UPS announced it was acquiring last mile platform Roadie for an undisclosed sum, thrusting it front and center into a space that has spiked in the pandemic era, providing a way to service demand that doesn’t fit into its existing network, including groceries and bulky items.

The carrier had invested in Roadie in 2016. The deal is expected to close in the fourth quarter.

Analysts and observers didn’t see FedEx responding anytime soon to the move, especially as it downplayed its smallish same-day delivery service as more of a niche offering on a recent earning call.

John Haber, President of Parcel for Transportation Insight, said Amazon “won’t bat an eyelash” over the UPS move. He also said adding Roadie provides the carrier with extra peak capacity.

“The acquisition puts UPS in the same-day delivery market against DoorDash and Instacart, both of whom have expanded delivery services to a wider variety of retailers, as well as Target’s Shipt subsidiary,” Haber said.

“UPS customers, including large enterprises, are increasingly looking for local same-day delivery solutions for goods of all types, not traditional packages,” UPS said in a statement. “Roadie often provides service for shipments not compatible with the UPS network because of their size and perishable nature, and often because they are in shopping bags without the packaging required to move through the UPS system.”

Atlanta-based Roadie, which claims a network of 200,000 independent contractor drivers, was founded in 2014 by CEO Marc Gorlin, who was looking for an on-the-way delivery for a home improvement project. Major customers include Atlanta natives Delta Airlines (for delivering lost baggage), Tractor Supply and Home Depot, Bed Bath & Beyond and crafting retailer Michael’s.

UPS said Roadie will maintain its brand, team and operations, adding Roadie packages will not cross into the UPS network and vice versa.

Dean Maciuba, managing partner of Last Mile Experts, said UPS was looking to use Roadie as a kind of lab to examine in detail if it made sense to enter same-day, on-demand delivery in a big way.

“If anything, I don’t think it has any immediate effect on UPS, positive or negative,” Maciuba said. “I think they bought them to totally evaluate the opportunity for on-demand delivery. Now instead of being on the outside looking in, they can see if they should get into it in a big way. It gives them the opportunity to get the data and make the right decision.”

If on-demand, forward stocking and micro-fulfillment centers (MFCs) really catch fire, Maciuba said, it could ultimately mean less volume and business for integrated carriers, and this is a way for UPS to “stick their toe in the water.”

“It could negatively impact their integrated biz,” he said. “But I think it’s unknown right now.”

Keeping Roadie as a separate business with separate delivery streams makes sense, Maciuba said, both operationally and to keep the Teamsters union happy. “But the Teamsters know, the era of the $42 an hour UPS driver job is gone,” he said. “To compete with everyone else, UPS will have to dramatically reduce their labor cost, and this is the first step.”

Matt Bohn, a senior analyst and team lead with Shipware, said in addition to the investment, the carrier has another Roadie connection: Nick Gershenhorn, son of former UPS chief commercial officer Alan Gershenhorn, began his career at Roadie. He also noted UPS CEO Carol Tomé spoke publicly in June about operating a “network outside of our network” for same-day delivery, as well as dropping hints of a possible acquisition.

“With Roadie, they gain insight into the industry, a network-outside-their-network and a stronger claim to a true seven-day service,” Bohn said. He added UPS SurePost is delivered seven days a week by the U.S. Postal Service, with UPS itself delivering about half the volume Monday through Saturday.

Satish Jindel, president of shipping data supplier Shipmatrix, said the deal made no sense to him, as discount parcel services like UPS SurePost and Mail Innovations and FedEx Ground Economy were the cheapest and fastest growing. He also said companies like Instacart, GrubHub and Uber Eats have a significant head start on Roadie in food delivery, although the latter is more diversified.

“How big a market is this, and what’s the purpose?” Jindel wondered. “A company like Roadie can’t be that big. This is a media and investor hype-related development that’s going on in our world, not just UPS. The marketplace is looking for what you’re doing with the gig economy and same day. What is the need for it? Other than food, there’s no need.”

Jindel also wondered about the long-term prospect of the gig driver model, with the push to make them full-time workers as California is doing with AB5.

“I could drive two hours a day for Uber and Lyft, but when I get sick, who’s paying for the sick day? My other employer with insurance is subsidizing them,” he said.

Chris Cashin, principal of Parcel Consulting, said UPS’ move may have been influenced by Walmart’s recent launch of its GoLocal delivery service, which targets a similar demographic as Roadie. He also said the acquisition won’t have much short-term impact for the Q4 peak but could gain steam in 2022.

Cashin said FedEx has been piloting same-day delivery in select markets, and may look to play this up in response to the UPS move, although its ground service in general has been struggling.

“FedEx had been a key partner of Walmart’s and was expected to win much of their store-to-door volume prior to the release of GoLocal,” he said. “As for Amazon, I expect they’ll continue to expand FBA through partnerships like BigCommerce. Until Amazon finds an alternative returns partner to the UPS Store, they’re likely to continue the relationship with UPS for outbound.”

Cashin said it was unlikely that Amazon will see a threat from the Roadie acquisition, “but that could change if Ware2Go and Roadie begin offering Prime-like services.”

Nate Skiver, founder of LPF Spend Management, said he didn’t see FedEx doing a reflexive last-mile acquisition, but down the road GoFor could make sense. “They currently have a partnership in the U.S. and Canada, with GoFor delivering a portion of the FedEx-owned ShopRunner same-day volume,” he said.

Other options could include AxleHire or The FrontDoor Collective, both of which utilize route drivers, unlike Roadie’s gig model, Skiver added.