The result is a growing number of bankruptcies due to expensive repairs and unanticipated investments to upgrade which Amazon imposes but for which it accepts no responsibility. The question is what this means for the future of delivery - and whether Amazon may face a reckoning as did Uber. JL
Lauren Gurley reports in Motherboard, image by Bill Sykes, AP:
Amazon’s Delivery Service Partner program advertises on its website that its partners can expect to make up to $300,000 in annual profit with as little as $10,000 start-up investment. (But) Amazon’s unilateral ability to control nearly every aspect of their businesses, from audits to payroll to the weightings on the scorecards that determined their profitability to their route assignments to companies that do inspections and assess damages on their vans. Amazon’s ability to change the rules on a whim, and place the vast majority of the liability for their operations on the delivery service partners, made it impossible to make money as a business.One afternoon last July, Jim, an Amazon delivery contractor in Boston who operated a fleet of 30 Amazon vans, received a call out of the blue from Amazon’s corporate offices in Seattle. The caller, who identified themselves as a representative from the Amazon Network Health group, informed Jim that Amazon was terminating his contract to deliver packages, in effect closing his business.
“There were no rumors, no business coach saying, ‘Hey you need to plan for this.’ Nothing,” Jim, who asked to remain anonymous because he wants to stay in the delivery business and fears retaliation from future clients, told Motherboard. “This would be like someone walking into your business and shutting it down and saying we don’t care, you can sue us. I am a pimple on the butt of an elephant when it comes to Amazon.”
Sixteen months earlier, in March 2020, Jim had packed up his life in the Midwest, said goodbye to his wife, four kids, and dog, and headed east with his two oldest sons to open a last-mile delivery company in an Amazon delivery station in downtown Boston. (Typically, a handful of contractors operate their businesses out of Amazon’s last-mile delivery stations, the company’s smallest style of warehouse.) Amazon’s Delivery Service Partner program advertises on its website that its partners can expect to make up to $300,000 in annual profit with as little as $10,000 start-up investment. Jim came to the program with an MBA and nearly 20 years of experience working in the Midwest for the package delivery company Airborne Express, later acquired by DHL.
“My sons and I went to follow the American Dream to be a small business,” he said of his decision to start an Amazon delivery company. “I took a leap with Amazon,” he said, noting how he’d educated himself about the program by visiting his local delivery station, and going to trainings and ride-alongs at an Amazon warehouse.
Getting his bearings on running a parcel delivery service in a new city during the height of the pandemic came with logistical challenges. Jim launched his business as Boston descended into a COVID-19 lockdown, and demand for Amazon deliveries skyrocketed. Adding to the complications, Amazon required all packages in the city of Boston to be hand=delivered to the customer, staffed mailroom, or receptionist, or else the driver would receive an infraction. “Basically we were risking our own lives to deliver Amazon packages. In most places, you are able to go to a front door, take a photo, mark it delivered, and leave. In the city of Boston, if a driver did not give it to a person, he was written up. It took a lot of extra time to contact the customer, wait, and redeliver. We delivered 3 million packages that year.” Amazon delivery companies can lose money from both undelivered packages and packages not delivered to a person. “We were damned if we delivered, damned if we didn’t,” he said. Still, Jim passed his yearly audit with flying colors, according to documentation reviewed by Motherboard.
Sixteen months later, after Jim received the call giving him two weeks' notice for him to wind down operations, he notified his staff, mostly drivers who earn close to Boston’s minimum wage, that he had to let them go. “I went one day and said, ‘We’re done.’ These guys are still contacting me about their W2s and telling me they’re still trying to find work. They had families, they trusted me. How can you treat people that way?”
Jim sent me a payroll spreadsheet listing all 86 of his employees that became unemployed when Amazon shut down the business. "They and their families suffered and continue to suffer,” he said.
Jim is now facing bankruptcy, a destroyed credit score because he can’t make payments, and losing his house. Motherboard spoke to three other Amazon delivery-service partner owners in California, Georgia, and Oregon who said that Amazon’s delivery service partner program had depleted their life savings during the pandemic, and thrown them into tens, or in some cases, hundreds of thousands of dollars worth of debt. All of the delivery-service partner owners asked to remain anonymous because they feared speaking publicly about the significant unpaid debts that they've accumulated. Others wanted to stay in the delivery business and thought telling their story would make it difficult to find new clients. Two owners quit the program because they had amassed so many expenses that it was no longer profitable to continue.
During the time that the owners Motherboard spoke to were cut or struggled to stay afloat, Amazon profited massively. Amazon’s profits hit an all-time record in 2020, and soared 220 percent in the first quarter of 2021.
Meanwhile, screenshots obtained by Motherboard of messages from delivery-service partner owners on Ignite, Amazon’s delivery service partner app, reveal widespread anger and despair over the mounting cost of van repairs during the past year, for example. Amazon advertises the delivery service partner program as an opportunity for those without significant capital to invest to run their own business, yet once launched, business owners become wholly beholden to Amazon and in a precarious financial position. Amazon is currently facing a $15 million lawsuit from two of its former Portland delivery partners that shuttered last year because they “were losing money and employees trying to satisfy Amazon and their constant changes.” The lawsuit alleged that Amazon "controlled nearly every aspect" of two Portland delivery companies' businesses.
Amazon did not respond to two requests for comment for this article and a series of questions about how it decides to terminate the contracts of its delivery service partner owners.
When I spoke to Jim on the phone in February, he tallied his debts. He owes $350 a month for a two-year lease on a parking spot and $1,800 a month for the apartment in Boston. He owes $3,200 a month for a five-year lease for the parking lot for his Amazon delivery vans and $1,200 a month for the office space where he ran his company. He signed and extended these leases because he had passed all of his annual Amazon audits. He had even received a trophy and note from Amazon congratulating his team for delivering 3 million packages that year. (Amazon conducts annual comprehensive audits, or reviews, of its delivery companies—everything from payroll to insurance claims to van inspections to drug testing, in addition to periodic audits that can occur anytime about any aspect of its delivery-service partners’ business without warning.)
But Jim’s biggest expenses are for workers’ compensation claims, leases on his vans, and van damages. He owes $23,996 for workers comp claims, according to a letter from his insurance provider. He has yet to receive an assessment for damages on his fleet of delivery vans, often the largest expense for Amazon delivery-service partner owners.
“It was horrible, absolutely devastating,” Jim said about Amazon’s termination of his contract, noting that Amazon did not tell him why it ended his contract. (Motherboard obtained the separation agreement that Amazon gave Jim, which promises $10,000 if delivery service partners agree to all of its terms including an NDA.) “They didn’t explain anything. They just strong-armed me. I’m humiliated and embarrassed. We were working seven days a week. We never took any salary or pay. We left it in the business.”
The stress of working with and losing his contract with Amazon, he says, has likely taken a toll on his health. In November, he was diagnosed with a heart condition. “I didn’t have one before I moved to Boston. But now I have it and have to take medication,” he said. “Could you imagine how depressing it is to get fired when you think you’re doing great and making big plans and there’s no recourse you can take?”
“Everyone in my station had issues making any money. ‘We’re bleeding’ is the common term that was used. It means we’re dying. We’re not making money. We’re in the red,” one delivery service partner owner in Atlanta, a 62-year-old African American veteran, who opened her business in October 2020 and exited the program last August, told Motherboard.
All four owners told stories about Amazon’s unilateral ability to control nearly every aspect of their businesses, from Amazon’s audits to payroll to the weightings on the scorecards that determined their profitability to their route assignments to companies that do inspections and assess damages on their vans. They all also said that Amazon’s ability to change the rules on a whim, and place the vast majority of the liability for their operations on the delivery service partners, made it impossible to survive or make money as a business.
In 2018, Amazon debuted its Delivery Service Partner program, advertising the program as an opportunity for “aspiring entrepreneurs” to build small businesses using Amazon’s technology, processes, and decades of experience in logistics. The program offers special incentives for veterans, Black, Latinx, and Native American owners. The tagline is “Own Your Success.” In addition to annual profit of $75,000 to $300,000, the brochure for the program says that “successful” delivery companies can expect $1 million to $4.5 million a year in revenue.
At the same time, this program has allowed Amazon to reduce its reliance on UPS and the U.S. Postal Service, and speed up delivery times for Prime customers by running operations around the clock. Its reliance on small, tightly controlled contractors has allowed Amazon to increase the speed at which customers receive their orders but without taking on the enormous liabilities of parcel delivery, which include accidents, injuries, van damage, and upkeep. Instead those liabilities are placed on small business owners, who are responsible for their drivers and the maintenance of their fleet of delivery vans.
In April 2020, Randy, a former delivery service partner from Boise, Idaho, sold his house and relocated his wife and two daughters to Portland, Oregon, to start Red Horse Logistics, a delivery company out of an Amazon warehouse in the foothills outside downtown Portland. Randy had had a positive experience working in an Amazon delivery station as a shift assistant and was impressed by the company. He would have preferred to stay in Idaho, though, where he’d spent his whole life, but Amazon said he could wait six to 12 years for a spot in Idaho, whereas Portland had an available opportunity.
A few months after he moved to Portland, Amazon asked Randy to move his business to another Amazon delivery station 13 miles away on the Willamette River. “They said, ‘If you transfer, you can make more money. You’ll have a bigger team, more vans, more money,'"' he said. So he moved, but Amazon continued to make changes that he felt he had no control over that hurt his performance.
“Starting one day, all your routes could be in a different town. When I started, all my routes were in the suburbs; then one day, they’re like, ‘All your routes are in a very busy part of northern Portland. You have to adapt. There’s nothing you can do.” Another time, Randy was audited by Amazon for his drug-testing process. (Amazon requires all delivery service partners to periodically drug test their drivers and send in the results to Amazon). Randy had used the same drug test provider recommended by other delivery service partners in his building, but one day, Amazon sent him a breach of contract letter threatening to end his contract because his drug tests did not show individual negative results, only positive ones. “They said this policy has changed. As of now, you’re in breach of contract. And I said ‘How was I supposed to know if you didn’t notify me,?’ and there was no explanation of how you could avoid this in the future,” he said. “The problem is this program is considered a partnership, not a dictatorship.”
Randy’s delivery service company didn’t always have the best performance metrics of his station, but when it came time for his annual audit, his Amazon business coach—all delivery service partners have access to a coach from Amazon who provides advice on how operate and scale up a delivery business—told him “there’s no way you’re not getting your contract renewal.” A performance summary for the first three quarters of 2021 said that his average “Team Tier” was “fantastic.” Amazon periodically rates its delivery companies on a scale from “poor” to “fantastic plus.”
But in February 2021, Randy got an email from a senior regional manager asking for a 15-minute phone call.
“A woman named Stacy said, ‘Hey you have 30 days to shut down operations and you can’t tell your drivers for two weeks.’ They said they’d pay me $10,000 to sign an NDA.” The call only lasted five minutes, and Randy said he was offered no explanation for why Amazon was shutting down his business. Motherboard obtained a copy of the NDA titled “separation agreement” that includes a “transition plan” with a full script for how business owners should break the news to drivers. Amazon’s script begins: “Thank you everyone for meeting today. The purpose of this meeting is that I wanted to announce to you today that the business relationship between the Company and Amazon will end on [Amazon's determined date.] I know this news may be upsetting to you, but my goal today is to be available to answer any questions.” The agreement goes on to say that Amazon has the “sole discretion to determine the content of the communications that the delivery company has with workers about the termination.”
TRANSITION PLAN
After the call, Randy was immediately cut off from Amazon's Ignite platform, an app which allows delivery service partners to communicate and raise questions, even though he still had 30 days left at Amazon. He refused to sign the NDA, and soon told his more than 50 employees that they would all lose their jobs and contacted a bankruptcy attorney.
Since receiving that phone call, Randy has depleted his life’s savings of $80,000 paying out his drivers’ vacation time and other expenses. His conservative estimate is that he still owes $90,000 for van damages, workers’ compensation, health insurance for his employees, and rent on an office in nearby Vancouver, Washington. A recent invoice from Element, Amazon’s fleet management company, shows he owes $34,120 for van damages. “Before this, I had $80,000 in my personal account. I now have zero after all the bills I’ve paid. My business account is completely drained. We had to sell personal cars, downrate everything to make it back here [to Idaho].” The fallout of losing his company and employees brought on “a pretty dark six months of anger and depression,” he said.
A FORMER AMAZON DELIVERY SERVICE PARTNER'S ACCOUNT STATEMENT FOR AMAZON VAN LEASES FROM ELEMENT FLEET CORPORATION, AMAZON'S FLEET MANAGEMENT PROVIDER, FROM 2021.
“Getting this contract ripped out completely bankrupted me,” he said. “I had nothing to my name after I moved back. If I have to file for bankruptcy, they can come after my credit, my vehicles. I couldn’t get a loan on a car or buy a house.”
Amazon pays its delivery companies roughly 10 cents per package delivered, roughly $150 per day per route, and covers the cost of gas with additional bonuses of roughly 15 cents per package for achieving the highest performance metrics. (These numbers vary regionally across the United States based on the cost of doing business.) Amazon does not reimburse delivery service partners for expenses such as insurance claims, overtime pay, tows and repairs, leases on vans, van damages, workers’ compensation claims, office space, parking, parking and traffic tickets, labor costs for recruiters and dispatchers. Van damages are among the steepest of these costs, and often exceed $100,000 a year, delivery service company owners said.
Screenshots obtained by Motherboard from Ignite, Amazon’s internal community platform for delivery service partner owners, suggests that Amazon’s small business owners around the country are experiencing widespread financial distress due to the cost of repairs for van damages that Amazon offloads onto them.
“I spent $33,000 on damages on 20 vans before…but Element is ‘HELPING’ me out by giving me 90 days to pay the bill, starting July 20. But hey ‘that’s the cost of doing business’!” a delivery service partner wrote on June 22.
“Please fix this ASAP. This process ruined a family relationship. Post peak 2019 we had to give back 24 Vans on short notice. My younger brother got them fixed and the cost exceeded $125k….Fast forward to Monday and I get a bill from Element. $30k for damages on 14 vans…..I’ve championed this program to many people. I’ve pitched it to former Pro Athletes. Have been a personal sounding board for others. In theory this program is awesome. Theory is not reality. And we need some major changes to the Fleet process,” wrote another delivery company owner.
“I turned in a total of 47 Vans but I’ve only received an invoice for 38 of them averaging $7,000 per van. I’m estimating a total of $336,000 after the Amazon discount,” another owner wrote on June 22.
According to a confidential 25-page guide obtained by Motherboard that defines “wear and tear” on Amazon vans, Amazon charges delivery service partner owners for “excess damages,” but not normal wear and tear on vehicles. ‘The definitions change based on the location and visibility of the damage. We do this to ensure a high brand image and not repair damage that isn’t visible or doesn’t impact safety,” the guide says.
Three delivery service partner owners told Motherboard that despite this guide’s existence, Amazon frequently charges its delivery service partners for damages, such as replacing car doors or ripped seats, that occur because of heavy, repeated use of the van.
For some Amazon delivery companies, the burden of these expenses means that they’re operating at a loss. And in cases, where Amazon does want to renew contracts, some business owners voluntarily exit the program rather than take on more debt.
Such was the case with Angela, a 62-year-old Amazon delivery company owner in Atlanta and a vet who served in the army for 24 years as a logistician—experience she thought would come in handy in last-mile delivery. She launched her Amazon delivery station in October 2020, but could not scale up to enough routes to make her business profitable. As is typical, Amazon started her out with five routes, then increased to 10 or 15 routes per day, but despite promising over 20 routes, she never was offered that many. (Amazon’s website says in fine print that turning a profit of $70,000 to $300,000 a year is based on the assumption that delivery companies run 20 to 40 routes a day.) “My average was 10 to 12 routes a day,” she said. “But there’s no way you can be profitable running less than 20 routes. Even with 20 you can’t be profitable. Imagine running with half of that.”
Angela shut down her business in October 2021 because she saw herself falling deeper and deeper into debt. According to an invoice, she currently owes $64,465 for damages on 20 Ford Transit vans.
A FORMER AMAZON DELIVERY SERVICE PARTNER OWNER'S INVOICE FOR VAN DAMAGES FROM AN AMAZON FLEET MANAGEMENT PROVIDER FROM FEBRUARY 2022.
When asked whether she could pay off these debts, Angela said, “Hell no, I won’t be okay. I don’t have $64,000. I have been totally in a state of depression from the time I left there. I’m the kind of person who always has an excellent credit rating, pays every bill. I’m in counseling for anxiety and depression. I’ve gone through divorce, been a single parent, a vet, and never had to file bankruptcy. Now to think I might have to do that weighs on me very heavily.”
Sam, a former Amazon delivery service partner with decades of experience working at Silicon Valley tech companies, shuttered their business in September based out of an Amazon delivery station in San Francisco. They told Motherboard that their business was profitable when they started in 2019, but as Amazon’s system for scoring delivery service partners got more and more complex and their routes longer and higher volume, making California’s law requiring businesses pay workers overtime after eight hours of work kick in, they no longer had a cashline to cover all of their costs. During the pandemic and wildfire season, routes would take drivers more than 10 hours. Routes that started later in the day, due to a change in scheduling known as “megacycle” meant drivers were on the road after dark and getting into more accidents. It also meant hiring more dispatchers. “We had to get tow trucks that cost $400 to $600, there goes all day's profit,” they said.
In the end, Sam says they quit because “it wasn’t sustainable or worth the amount of risk. One bad accident or a few major accidents could wipe you out for an entire year. As an hourly employee, when the routes got huge, you needed to be a robot. That’s not fair or fun. Same for the owner, you didn’t have room to decide. You couldn’t afford to keep people safe if there were fires or have a say in the matter. It’s not worth working that many hours to take that much risk to make hardly anything.”
Sam said that although they exited the program to avoid mounting expenses, they’re still in hundreds of thousands of dollars of debt for workers compensation insurance, van damages, and forfeiting $1,000 deposits on 27 vans. They worry that they’ll lose their house if they have to file for bankruptcy when the leasing company and insurance come for their claims.
“The sad thing is we were one of the top performing delivery service partners in the station,” they said. “It’s not like we had bad drivers, we had really good scorecards. We hit our metrics. We just couldn’t afford to be out there for 10 hours. That comes straight out of your pocket. I’m pretty devastated after having worked so hard and scaled so quickly.”
Randy and Jim both suspect they had their contracts cut because Amazon had opened too many delivery service partners in their delivery stations and wanted to scale back and lacked the incentive to keep contractors in business.
“I think what Amazon did is they went under contract with too many DSPs, and they had to shut down my delivery station,” said Randy. “Suddenly they were like ‘oh my gosh, we need to cut people’ and my contract date was coming up. And they were like ok let’s trim the fat. What more of a slap in the face when you do everything they ask you to, and then they say goodbye.”
“I was ‘fantastic plus’ [Amazon’s highest rating.] I was robbing the bank but they opened too many DSPs in my station,” said Jim. “The public views Amazon as a tech genius but they’re so centralized that they don’t understand that kind of problem. Amazon could care less about me as a family run business and that won’t stop until customers stop buying or they get sued.” Amazon gives its delivery service partners a weekly scorecard that ranks delivery companies on dozens of safety and performance metrics and determines whether they receive bonuses that are key to being profitable. Jim provided Motherboard with a scorecard from 2021 where his team had received a “fantastic plus” rating.
“I hope that it gets out to enough people that they don’t end up in the same position as us,” said Randy, the Amazon delivery company owner in Portland. “The reality is it’s not about money. It’s exposing corrupt corporate America picking on little guys kind-of-deal that was pretty eye opening for me. From the second you launch and sign a contract, you get in line and follow orders. If you don’t, you’re gone. Everything is a threat.”
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