Outsourcing the last mile: should regulation be strictly focused on the urban segment?

Because of the development of e-commerce and the reduction of shipment size, the parcel delivery sector is growing rapidly. However, faced with their client’s demands and constraints of urban cities (parking, congestion, delivery density), the parcel delivery groups have chosen to outsource their urban deliveries. This enables them to reduce payroll costs and implies economic consequences for delivery drivers. Subcontracted drivers have a high economic dependency on their principals, which can lead to a deterioration in the quality of deliveries and working conditions.

Outside the city, when urban constraints no longer apply, are the subcontractors who work in long-distance interurban freight transport less economically dependent on their principals? Pétronille Rème-Harnay questions the pertinence of the distinction between urban and interurban transport to analyze economic dependency and the scale of outsourcing regulation for decision-makers based on the French parcel market.

Taking the case of France as an example, PétronilleRème-Harnay shows that freight transport has been affected by the typical trends that have affected capitalism since the late 1980s with the growth of outsourcing and increasing demand for flexibility. Within the urban freight segment, these developments have led to the gradual replacement of employees by subcontractors. They have had several adverse consequences, especially at the level of working conditions. But this subcontracting to reduce costs is combined with another type peculiar to long-distance transport and reflects how transport firms organize their journeys spatially and temporally.

In principle, there is a contrast between the two types of subcontracting, one urban and the other specific to inter-urban transport. This suggests restricting decisions on transport regulation to an urban scale. However, PétronilleRème-Harnay shows that this distinction is often questionable. Indeed, many variables, when combined, lead to an increase in a subcontractor’s economic dependence on its principal. Only an analysis that takes account of the complex interplay between urban and inter-urban variables can capture the determinants of business-to-business relationships and the levers of action.

For private agents, such as transport firms, operating in urban parcel delivery services can generate a high risk of economic dependence on their principals and bankruptcy. Several strategies can help to escape this captivity: diversify their customers to limit their dependence on the main one. To do so, they must quickly recruit drivers and buy several trucks. The firm shall thus, since the beginning, be able to access capital or accept reinvesting a considerable part of its revenue immediately to grow or to develop a network of peers. Having a heavy truck can also allow this diversification. Finally, they can try to contract with small principals or inter-urban transport firms, reducing their captivity.

On the other hand, public regulation must consider the chain of actors specific to the parcel delivery sector. The forwarder role has been misguided since their low margins incite them to replace employees with self-employed drivers. But the performance of the system can suffer from higher costs. Therefore, shippers could be included in the responsibility of deliveries and vehicles purchase. The specific subsidies of light commercial electric vehicles in urban areas are well adapted to the urban organization. Still, the social impact of outsourcing in parcel delivery services needs more willingness from national governments. These readily available jobs could be considered a means to deal with the high unemployment rate in France. However, the high performance of the parcel delivery groups hides a precarization of drivers. The drivers’ length of service is so short that permanent contracts are reduced to three years maximum, questioning the social insurance model that French is supposed to implement.

Source: Rème-Harnay, P. (2022). Outsourcing the last mile: Should regulation be strictly focused on the urban segment? Research in Transportation Business & Management, 45, 100833. https://doi.org/10.1016/j.rtbm.2022.100833

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