In 2018, Amazon announced a new program targeting would-be entrepreneurs who could build a subsidized business delivering packages for Amazon in local markets.
Supply Chain Digest Says...
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| The article also quotes a number of DSP discussing the numerous ways Amazon micromanages DSPs and often piles on new requirements. |
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The deal was this: entrepreneurs could start with one truck for as little as a $10,000, and build to a maximum fleet size of up to 40 Amazon Prime branded trucks, with discount programs for insurance and other costs. The financial opportunity: up to $300,000 in annual profits, Amazon said.
Interest was reported to be high, and Amazon DSP trucks can be seen running delivery routes in many neighborhoods.
But from the start, many warned potential investors to think hard about taking the plunge, for a variety of reasons.
First, the $300,000 in annual profits target is not net of the DSP owner paying him or herself salary, which is how “profit” from a business is usually defined. So real profits are lower than $300,000.
But even using $300,000 as the profit opportunity, it is not a very attractive profit, generating only $7500 in profits per delivery vehicle, which seems very low, and is reported to be far below the profit per vehicle for the owners that contract with FedEx for deliveries, for examples.
Third, experts warned there were many not obvious costs and liabilities associated with a DSP business. For example, if a company driver gets into a wreck, as inevitably will happen, a deductible will have to be paid – and if a serious accident or a series of even smaller ones it could send insurance rates soaring.
But perhaps most concerning of all, the DSP owner is totally dependent on Amazon for its business and number of routes and package volumes. And it can take all that away anytime it wants.
It has already pulled the on many DSP’s business – often leaving the owner deeply in debt with no way out.
With that context, an article last week by Michelle Urra on the Vice.com web site told the tail of woe experienced by a DSP owner identified only as “Jim.”
Having built his fleet to 30 delivery vans, Jim told Urra that last July he received a call out of nowhere from Amazon’s headquarters in Seattle. The caller identified themselves as a representative from the Amazon Network Health group. He or she informed Jim that Amazon was terminating his contract to deliver packages, putting him almost immediately out of business.
The pain was exacerbated by the fact that to get the routes, Jim had actually moved from the Midwest to Boston with two of his older sons, leaving a wife and four others children at home.
“My sons and I went to follow the American Dream to be a small business,” he told Urra, adding that. “I took a leap with Amazon.”
Jim told Urra of one interesting development in his business with Amazon. After having an agreement with Amazon on compensation per delivery, Amazon later required all packages going into the city of Boston had to be personally-delivered to the customer, staffed mailroom, or receptionist. If the parcel was say just left on a porch, the driver would receive an “infraction.
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But making in-person added to much greater times and costs. Despite the challenge, Jim easily passed his yearly audit.
 Urra notes that amazon is currently facing a $15 million lawsuit from two of its former Portland delivery service partners that closed last year because they “were losing money [while] employees were trying to satisfy Amazon and their constant changes.” That as Amazon "controlled nearly every aspect” of the two businesses.
The loss of Amazon's business left Jim deeply in debt, the article says. That includes:
• Owing $23,996 for workers comp claims
• Owing $3,200 a month for a five-year lease for the parking lot for his Amazon delivery vans
• Owing $1,200 a month for the office space where he ran his company
• Owing unspecified but of course substantial charges for leasing the vans
Urra says many DSP businesses that haven’t been cancelled are struggling.
It quotes a DSP owner as saying “Everyone in my station had issues making any money. ‘We’re bleeding’ is the common term that was used. It means we’re dying. We’re not making money. We’re in the red.”
Another DSP owner – “Randy” - in Portland struggled with frequent changes to the geography of his routes.
“Starting one day, all your routes could be in a different town,” he told Urra. When I started, all my routes were in the suburbs; then one day, they’re like, ‘All your routes are in a very busy part of northern Portland.’ There’s nothing you can do.”
Randy also was abruptly ordered to close his business in February, 2021.
Since receiving that phone call, Randy has depleted his life’s savings of $80,000 paying out his drivers’ vacation time and other expenses. His conservative estimate is that he still owes $90,000 for van damages, workers’ compensation, and health insurance for his employees.
The article also quotes a number of DSP discussing the numerous ways Amazon micromanages DSPs and often piles on new requirements.
There is a lot more, but you get the idea.
SCDigest just says this: The Amazon Delivery Service Partner program is it appears a tough way to make a living, and fraught with risk that could take your business away in the proverbial blink of an eye.
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