The materials touted that he could make more than $75,000 and perhaps as much as $300,000 every year. The application required that you have $10,000 in startup capital, but the ad he saw also said that fee might be waived for veterans.
This veteran was all in. He applied and was almost immediately accepted to start his own limited liability corporation. Just like that, he was an Amazon Delivery Service Partner.
On its face, Amazon’s DSP program appears to be a smart business proposition for everyone involved. Take the delivery model proven successful by FedEx — subcontracted logistics companies like franchises — and Amazonify it. Rather than give subcontractors a geographical territory and have them just go at it (a la FedEx), provide them with specific routes. Take the algorithmic calculus that made two-day shipping possible and set strict rules for how quickly and precisely every delivery must be made. Accept none of the liability, taxes or responsibility for worker’s comp.
And in return, each individual LLC owner gets their own ready-made, money-churning delivery business supplied with Amazon’s seemingly boundless demand.
Only for the veteran and some other DSP owners interviewed for this story, that isn’t all they got in return. After more than a year working for the company, some of these Amazon delivery contractors, including a DSP owner who has filed a lawsuit against Amazon, as well as the veteran who launched his business after finishing military service, are or were dependent on federal paycheck protection program loans to maintain cash flow and have grappled with profits below or at the low end of Amazon’s advertised range (below $100,000). While some of the DSP owners interviewed for this story said they’re desperate to dissolve their companies, they told Protocol that they haven’t closed up shop because they are afraid of the tens of thousands of dollars in fees they might incur when they do.
Aside from people who run successful DSPs or have since left the DSP program, everyone who currently owns or works for a DSP was granted anonymity for this story because they are afraid Amazon will retaliate. Of the people interviewed for this story, only one of them spoke favorably of the program.
In June 2018, Amazon began advertising that almost anyone could become an entrepreneur, so long as they had $10,000 in cash. The company would take applications from individuals — not groups — who were willing to start their own LLCs, and, if you were accepted into the program, Amazon would teach you how to hire drivers, lease vans, pay your taxes and get insurance. It was like a Blue Apron meal kit, only for your own small business.
The new DSP program was part of Amazon’s efforts to solve its problems with last-mile delivery. The company wanted to move faster than the two-day Prime standard, and subcontractors made delivery both cheaper and more flexible. And it worked: Less than a year after first advertising for the program in 2018, one-day delivery made its first appearance in a 2019 earnings call, the beginning of a ramp-up in delivery speed that continued until the pandemic began in March 2020. By August 2020, more than 1,300 DSP companies had launched across the U.S., Canada and Europe.
Francisco Ramos, an owner based in Denver, Colorado, said he believes that Amazon’s system can make owners even more than the money advertised, and that those who fail to hit the range are simply making poor business decisions. Ramos, who feels sympathy for Amazon’s business practices, believes the company’s decision-making is oriented toward maintaining delivery speeds and pleasing the customer, sometimes regardless of the consequences for specific DSPs. For example, Ramos said that Amazon sometimes added DSPs with new, less-qualified owners just to ensure that deliveries were always fast (especially during the peak months of the coronavirus pandemic), even when there was less work available for each LLC. “Their targets, you’ve gotta be barely average to hit those targets. And if you try a little harder, those targets are a piece of cake to blow right by,” he said.
But all of the other DSP owners, managers and drivers interviewed for this story, including those making profits in the middle or higher end of Amazon’s advertised range, told Protocol they see their success as born from a combination of luck in terms of delivery location and a willingness to skirt Amazon’s rules for the program. Aside from Ramos, all of the business owners and drivers interviewed for this piece see themselves as working primarily for Amazon, not for an independent small business. That mentality has added to the disappointment for workers seeking autonomy, like the veteran interviewed for this story.
“It’s not a partnership. This is working for Amazon,” the veteran said. “We DSPs are not business owners, we’re paid managers. They control every aspect.”
Ramos had the opposite perspective. “You’ve started a business, this is on you. You have a lot of people that are playing the Amazon employee mindset. But this is on you,” he said.
Both Ramos and other DSP owners interviewed for this story agreed that when the LLCs do struggle to make a profit, those owners might not have the qualifications that would help them succeed. Amazon’s materials for the program encouraged people with very limited business experience, including veterans, to apply. While Ramos credits his financial business background for helping him make his DSP a success, many people accepted into the program have backgrounds different from his. “They have no business experience,” he said about the DSP owners who struggle to make significant profits.
Whether it’s because of the design of the program or because people are running businesses without the necessary qualifications — or a combination of the two — some of Amazon’s DSP owners are frustrated and struggling financially, leading them to view the program as a trap they can’t escape.
“As we grow, we don’t always get it right, and we are committed to seeking feedback to continue improving the DSP and driver experience. This year, we made more investments than ever before in new technology, process improvements and rate increases for the DSP program — and much of the changes we made were based on the feedback and input from partners. The majority of DSPs consistently out-pace our marketed profit expectations for the program, and this year we invested $700 million to support DSP rate increases, sign-on and retention bonuses and recruiting costs,” Amazon spokesperson Alexandra Miller said in a statement to Bloomberg in October 2021. Amazon did not respond to repeated requests for comment on this story.
How it works and why it doesn’t, actually
The DSP program is targeted toward people who want to be small-business owners and has no explicit prerequisite qualifications (aside from the ability to prove access to $30,000 in liquid assets). After applicants are accepted as DSP owners, they are first required to establish an LLC. That LLC then hires somewhere between 20 to 40 drivers on average, leases tens and sometimes even more than 100 vans from a company contracted with Amazon, purchases Amazon-branded hats, vests and other driver clothing and installs the Amazon app on driver phones. On a day-to-day basis, Amazon tells the LLC owners and its drivers what routes they will drive, how many packages they will deliver and when to make the deliveries.
But the routes each LLC receives every day can change without explanation. If drivers fail to meet delivery timelines or otherwise violate Amazon’s expectations, the company sometimes encourages the LLC owner to discipline or even fire their driver. “There’s just no legitimate way to do anything correctly at Amazon,” said Avery Barnard, a driver who worked for two different DSP companies in the last three years. “I love delivery jobs, I’ve done them a lot, and Amazon was by far and away the worst one to ever do it for.”
Amazon then rates the delivery performance for each pay period, and the LLC is paid based on that score. Most of the LLC owners and drivers interviewed for this story said that a “Fantastic Plus” score was the only ranking that led to high enough pay for the LLC to make a profit. For some LLCs, reliably achieving that score felt almost impossible, and the reasons for the rating were sometimes inscrutable.
After the DSP owner is paid by Amazon, the owner then has to pay the drivers, taxes, leases on the vans, repairs to the vans, new clothing (the physicality of the job means some drivers go through gear every couple of weeks), worker’s comp and other costs. Though Amazon directly pays the LLC for its drivers’ regular wages, it does not always explicitly compensate them for overtime hours. For DSPs where the warehouse location is far from both the headquarters and route — this is more common in rural delivery areas — the drivers usually rack up many overtime hours driving to and from the route, and Amazon doesn’t pay for those extra hours (though it does provide bonuses for excellent delivery scores, which owners could choose to use to pay the overtime), according to some owners.
In 2021, Amazon told Bloomberg that around 90% of Amazon delivery drivers finish their routes within the time allotted.
When the routes are plentiful, drivers experienced and accidents few, the DSPs can rake in hundreds of thousands of dollars based on the financial bonuses that come with “Fantastic Plus” or higher. But if a driver is bit by a dog or crashes a van, if the routes mysteriously disappear in the slow season, if drivers are scarce or if new drivers can’t hack the speed and diligence required for a good score, any of those problems could immediately wipe out most of the revenue.
“At UPS or FedEx, they don’t really care, they just want the packages delivered. At Amazon, you got to take the photo, the photo has to be Instagram-quality worthy, you got to text the consumer it’s there. It’s kind of crazy how Amazon expects the most, but pays the least,” said one manager who works for a successful, high-profit DSP thriving in a major metropolitan area. The drivers Protocol spoke to said the pay at their respective DSPs equated to at least $1 per hour less than comparable rates at FedEx and UPS, and sometimes $2 or more. One DSP driver in a metropolitan area said that he and most of his coworkers would rather drive for UPS, but the jobs are infrequently available and snapped up immediately.
Despite the fact that this manager worked for a DSP owner that managed to make significant profits, he still called the program a bad deal. “I definitely wouldn’t recommend joining the program,” he said. “The amount of money you have to put in, your profit margins are going to be razor thin, or you might even lose money.”
For some financially successful DSP owners, the difference in profit and revenue makes them wonder if the effort is worth the reward. “I grossed $3 million from Amazon,” another DSP owner told Protocol. “And somehow, after I pay for everything, I end up making less than $90,000.” And of that number, almost half of it came not from Amazon, but from federal paycheck protection program loans that most DSPs were eligible for over the last two years of the pandemic. “If I hadn’t gotten a $40,000 PPP loan, my company would have had to shut down. I didn’t have enough working capital,” he said.
This owner is not the only one to depend on PPP loans to maintain cash flow. In January 2022, a DSP owner in Durham, North Carolina alleged in a suit against Amazon Logistics that the company knew that DSP owners had to rely on PPP loans for cash flow and that Amazon actively encouraged it.
“Instead of paying DSPs fairly, Amazon relied on the federal government’s Paycheck Protection Program (PPP) to keep DSPs operational, thereby using taxpayers’ money to pay for its operations. On information and belief, nearly all DSPs are currently operating at a loss due to Amazon’s control of the DSP program and rely on PPP funds to stay afloat. Amazon knows this because it performs an annual financial review of most DSPs’ accounting records,” attorneys for Ahaji Amos, the DSP owner, wrote in the suit.
“There have been months where I have to get loans from relatives to make payroll,” one owner said.
Owners can also lose money because of driver shortages. Depending on the location, especially in rural areas, drivers are hard to come by, and substitutes are even harder, meaning that if a driver is sick or injured, the LLC might have to drop a route. “If you don’t have enough employees to run those routes and you drop a route, they fine you daily. They take a couple hundred dollars for every route you drop, every day,” the veteran owner said. Amazon has also terminated or threatened to terminate contracts with DSPs that struggle to hire over sustained periods, regardless of the money and time invested in the LLC.
Many drivers also find the job so grueling and low-paid that they last only a few months, forcing the LLC to find new workers on a regular basis. Barnard, the driver who worked for two DSPs in the last three years, said that his one-year tenure at one DSP was the longest of more than 30 drivers. “There were people that were like 25, and they were like, ‘This is not how a workplace is supposed to go,’ and they left after a couple of weeks,” he said. “Then there are a lot of older retired guys trying to do this to make some money for vacations and such, but we were doing things like XL packaging, very heavy stuff. There are people like that who came and went, couldn’t get hired anywhere else, and frankly shouldn’t have been doing that kind of job.”
Making it work
Ryan Schmutzer, the owner of a logistics company founded as a DSP near Portland, Oregon, became the public face for DSP owner resentment when he and another local owner hired a lawyer and threatened to sue Amazon in June 2021 for what they described as designing a program environment that was just too financially and physically difficult.
Schmutzer jumped on the promises of the DSP program shortly after it launched. Though his new business was initially profitable, Schmutzer told Protocol that he first realized the program wasn’t designed for his benefit as an owner when Amazon pushed the rental company to charge him more for his rental vans — not because they actually cost more, but because they wanted him to pay a flat rate that Amazon had negotiated with the rental company, not the lower one Schmutzer had negotiated for himself. DSP owners are not usually allowed to rent any van of their choosing, but instead pay a preset rate for Amazon-branded vans from a specific rental company selected by Amazon.
One of the managers for a successful, urban DSP company told Protocol that they believe city locations are inherently more profitable, because there are always packed routes in very small radii, eliminating the overtime hours that accumulate when drivers have a long distance between themselves, the warehouse and the route location.
But cities pose their own problems, too. The narrow, windy streets of Portland and Seattle’s hills were difficult for drivers to navigate in the traditional vans. Schmutzer and the other LLC owner knew other types of delivery vehicles would be more appropriate for the terrain but were not allowed to switch. And some drivers described the very high number of tightly packed stops to be very physically difficult to manage, especially on tight streets.
“Vans would get stuck,” Schmutzer said. “We were required to use this vehicle, required to put it on this route. There was no exception for it.”
The conflict over the vans revealed to him what he believes is one of the central problems with the structure of the program: It was designed to serve Amazon’s needs regardless of whether it made money for the DSP owners.
When Schmutzer publicly challenged the company last year, other DSP owners emerged from the woodwork across the country, calling him to tell their own versions of the same story. Their routes seemed to appear and disappear on random whims, making it impossible to make a real profit; some felt that Amazon’s metrics for the “Fantastic Plus” score were basically impossible to achieve in their delivery area; others said their vans had been so damaged during deliveries that the cost of returning them would wipe out any money they had made. Schmutzer even flew to an Atlanta meetup for a weekend to commiserate with other struggling owners.
The owners who have succeeded in making the most money are sometimes the ones who break the rules. “We kind of bend the rules a little bit to work in our favor, and at the same time it also works in Amazon’s favor,” one driver for a successful metropolitan-based DSP said. For example, his DSP doesn’t report damage to the vans in the Amazon app, because Amazon would ground the van until the repair was finished. Instead, they fix smaller problems themselves, meaning the vehicles can remain in use. “Let’s say a lightbulb is busted in the headlight. If we were to mark that in the app it would ground it; instead we could just replace it ourselves,” he said.
“You can hate Amazon and do great,” Barnard said. “You can make money doing this. I would say, just be careful. Don’t let the stars shine in your eyes too much.”
Wanting out and failing to get out
The veteran DSP owner interviewed for this story wants to close out his business and leave the program, but he is afraid of what might happen if he does.
“They make it extremely difficult for you to get out of the program. If I were to say, ‘Hey, I can’t do this anymore.’ They write down every nick or scratch on a vehicle; the average person that tries to return the vehicle, you’re looking at well over $100,000 of damages they are going to find in your fleet,” he said. “That’s what you’re going to have to pay or we’re going to sue you. I can’t even get out.”
Amos, the woman suing Amazon Logistics in North Carolina, alleged the same in her complaint, claiming that she believes the company designed the program so that DSPs couldn’t afford to leave unless Amazon forced them out. “Amazon, through Element [the van rental company], charges $6,000 on average per Amazon-branded vehicle upon termination of DSP contracts. As such, many DSPs are left with over $120,000 in ‘exit fees,’” her attorneys wrote.
Barnard has heard the same from the DSP owners who employed him. “If you want to quit, you now own a bunch of real shitty vans that got beat to fuck, now you have this huge sunken cost,” Barnard said.
“I feel like something needs to be done about this. It’s a sham,” the veteran said. “What they’ve done is taken two years away from my life, causing me to miss out on job opportunities and things I could have been doing.”
This UrIoTNews article is syndicated fromGoogle News