• FedEx and UPS's rate hikes and picky behavior in recent years opened the door to new challengers.
• Startups started applying gig labor to package delivery in a big way.
• But UPS and FedEx have taken the cue and are integrating flexible workers in their own ways.

At the height of the pandemic, it  looked like the gig economy was going to challenge traditional package delivery — the work that UPS and FedEx  have done for decades. 

Inundated with shipments, the big two package carriers raised prices and got picky about what packages they'd deliver. The result was annoyed customers looking for alternatives, and entrepreneurs seized the moment. 

A lot of those would-be competitors — companies like Axlehire and Veho  — built their operations on gig economy labor. 

Gig workers offer a lot of upside. Driving their own vehicles, wearing their own clothes, paid as they go and mostly without benefits — they're often much cheaper than salaried employees. The flexibility of a workforce that scales up and down fast is helpful in a time of volatile e-commerce demand that fluctuates with the season and the economy.  

While logistics veterans have been skeptical that this free-wheeling model can scale — or even survive long term — gig strategies have stuck around as e-commerce has slowed. It's clearly not just good for boom times. 

That's in part because, instead of outlasting upstarts who challenged them with gig workers, the country's biggest delivery players have, in their own ways, embraced the approach. 

Gig goes mainstream 

Where smaller players sometimes rely entirely on gig workers, UPS and FedEx are incorporating flexible laborers to complement full-time workers where and when deliveries are less consistent or particularly costly.

For more than three years, UPS has supplemented its unionized drivers during peak times with "personal vehicle drivers," seasonal workers who deliver packages in their own cars and CEO Carol Tomé has touted the program. (Teamsters General President Sean O'Brien told Insider these drivers will come up in next year's contract negotiations.)

The company also acquired gig delivery firm Roadie, which CEO Carol Tomé has said will be an important part of UPS's "logistics as a service" offering, in combination with its other recent acquisitions. 

Unlike UPS, FedEx's largest unit by package volume FedEx Ground uses thousands of small delivery contractors to make deliveries, so mandating labor strategies is tougher. But since 2020, the company has allowed its contractors to hire drivers who use their own cars in what it calls the "alternative vehicle program." A FedEx spokesperson said about 1% of its roughly 6,000 contractor fleets have tried it. 

But a group of large contractors that have formed a think tank to improve the dire financial conditions of many FedEx contractors are bullish on this labor model and its potential cost savings. 

It's notable here that UPS and FedEx both classify their flexible workers as regular W-2 employees — so they may be eligible for benefits and other advantages. But the work is often still more flexible and "on-demand" compared to the traditional setup. 

Amazon's Flex program, where gig workers take overflow from contracted delivery businesses, offers yet another version. Regional and niche package delivery players are embracing gig work too. 

LaserShip has depended on independent contractors for years, but in the 2021 holiday season it partnered with gig labor platform Point Pickup to staff its sortation carters, where packages are sorted into routes. 

Meanwhile, gig-based services like Veho and Axlehire are actually making a good chunk of their money subcontracting for other logistics firms rather than working directly for retailers. Seko Logistics, a cross border e-commerce specialist, uses Axlehire to pick up packages as soon as they come off the plane at JFK and deliver them to local consumers the next day. 

The future is gig? 

This type of flexible worker is too attractive to resist and the businesses that use it are building it into their financial models. Flexible or gig work still represents a small fraction of total packages delivered every day, but it's growing fast in a way that won't easily be reversed.

Despite all that growth, the ecosystem around gig workers — regulation, banking, insurance, and more —  is underdeveloped. And there are a lot of open questions and concerns. 

Though gig work is not necessarily exploitative, studies have shown the model often underpays workers compared to what companies promise and even the minimum wage in some states. Liability is a moving target. And though gig workers often covet flexibility, they can easily end up with next to no job security and extremely variable earnings.

In response, legislators have tended toward blunt force tactics — potentially eliminating all independent contractors in the name of gig workers. 

If e-commerce logistics is a proxy for the broader economy, it's time to take this labor model seriously — and give it some nuance.

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