Amazon rolls out new plans for delivery service partners network

Global e-commerce powerhouse Amazon announced yesterday it is upping its plans to increase its package delivery and logistics services capabilities through the introduction of a new offering that, it said, will enable entrepreneurs to set up their own businesses to deliver Amazon packages.

The Seattle-based company said an owner of an Amazon package delivery franchise can earn up to $300,00 in annual profit, with startup costs starting at $10,000, through operating a fleet up to 40 delivery vehicles. What’s more, it added that owners will be able to leverage delivery volume from Amazon, access to the company’s sophisticated delivery technology, hands-on training, and discounts on a suite of assets and services, including vehicle leases and comprehensive insurance. And they will also have access to various “exclusively negotiated discounts” on resources for a delivery business, including branded uniforms, fuel, and comprehensive insurance coverage, among other options.

Looking to the future, Amazon explained it wants to bring in hundreds of in-house delivery partners that would, in turn, hire tens of thousands of U.S.-based delivery carriers, whom would work in tandem with the company’s existing base of traditional carriers, in addition to small-and-medium-sized businesses that currently staff thousands of drivers delivering Amazon packages.

“We have great partners in our traditional carriers and it’s exciting to continue to see the logistics industry grow,” said Dave Clark, Amazon’s senior vice president of worldwide operations, in a statement. “Customer demand is higher than ever and we have a need to build more capacity. As we evaluated how to support our growth, we went back to our roots to share the opportunity with small-and-medium-sized businesses. We are going to empower new, small businesses to form in order to take advantage of the growing opportunity in e-commerce package delivery.”

A Wall Street Journal article noted that this move is viewed as another push by Amazon to gain more control over its own deliveries in a “continued quest” to build a vast freight and parcel shipping network. What’s more, it added that Amazon has said it needs to expand its internal delivery service offerings to keep up with the number of orders made online that UPS, FedEx and the United States Postal Service cannot.

And taking that a step further, the report, citing analyst estimates, pointed out that orders made via Amazon.com account for more than $4 or every $10 spent online in the United States, with 2017 deliveries topping 1 billion.  

“This is a logical extension of what they have been doing. Amazon is taking care of Amazon,” said Jerry Hempstead, president of parcel express analyst firm Hempstead Consulting. “Having this type of driver-owner relationship keeps Amazon at arm’s length so that they don’t have to pay for benefits like workers comp and Social Security. The driver owner manager is the employer so Amazon can’t give direct instruction to the driver. It’s a low cost model, and it can work well. Many of the Airborne Express terminals had this model. FedEx Ground and FedEx Home Delivery [also] operate on this model. This is Amazon being Amazon for Amazon. I really don’t see this action as any sort of threat to UPS or FedEx.”

Hempstead said it is notable that this announcement by Amazon comes in the midst of the current driver shortage, explaining that the driver-owner route drivers will need a clean record, a CDL and be able to pass a drug test, which may cause starting salaries to increase to attract qualified workers.

“These kinds of driver jobs are attractive because you get to go home and sleep in your own bed at night, but the most desirable of route driving jobs are at UPS for their great salary and benefit package,” he said. “Next is FedEx Express, then DHL (especially the union stations). Amazon’s contractors are going to have to get a profitable contract to make this work out.”

A research note from Morgan Stanley analyst Ravi Shanker called this move by Amazon a push further into last mile delivery, with e-commerce increasingly becoming an asset-heavy global endeavor and Amazon continuing to find ways to innovate.

The Morgan Stanley report also observed that Amazon spent around 13% of its revenue on shipping costs in 2017, a figure that the WSJ report said equates to $21.72 billion.

“This speaks to Amazon’s ability to continue to innovate through challenges,” wrote Shanker. “Near term this could help Amazon manage its shipping cost through growth...long term this could lead to a more efficient and profitable core retail business. (2) This also increases Amazon negotiation points that it has with the carriers and the USPS over rates. (3) Amazon’s continued focused on small and medium sized businesses and business/job creation is likely to act as an important counter argument against any potential negative regulatory or political candor in coming years. We believe this is Amazon’s most overt/public move yet in relation to building out its in-house Logistics network. Amazon using independent contractors/service providers for its last mile operation is not new — we believe Amazon has built its dedicated last mile network in at least three dozen US cities since 2015. However, we believe this roll-out potentially signals that AMZN is ready to grow its in-house network to a larger footprint.”

In recent years, Amazon has not been shy about tipping its hand, when it comes to future logistics plans.

This past February, it was reported that Amazon is taking steps to introduce a delivery service for businesses, entitled “Shipping with Amazon” (SWA), that would position it as a direct competitor with the parcel duopoly of UPS and FedEx.

Amazon has been diligent in expanding its own logistics network in the form of things like opening 20 regional sort centers and launching its own air network contracting with ATSG and Atlas Airlines, and getting into ocean freight. Other logistics-related efforts of note by Amazon include things like testing drone delivery of parcels, and building an Uber-like app for freight.

Another area it has focused on is a new delivery service offering, entitled Seller Flex, which could prove to be a major competitive advantage for the e-commerce bellwether in terms of how it negotiates rates with FedEx and UPS. Seller Flex is geared toward making more products available with free, two-day delivery while helping to relieve overcrowded warehouses. According to a Bloomberg report, the initiative will drive Amazon more deeply into services typically handled for the Seattle-based company by UPS and FedEx.