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The Decline of the Messenger Industry



Mess Media , May 6, 2005

by Joe Hendry


Technology’s impact on the messenger industry is overstated. The Internet, fax and e-mail has had only a small effect on the amount of work messengers do as the messenger industry is much larger today than it was in the days before fax and e-mail. It ‘s more likely that the post office has been much more affected by fax and e-mail.

Technology has had an effect on the mix of packages. Before messengers would carry more items that were less important. Now it's likely those less important items are faxed or e-mailed. Messengers are now used for very important or urgent items. This means that messengers are much more valuable today but the price of their service doesn't reflect it's value.

The reason is competition. It's so easy to set up a messenger company, ignore business and labour laws and fear little or no reprisals from authorities. However like most businesses it still not easy to run one properly. Messenger companies add little value to the messenger service. They mainly provide administrative support to their messengers.

Many companies compete on price rather than service. They just undercut each other. They can do this because they lie about employment status. They force the risk of profit and loss on to their employees by calling them independent contractors and governments encourage the practice through lax enforcement.

Imagine how low the price of other products and services would be if employers were permitted to ignore employment standards and not pay their share of the employment taxes

If they didn't have to pay for statutory holidays or vacation pay they could keep lowering prices indefinitely. They could also hire many more employees than they need because it wouldn't cost them any more to do so.

The biggest effect on the messenger industry is the government's failure to enforce it's own laws. Other industries must comply but individual messengers must fight one by one to have employment laws enforced.

The result is that messengers don't do less work today; they do more because the price for the service is so much lower (in real terms). Messengers must do more work just to make the same money that they made 15 years ago.

See the 1996 article - Are We Making Money Yet? in Inc magaizine for the true cost of a bike delivery (at that time)

In the messenger industry, like other industries, the cost of doing business continues to grow. When the cost of doing business increases, most customers expect that companies might pass the cost on to them through price increases. In the messenger industry, messenger companies try to offset the cost of doing business by shifting more costs to their employees.

In many states courts have ruled that bike messengers are employees and not independent contractors (IC's). The problem is that messengers must continue to fight each company one by one on this issue.

Companies attempt to disguise their employees because it saves them a lot of money but it costs the IC's.

Bike messengers will keep more net income as an employee rather than an IC:

  • Employees can't be charged for uniforms, radio or phones and can't be billed for admin charges etc.
  • Employees (all of them) are entitled to participate in company health and pension plans (IC's are not).
  • Employees are entitled to vacation pay (about $1,200)
  • Employees get paid for each and every holiday (another $1,000)
  • Employees are covered by workers comp
  • Employees get unemployment insurance if they lose their jobs
  • Employees can't be fired without cause
  • Employees are guaranteed at least a minimum wage (all of them even the new guy who sits around half the time doing nothing)
  • Employees get paid for overtime
  • Employees get to stop for lunch and breaks
  • Employees act as a discouragement for companies to over hire and encouragement for security and stability

Some companies complain that their clients are motivated by price but that's because companies have continually undercut each other and given away profit that they could not afford to lose.

While it's true that there are some clients that are mainly motivated by price and will switch to the cheapest courier regardless of service, companies could reverse the trend if they wanted.

If competent companies joined messengers to press for enforcement of laws preventing practices such as disguised employment then all courier companies would have minimum costs and couldn't afford to under cut each others' prices so easily.

It also makes much more business sense for courier companies to seek out clients that are more satisfied by service than by price. The less companies rely on cheap clients the healthier their business.

Companies should set their prices based on minimum profit margins after determining their true costs. If a business can't earn a decent margin from a client then the client is not good for that business in the long run. They will not be content with today's cheapest price. They will continue to put pressure on lower prices.

In the short term some companies may be stuck with clients like these but they are taking a big risk. If their IC's are ruled to be employees, there will be fines, interest and often many years worth of back pay and reimbursements to pay.

The solution is for messengers to cooperate with companies that understand the problems and work to change the trends now. A partnership between messengers and well-managed companies will make it more difficult for the bad companies to survive and put more pressure on all levels of government to live up to their responsibilities.

A competent company is one that wants to work toward change so that they can get rates back to a realistic level. It doesn't mean they have to switch to employees, recognize employment standards now and raise rates.

But it does mean they want to develop a plan to get there.

The problem for years has been that so many companies with potential are following the lead of the worst companies that are run by people with virtually no business skills.

[This isn't the first time the media has reported on the end of bike messengers. See Transportation Alternatives' History of the Messenger Industry for more information]

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