Difference between revisions of "Amazon Flex Parcel Delivery Model"

Revision as of 16:37, 29 January 2019

Five years on, Amazon.com’s chief executive officer is betting on decidedly more terrestrial technology: drivers. As in real people. Tens of thousands of them. High-tailing it through town in gas-slurping vans to leave packages on doorsteps just like the milk man, postal worker, UPS guy and pizza dude before them.

Bezos this summer issued a call-to-arms to aspiring entrepreneurs, offering them a chance to earn $300,000 a year by starting their own businesses making Amazon deliveries. All for as little as $10,000 up front, far less than the $250,000 it takes to open a fast-food franchise like McDonald's or the $1 million required to buy a typical FedEx delivery business.

Amazon is so dependent on them it's copying FedEx Corp. to build a network of independent couriers around the country in a frantic effort to keep pace with demand that peaks in December. To entice interest, Amazon uses its bargaining power to get partners good deals on vans and insurance and offers them a steady stream of packages.

The Bezos proteges take on the biggest challenge of all: recruiting and hiring drivers willing to meet Amazon's high standards for low pay. All when there are plenty of other jobs to pick from.The effort puts Amazon in legally murky terrain where it has to be careful how much control it exerts over people employed by different companies. The company already faces multiple lawsuits from delivery drivers claiming to be stiffed wages by Amazon partners. Those workers say Amazon is on the hook, as well, since they toil on the company's behalf. But the risks could be worth it if Amazon finds a legal way to add drivers and vans without spending its own money. The model gives it far more negotiating power over each small business partner than it has with United Parcel Service, FedEx and the postal service.

Applicants go through phone interviews followed by several days of training. In just a few months, hundreds of new businesses have sprouted up around the country that employ thousands of drivers. Drivers are making deliveries through Amazon Flex, an Uber-type application that lets people deliver Amazon packages in their own cars.

Buyers for FedEx parcel delivery routes can be found in as little as a few weeks. The price for FedEx routes have climbed over the last five years to about 3.3 times cash earnings from about 2 times. The average number of routes sold by owners is about 10 at an average price of just under $1 million. One route typically earns about $25,000 a year before taxes, providing a payback on investment in three or four years.

The company has 5,600 service partners who employ nearly 50,000 people, providing "increased service capacity and operational flexibility," the company said. While FedEx wants partners, it doesn't let any of them get too big and usually limits the number of routes to about 30. Amazon is capping most of its delivery partners at about 40 vans, though some exceed that limit to meet demand.

UPS's union drivers earn a top wage of nearly $80,000 a year, excluding overtime, plus health care and pension benefits. Those wages will go up 9.4 percent in 2022. Median annual pay for union postal workers is $57,000. Most FedEx contractors pay drivers about $40,000 a year and some offer health care benefits. FedEx drivers aren't unionized and turnover is higher than UPS, which has a waiting list to become a driver. Amazon, which announced in October 2018 that all of its warehouse workers would be paid at least $15 an hour, doesn't dictate how much delivery partners pay drivers.

Beyond saving on pay, the delivery partner model lets Amazon train the owner once, who then bears the cost of recruiting, hiring and training the rest of the drivers in a high-turnover business. Smaller businesses, often family run, tend to be more productive than hourly employees working for a big company. Workers will be less finicky about working nights, weekends and holidays, and they're not a big target for union organizers that can drive wages up by 20 percent.

Amazon's new delivery model has already come under fire in lawsuits alleging its partners have skirted overtime laws by paying drivers daily rates rather than hourly wages. FedEx was forced to pay a $13 million settlement for lawsuits that claimed "misclassification of workers as independent contractors cost them wages. In response to those lawsuits, FedEx now requires its service providers to have drivers on payroll. Still, more lawsuits on behalf of drivers in several states are challenging FedEx's new terms. Amazon paid a similar settlement regarding the use of independent contractors in a California lawsuit that alleged contract delivery drivers were shortchanged.

The biggest challenge is finding people willing to do quality work at low wages. Home security footage frequently shows delivery people throwing and even punting packages toward homes.