Disruption – Delivery

Traditionally the big companies that handle “last mile” package delivery are Fed Ex (ticker: FDX), UPS (ticker: UPS), and of course the US postal service. These companies have hundreds of thousands of employees (often unionized) and billions of dollars of planes and trucks and other transportation assets.

Amazon (ticker: AMZN) recently began expanding their transportation capabilities, both in the form of their own airplanes and leveraging an “Uber-like” workforce of contractors leveraging an app to deliver packages in their own cars with a program called “Amazon Flex“.

This article on Geek Wire describes someone’s experience with being an Amazon Flex driver for 2 days. It is very interesting how he just downloaded the app, passed a background check, and showed up at the facility and picked up his packages. Customers were surprised just to see a regular guy doing the delivery and he rang the doorbell often and talked to them as he did his rounds at night.

From the article:

Amazon Flex, like other gig economy services such as Uber or Postmates, provides people with an easy way to make some cash. Signing up is simple; the work isn’t too demanding; and you get paid within a few days.
Amazon says you can make up to $18-to-$25 per hour. After subtracting costs of gas; parking/tolls; smartphone data usage; and wear and tear of your car, the pay seems to be a little more than minimum wage

From a recent “Gizmodo” article on Amazon Flex called “Amazon’s Last Mile“:

UPS spokesman Dan McMackin told Gizmodo that Amazon is not a threat to UPS—whose drivers are both full employees and the single largest contingent of long-lived Teamsters labor union—because “ecommerce is bigger than one customer.” In his opinion, good courier work requires a skilled, consistent workforce, and retaining that pool of labor means providing solidly middle-class wages and benefits.

This service by Amazon seems like it will be a significant challenger to UPS and Fed Ex. By paying near minimum wage with no benefits AND having no fleet or fuel costs Amazon seems to have a service that would be able to significantly undercut these other transport companies. In addition, the Amazon service can “scale up” to meet demand and then scale back during slow periods at no cost, while their competitors have to build capacity in terms of staff and equipment that is essentially idle during slack conditions.

Seeing what Uber did to the cab industry, the smartest action by the (mostly unionized) competitors would be to try to block this service in court and burden it in red tape and other regulations by using their legislative connections in congress at the local, state and Federal level. Clearly, delivering packages isn’t a complicated business with the advent of modern technology and a company the scale of Amazon and once this sort of service becomes ubiquitous and benefits consumers (in terms of lower costs) it will be very difficult to put this genie back in the bottle.

Cross posted at LITGM

17 thoughts on “Disruption – Delivery”

  1. Minimum wage isn’t necessarily a bad deal if you’re a recent immigrant with limited English. Many Uber drivers in Miami seem to be in this category. They are as able as anyone else to drive and, with apps, navigate. They set their own hours and the work isn’t difficult or dangerous. Plenty of people will take that deal and it will be no different for package delivery.

  2. Whatever that Scion driver is making for the delivery I doubt it it compensates for the wear on that poor little car.

    I’m sold on Uber. I remember waiting an hour for a taxi – calling the dispatcher to see if they forgot me.

    and with what UPS has done with their retail rate structure, more competition won’t hurt them (well maybe it will ;-) )

  3. This is a really good idea i hadn’t heard of until reading this.

    “the smartest action by the (mostly unionized) competitors would be to try to block this service in court and burden it in red tape and other regulations by using their legislative connections in congress at the local, state and Federal level.”

    There are probably two different courses a company like Fed ex could take.
    One, write into the contract that shipping cannot stop at the warehouse (I’m assuming they’re all collected at warehouses, somewhere, and then shipped on to individual locations?).

    Two, maybe this would even benefit fed ex? It’s possible the transit to individuals is the most resource wasting part of the process.

  4. The union will lead the charge to regulate the competition out of business. It would be difficult for UPS to convert to the long distance model that doesn’t do the “last mile”. Not impossible, but the union will go ballistic.


  5. The biggest problems with the “gig” economy is the massive miss classification of workers who are treated as “independent contractors” as opposed to employees.

    What happens if the Amazon Flex driver hurts himself delivering an item? What happens when an Uber driver get’s hurt? If I hire someone from TaskRabbit to sweep my driveway, what happens if that person is injured?

    Also, most workers in these setups fail to realize that for every $100.00 they get they owe $15.30 in FICA and MEDI (AKA Social Security) Taxes. An Uber driver/Amazon Flex etc. guy or gal who makes $40,000.00 a year after expenses owes $6120.00 or more depending on if they filed taxes at the right times in the right formats. How many people living week to week on $800 are saving $120.00 per week? (note I am talking about SS only not any Federal, State or local income taxes)

    If these guys and gals never file taxes, guess what, they may not qualify for Social Security retirement or disability, or if they do at a much reduced rate then could otherwise have. With a republican in office we now get to read more sob stories about the homeless. When you read one, notice how little some people get from SSDI or SS.. Mostly this is due to “beating the system” over their lives until it was too late.

    There is a reason that an employee has taxes withheld from each paycheck they get.

  6. Also, most workers in these setups fail to realize that for every $100.00 they get they owe $15.30 in FICA and MEDI (AKA Social Security) Taxes.

    From the article:

    My job was done after 71 minutes and 20 miles of driving, with a burger break in between — not bad for $60.

    The IRS mileage rate is 53.5¢ per mile so take $10.70 off that $60. He’ll pay $7.54 FICA on that day’s pay netting him $52.46 for 71 minutes of work.

  7. Pouncer, Domino’s delivery drivers are normally employees not independent contractors.. If they get robbed or into an accident, they get Workers’ comp.

    Capitalist Roader, The guy made great money, good for him. 1. What would happen if he got hurt? 2. Do you really think he is filing a quarterly tax payment then tracking mileage and writing that off his return? Or is he pocketing the money to spend on beer? (which is what my younger self would do)

    I have a watch that makes phone calls, when our labor laws were written the only person who had a watch that made phone calls was Dick Tracy.

    Our labor laws are outdated, just pointing out that Uber etc. are operating in a crack that the writers of our labor laws never imagined. And there are real work world consequences to the way these companies now operate.

  8. That Scion photo was just one I had in my pictures, it isn’t of Amazon per se. I thought it was nice for the post, though :)

    These companies certainly are developing new employment models on the fly. They also are leveraging assets owned by their contractors (cars) for the actual delivery which is another form of innovation.

    Another part of innovation is that they can do deliveries at night when people are home rather than just during the day. Normally it is expensive to fill the night shift but not with contract labor, especially when they can pay a slight premium / surge to get folks to take those shifts. Since most people are gone during the day (working / school) – delivering packages in the evening likely will cut down on theft but I’m just speculating here.

    It is amazing what will happen as these business models evolve. These companies also price their services at the marginal cost of labor. This will be a topic for a future post. They don’t price them at a point where it makes sense to buy a car and get into this business… they are aiming at someone who already owns a car and is trying to eke out some $ likely to cover payments net of gas and the value of their time.

  9. It looks like that poor little car has a flattened rear tire, too!
    My daughter did part-time deliveries for a local enterprise during their various holiday rushes – she found it very stress-full, even though quite-well-reimbursed, and the wear and tear on her car got to be too much. The people who had the local franchise were very pleasant to work for, and as she was one of their responsible drivers, she did get called frequently.
    Not a job I’d like to do for pin-money, though.

  10. Capitalist Roader, The guy made great money, good for him. 1. What would happen if he got hurt?

    Go to the doctor? Self-employed people get to deduct their health insurance premiums, just as employers get to deduct employee health insurance premiums.

    Employers have been thought of as parental figures ever since the IRS said that health insurance premiums didn’t have to be taxed back around WWII. Which is odd when you think about it. What’s so special about health insurance? If your employer furnished you an apartment that would be taxed as income. Ditto if your employer bought you groceries. Or paid for your personal car. Why shouldn’t health insurance premiums paid by employers treated as taxable income?

  11. The deductibility for employers of employee health insurance premiums was an accommodation to employers to allow them to increase effective worker compensation under wartime wage and price controls. There is no reason other than political inertia to perpetuate it.

  12. So when are wage and price controls not wage and price controls? Why when your union has political pull in DC of course. It all depends on what “is” “wage and price controls”.


  13. I came back from California Tuesday night to find an Amazon package left at my house that was addressed to a house with the same street number but a street three streets up the hill.

    I drove over and dropped it off but no one was home. He’s probably calling Amazon to complain.

    We were gone six days.

  14. I plan to do this when it hits Vancouver Island. My new car is efficient, very efficient and a hatchback as well.

    You only have to do what you want, when you want, and if it’s not really viable, it will be obvious quite quickly.

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