Amazon needs delivery drivers

Company offering entrepreneurs chance to start business

An Amazon.com Inc. delivery van passes outside the Drago Fleet LLC facility in Denver on Friday. Amazon CEO Jeff Bezos appealed earlier this year to aspiring entrepreneurs, offering them a chance to start their own businesses making Amazon deliveries.
An Amazon.com Inc. delivery van passes outside the Drago Fleet LLC facility in Denver on Friday. Amazon CEO Jeff Bezos appealed earlier this year to aspiring entrepreneurs, offering them a chance to start their own businesses making Amazon deliveries.

Jeff Bezos captured the world's imagination when he appeared on CBS's 60 Minutes and pledged to fill the skies with package delivery drones.

Five years on, Amazon.com Inc.'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 vans to leave packages on doorsteps just like the milk man, postal worker, UPS guy and pizza delivery driver 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.

Instead of charting a future that makes drivers obsolete, Amazon is so dependent on them it's copying FedEx Corp. to build a network of independent couriers around the country in an 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 Inc., FedEx and the postal service.

"There's all these futuristic visions of drones delivering things and robots delivering things, but all of that innovation flies in the face of some sort of regulation and those regulations move very slowly," said Mike Howell, CEO of the on-demand delivery company Dolly. "Amazon doesn't have time to wait for drones. It has to pursue this old-guard model now more out of necessity than out of desire."

So far, Amazon has attracted tens of thousands of aspirants eager for a ground-floor opportunity serving the fast-growing company led by the world's wealthiest man. 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. Even more hopefuls are on a waitlist eager for Amazon to expand further next year.

Riccardo Drago is among the new partners. He had been making deliveries through Amazon Flex, an Uber-type application that lets people deliver Amazon packages in their own cars. Drago and his wife, Judy, always dreamed of starting their own business, so they accepted an offer from Amazon to help test the new delivery partner concept last year before it was announced.

The Dragos now have 42 vans and 70 employees who each deliver about 250 packages in a typical day. Their profit is about $40,000 each month, about $1,000 per van, Drago said. The biggest challenge is hiring and retaining drivers, who earn about $150 for each eight-hour shift. "Denver has low unemployment," Judy Drago said. "So it's tough to find drivers."

If the FedEx experience is any guide, the Dragos and others could be building valuable businesses. Buyers for FedEx parcel delivery routes can be found in as little as a few weeks, says Tony DiNitto, who once operated routes and now advises people who want to buy their own. The prices for FedEx routes have climbed over the past 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, he said. One route typically earns about $25,000 a year before taxes, providing a payback on investment in three or four years.

"I don't know of a better business to buy than FedEx routes," he said. "The revenue is very stable and growing. The valuation of the business itself has slowly and continuously grown over the last decade. "That model has been good for FedEx, as well. The company has 5,600 service partners who employ nearly 50,000 people, providing "increased service capacity and operational flexibility," the company said in an emailed statement. While FedEx wants partners, it doesn't let any of them get too big and usually limits the number of routes to about 30, DiNitto says. Amazon is capping most of its delivery partners at about 40 vans, though some exceed that limit to meet demand.

Amazon is mostly a victim of its own success. The company has 97 million U.S. Prime members who pay monthly and annual fees in exchange for fast delivery, according to Consumer Intelligence Research Partners. Those customers have little incentive to consolidate their orders to make shipping more economical. Shipping is one of Amazon's fastest-growing expenses and consistently outpaces online sales growth. The company must find cheaper ways to deliver packages or its e-commerce business could be unsustainable without further price hikes.

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. One case filed this month in Illinois calls the program an "unlawful scheme to attempt to avoid responsibility for paying" delivery drivers.

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.

Business on 12/18/2018

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