Amazon Delivery Firms Are Bailing Amid Rising Costs
Some in Delivery Service Partner Program Say Profits Are Dwindling
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In 2022, Jake Claystarted an Amazon delivery firm inOdessa, Texas, after hearing about the company’s program from a friend. He sank $75,000 into the business and earned more than $200,000 in the first year. An Air Force veteran, Clay, 50, felt like he’d joined an elite unit.
The feeling didn’t last. Before long, rising insurance and other costs began eating into his profit. One of Clay’s drivers was badly bitten by a dog and went on workers compensation for a year, while his annual vehicle insurance rates soared fivefold toalmost $500,000.Clay mulled laying off all his managers and running the business on his own, figuring he would clear about $75,000. In the end, he decided it wasn’t worth it. He quitlast month.
“I earned significantly less as I got more seasoned, which is the most upside-down business I’ve ever heard of,” Clay said. “Amazonwants a bunch of pawns and they keep a bunch of extra pawns on the bench to replace anyone who leaves.”
Clay said he rejected an offer to sign an exit contract with Amazon that would have paid him $75,000, but ban him from speaking publicly about the program.
(Kevin Carter/Getty Images)
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Amazon.com Inc. launched its Delivery Service Partner program in 2018, offering aspiring entrepreneurs an opportunity to run their own businesses. The world’s biggest online retailer pledged to use its negotiating clout to help themlease vans andhire drivers. All they needed, the company said at the time, was can-do spirit and as little as $10,000 up fronttoearn as much as $300,000 (now $400,000) in yearly profit.
Today, some who answered the call fear the best days are behind them. While many prospered during the pandemic-era e-commerce boom, they say their profits are dwindling owing to rising costs for insurance and vehicle maintenance even as Amazontightens performance metrics that determine how much they earn. Like Clay,several delivery ownerstold Bloomberg that making money has become so hardthey’re getting out — a wrenching decision with the economy slowing and unemployment rising.
Amid the mounting discontent, Amazon recentlyannounced a 20% hike to 12 cents for eachpackage the firms deliver. It was thefirst such increase since the company launched the Delivery Service Partner programand an acknowledgement that inflation has driven up costs.But many contract delivery firms said the gesture was too little, too late. And because it doesn’t takeeffect until January, some saw it as a carrot to keep them working through the holidays when Amazon needs them most.
Still, they recognize they have little leverage because Amazon can simply replace them. Last month, during the annual Ignite conference for delivery service partners, the company toutedits “Road to Ownership” program, which is designed to persuade drivers to start their own delivery companies. Many owners saw the presentation as a reminder that there are plenty of peopleeager to step in.And a number of newbies attended the Las Vegas conference, looking fortips on how torun their businesses.
An Amazon driver makes a Prime Day delivery. (Klaus Galiano/Bloomberg News)
Amazon.com Inc. ranks No. 1on theTransport Topics Top 100 list of the largest logistics companiesin North America, No. 15 on theTT100 list of the largest private carriersand No. 1 on theTop 50 Global Freight list.
Bloomberg interviewed 23 delivery partners who operate in 11states around the U.S. Five said they quit the program because they were making less money each year, and several others are contemplating getting out. Four owners said they were happy with the program and that their income was growing. In online forums,delivery contractors have debated how to negotiate largerexit packages with Amazon and tried to establish how many have already quit. One chat room was set up specifically for contractors thinking of shuttering their firms and featuresmore than 100 mostly anonymous members.
Most of the delivery partners interviewed, including those who quit and one who liked the program, spoke on condition of anonymity because they feared repercussions fromAmazon.
“The anecdotes shared by a small number of DSPs don’t reflect the experience of the vast majority,” Amazon spokesperson Dannea DeLisser said in an emailed statement.“Interest in the program continues to grow as entrepreneurs recognize the opportunity to build their own businesses with Amazon’s support, and we’re proud of the thousands of DSPs that are doing well and making a positive impact in their communities.” Amazon has invested $16.7 billion in theprogram, which currently encompasses more than 4,400 firms —most of them in the US.
Inflationary Pressure
Contract delivery firms have tangledwith Amazon for years, often over what they consider unreasonable delivery targets that are monitoredby artificial intelligence.Those concerns remain, but business owners trace their current woes to the inflationary environmentand the company’s unwillingness to provide sufficient support at a time when Amazon is focused on cutting costs and boosting profits.
Tension between the company and its delivery businesses flared earlier this year when the companypassed along big billsto repair aging delivery vans. Some contractors said they were getting hit with repair bills of up to $20,000 per vehicle that they couldn’t afford to pay. The delivery firms used an app called Pave to estimate damages based on photos of the vehicle, but Amazon instituted a more rigorous inspection process this year that resulted in repair billsas much as 10 times higher than the app estimate.
Former driver Shannon Joseph launched her own delivery business in Austin. (Montinique Monroe/Bloomberg)
With delivery contractors balking, Amazon in September backpedaled and told them it would cover 20% of van repairs estimated in the Pave app going back to April and that it would send out revised invoices this month.
The delivery firms are also grappling with the rising cost of insurance. Typically when they start out, insurance rates are reasonable. But the longer they are in business, the more chance there is for accidents, dog bites and other issues, which in turn push up the costs of covering their operation.
One ownerwho started an Amazon delivery business in 2019 blames skyrocketing premiums for slashing his annual profit from $400,000 to $150,000. He mostly employs young male drivers, whom insurers consider high-risk. His premiumssoared after one driverwas involved in a crash with serious injuries. When the casesettled out of court for $1.4 million, the owner realized the risk wasn’t worth the reward.
He went to the Amazon delivery station one Saturday evening to tell them he’d cease operating the next day, leaving the companyscrambling to reassign thousands of packages to other firms. “They weren’t happy,” he said.
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Another delivery contractor who started when Amazon launched the program in 2018 said his yearly profits have been trending downward from about $200,000 to $160,000, which he expected to continue. His problems started when Amazon switched 10-hour delivery routes to begin later in the day at 11 a.m., meaning drivers made more deliveries in the dark when it’s harder to see street signs, addresses and potential hazards like muddy puddles on dirt roads. That drove up his costs since he had to pay drivers overtime to complete routes and hiretow trucks to free vans stuck in mud. Amazon never increased his payments to reflect the increased costs associated with later deliveries.
Amazon said it conducted a financial performance of 648 delivery contractors last year and found that about 80% of themgenerated annual profits of at least $100,000. The company said their profits, on average, increased each year. The average business has been operating for five years and fewer than 10% of them quit the program, according to Amazon.
Some owners accept that running an Amazon delivery firm isn’t necessarily a long-term bet and prepare by diversifying.One delivery contractor in the Midwest started a plumbing franchise and encouraged hishardest-working delivery drivers to work there and learn a trade. Fred Vernon, 36, said starting anAmazondelivery business in 2019 in Houstonhas been life-changing. It’s hard work and he emphasizes driver safety to keep his insurance costs in line. Meanwhile, Vernon is using his proceeds to pay for law school.
“We’re doing very well and I’m grateful for the opportunity to pursue other goals,”he said.
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Amazon delivery contractors quickly learn that bailingis no panacea. Unlike manysmall business owners, they have no hard assets to sell. They lease the vans, and the packages are stored in Amazon facilities. They could try to sell the business but it’s tied to a one-year contract with Amazon, which has veto power over any prospective buyer.So they can eitherquit with nothing or keep limping along with the knowledge that they could be replaced once the contract expires —perhaps with someone like Shannon Joseph.
A former driver, Josephlaunchedher owndelivery business in Austin in 2022. She says her experience hauling packages has helped build rapport with her 92 employees. Joseph has heard the complaintsfrom other delivery firms, but is confident she’ll keep making money and growing by outperforming the pack.
“I want to be one of the delivery partners who makes it for 10 years,” she said.
