When and how to share first-mile parcel collection service

Booming parcel shipping business has raised wide attention. The trunk line is easier to manage, since parcels are consolidated to fully utilize vehicle capacities. However, the first mile handled by individual companies is beset by high empty haul rates and low efficiency. This paper takes the lead in exploring a new business model and possibilities of establishing a common service platform for the first mile. We investigate strategic decisions of two courier logistics companies competing with partially substitutable collection service. They can choose to cooperate with the cost-efficient platform to enjoy a saving, while the market share of their original channel has to be eroded by the outsourcing channel. We propose three scenarios: (i) Both companies have only one direct channel. (ii) Only one company has two channels. (iii) Both companies have two. This paper comprehensively presents the joint effect of internal competition and the cost saving on companies' welfare and customers' consuming experience. The findings show that in most cases, cooperating with the platform will help the companies gain a profit increment and customers will benefit from a price decrease compared to the current practice. However, when customers loyalty to the direct channel is moderate, they will suffer a price increase, though companies are better off. Additionally, given the cost advantage of outsourcing is slighter, and customers show less difference to two channels, the internal competition will be the most intensified and overtake the effect of cost sparing. The company running two channels will suffer a profit loss. (C) 2020 Elsevier B.V. All rights reserved.

Automated summary

The booming parcel shipping business has attracted wide attention, with the trunk line being easier to manage but the first mile facing challenges of high empty haul rates and low efficiency. This paper explores a new business model of establishing a common service platform for the first mile and investigates strategic decisions of courier logistics companies in a competitive market. Results show that cooperation with the platform can lead to profit increases for companies and price decreases for customers, but companies running two channels may suffer profit losses under intense internal competition.