Nation & World

Amazon helping entrepreneurs start delivery companies for its packages

It wants to reduce last-mile costs

Photo Illustration by Liz Martin/The Gazette

Amazon Prime boxes stacked up in Cedar Rapids.
Photo Illustration by Liz Martin/The Gazette Amazon Prime boxes stacked up in Cedar Rapids.

Amazon.com is asking small-business owners to help deliver its goods, seeking to reduce its reliance on the U.S. Postal Service and other major delivery services as the number of packages it ships continues to climb.

The online retailer, which last year shipped more than five billion packages through its Prime program, this past week said it is looking for hundreds of entrepreneurs “with little to no logistics experience” to set up their own delivery businesses — complete with Amazon-branded vehicles and uniforms. (Jeff Bezos, the founder and chief executive of Amazon, also owns the Washington Post.)

“Customer demand is higher than ever and we have a need to build more capacity,” Dave Clark, Amazon’s senior vice president of worldwide operations, said in a statement. “We are going to empower new, small businesses to form in order to take advantage of the growing opportunity in e-commerce package delivery.”

But labor professors say the arrangement allows Amazon to reap the benefits of a vast delivery network without having to shoulder many of the risks and liabilities involved.

Amazon has been looking for ways to cut costs on the so-called last-mile of deliveries, which is often the most expensive part of the fulfillment process.

Last year it introduced Amazon Flex, which allows independent drivers to pick up shifts delivering packages around town. Amazon now allows delivery workers to take packages straight into shoppers’ homes or, in some cases, their parked cars.

Amazon’s dependence on services such as the U.S. Postal Service, UPS and FedEx, which currently deliver the bulk of its packages, also has downsides.

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There have been delivery delays and capacity constraints during the holiday season. And shipping costs are one of Amazon’s biggest expenses, especially amid a rise of Prime orders, which promise free two-day delivery.

Then there’s the political cost. President Donald Trump, in a series of tweets, has attacked Amazon for “costing the United States Post Office massive amounts of money for being their Delivery Boy.” (The Postal Regulatory Commission, an independent federal agency, oversees the Postal Service’s pricing structure and reviews its contract with Amazon annually to make sure it continues to be profitable for USPS.)

Amazon has built up a fleet of more than 6,000 trailers and nearly three dozen cargo jets to bulk up its long-range delivery network.

As part of the new program, each small business could have up to 40 delivery vehicles and 100 employees, Amazon said.

The company said it will help keep start-up costs to about $10,000 by offering discounts on vehicles, uniforms, fuel and insurance coverage.

Amazon also is setting aside $1 million to help military veterans interested in starting their own delivery businesses.

By using independent contractors instead of Amazon employees to deliver goods, the company can avoid paying benefits such as overtime, workers’ compensation and unemployment insurance, according to Benjamin Sach, a professor of labor and industry at Harvard Law School.

“This a risk shift we’ve seen across the gig economy, as companies convert people who should be employees into independent contractors,” he said. “There could be a whole host of issues here.”

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Others pointed out that small business-owners would be completely dependent on Amazon for work and wages. The company, for its part, says business owners with 20 to 40 vans could make between $75,000 and $300,000 in annual profits.

“This would give even more bargaining power to Amazon by making the worker completely reliant on them for wages, schedules and stability,” said Stephanie Luce, a professor of labor studies at the City University of New York.

“It represents a general trend of increased power for employers as workers sign away their rights.”

Others, though, likened Amazon’s ambitions to a franchise business model, in which a company such as McDonald’s might handle branding and marketing, but leave day-to-day operations up to local owners.

“There are certain things that big, centralized companies do well but there are other things where local people know better, and last-mile delivery is one of them,” said Paul Oyer, a professor of economics and entrepreneurship at Stanford University’s Graduate School of Business.

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