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Supply Chain News: 5 Key Reasons to not Invest in the Amazon Delivery Service Partners Program


Franchise Consultant Robert Edwards Says Risks are High, and Margins Low

June 12, 2019
SCDigest Editorial Staff

In early 2018, Amazon announced its Delivery Service Partners (DSP) program, in which local entrepreneurs would lease as many as 40 Amazon branded delivery vans and run routes delivering Amazon orders in their local markets.

It was later reported that Amazon put in an order for 20,000 or the vans, which can be seen delivering parcels right now, seven days per week, in many neighborhoods.

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Amazon will be looking out just for its own interests, which more are not likely to be well aligned with those of DSP owners, Edwards says.

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Other reports say there has been high levels of interest in the DSP program, with thousands of applications submitted and evidenced in part by the huge number of vans Amazon ordered in 2018.

Amazon is of course growing rapidly. Is the Delivery Service Partners program a good opportunity for you to ride that wave? Amazon says the initial DSP investment can be as low as $10,000, with Amazon providing subsidized leases for vans, insurance and other elements needed to get the business off the ground.

It expects DSP participants to eventually acquire – fairly rapidly – 20 to 40 of the vans, and at the top end of that range make profits of $300,000 annually. What's more, Amazon says no logistics experience is necessary to get into the program, which starts with three weeks of training at Amazon's headquarters in Seattle.

And Amazon entices would be DSP entrepreneurs by saying it offers the chance to make good money without the need to be involved in selling activities.

But before you run to fill out and application, take the plunge and invest and launch in your own DSP delivery business, there are some areas of significant concern, says franchise expert and consultant Robert Edwards.

Below, we summarize what Edwards, of the firm Franchise City, says are five reasons not to invest in a DSP territory. They are interesting indeed.

1. The routes aren't very popular for those who should know: Edwards cites Peter Schlactus, co-founder of the Association for Delivery Drivers, as saying independent delivery firms are increasingly turning away business from Amazon because it is not profitable (SCDigest notes FedEx announced this week it would not be renewing a contract for neatly $1 billion it has with Amazon, presumably out of profitability concerns).

What's more, Amazon itself obviously does not find the delivery process attractive enough to build out its own direct capability.

"Industry professionals, who understand the risks and the numbers, are saying "No" Edwards says, adding that "Amazon itself doesn't want to operate these routes either."

(2) The business fundamentals don't look very good: At the $300,000 top end of income cited by Amazon for those owners with 40 trucks, the profit per truck is just $7500. That's a slim margin – and much of that $7500 per truck could be lost to unexpected expenses, Edwards notes.

Changes in gas prices, rising minimum wages and overall labor costs, maintenance expense and more can easily turn modestly profitable routes under ideal conditions to money-losing ones.

(3) High pressure and challenging hiring environment: First, we'll note Amazon insists any drivers hired under the program become actually employees, not be taken on as contractors.

That could raise costs.

Amazon itself says at the top end of the number of vans a DSP owner could need to hire 100 drivers – a tough task in this jobs market for anyone, but especially so for this challenging and difficult job.

And finding drivers who reliably show up every day for work may also be a large challenge, perhaps requiring lots of scrambling to get another driver who is off for the day to pick up the slack – if such a pool of drivers not already assigned even exists – or leave the van parked for the day. This could be a near daily headache.

4. Liability issues: DSP owners wilt have many potential liabilities to factor in. That of course starts with a multi-year lease on each van brought into service.

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Add to that insurance liability for any accidents that drivers are involved in – a near certainty with a large number of vans and routes.

What would happen to an owner's insurance rates, Edwards asks, if a company's drivers are involved in a number of accidents over some period of time, or even worst seriously injure or kill someone?

The resulting soaring insurance rates could easily put a big hit on the slim margins noted above, Edwards says.

And potential DSP owners need to remember they will have just one customer – Amazon. There is significant overall business risk if anything – perhaps even a decision by Amazon – were to end that relationship. The owner could lose everything over night.

Edwards also quotes a former Amazon logistics manager as saying "The DSP are under such a financial pinch that they are often not taking care of their vans or making sure they are keeping up standards" – practices which could create much higher costs down the road.

(5) Amazon's reputation: Amazon is not known for the quality of its work conditions, Edwards says, noting many stories in recent years relative to very tough environment for workers in Amazon fulfillment centers and some delivery drivers. (SCDigest notes these stories are largely anecdotal and/or were written it would seem to specifically target Amazon for criticism, even if there are accurate elements to the stories.)

Amazon will be looking out just for its own interests, which more are not likely to be well aligned with those of DSP owners, Edwards says.

Is Amazon's DSP program going to be a good investment for hundreds or thousands of entrepreneurs? Everyone will have to do their own due diligence, Edwards says, but the tenor of his video suggests he is not very bullish on the opportunity.

The full video is available on YouTube here: 5 Reasons to NOT Invest in the Amazon Delivery Business


Do you think Amazon DSP would be a good investment or not? Let us know your thoughts at the Feedback section below.



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