Why Amazon is Encouraging Entrepreneurs to Build Logistics Networks

Amazon is building a strong reputation for leading the trend when it comes to different business models and processes. Typically these start Stateside before making their way elsewhere, so it’s worth keeping an eye on what’s happening there. The latest interesting Amazon development is that they are encouraging individuals to start their own small logistics business. The idea is that these entrepreneurs would have a network of up to 40 vans capable of undertaking small-scale deliveries. This could cost them as little as $10,000 in start-up costs according to Amazon.

It’s all about the last mile

This new program is called the Delivery Service Partners program and you can find out more about it here. Fundamentally you need $10,000 up front, and $30,000 available in liquid assets. Amazon say you could earn around $300,000 in annual profits (with a fleet of 40 vehicles).

Entrepreneurs choose the area they want to work on. They will then go to one of the existing 75 American Amazon stations and deliver them to the customer under the Amazon name. These deliveries are currently usually undertaken by mainstream logistics partners such as FedEx and UPS.

The plan is to help meet the growth in e-commerce without incurring the risk of relying on various external partners. At the moment, profitability is dependent on being able to negotiate competitive terms with these partners. This is important to Amazon given that shipping costs account for a huge proportion of their overall costs.

This is all happening with the aim of gaining more control of both the costs associated with shipping, but also gaining more control over customer service. This is particularly important in light of the fact that in the US there is a shortage of truck drivers.

How will it work in practice?

It’s yet to be seen how this will really work in practice. Amazon is being somewhat cagey about it too. They are not estimating how long it will take to get the program fully working. The vetting involved doesn’t appear to be too complex but they will be leasing Prime-branded vehicles to the successful Delivery Service Partners. It’s then the entrepreneur’s job to source the drivers and undertake the running costs.

Does this differ from Amazon Flex?

In the UK we already have Amazon Flex whereby individual drivers can undertake deliveries for Amazon. This also operates in the US in fifty different cities.

The Delivery Service Partner program works in conjunction with this but is somewhat different. It’s designed to be less piecemeal and ad hoc for a start. It’s designed to better complement the Amazon logistics network overall and be more within their control.

The impact on global logistics

Interestingly, FedEx and UPS shares slumped in the wake of the news. However, at the moment we need to wait and see how many entrepreneurs Amazon can rally, and the long-term impact on other logistics partners. It will also depend on whether Amazon can make the program work successfully ensuring that they are reliable, predictable and of course visible. It’ll also depend on the truth of their claims that entrepreneurs can really bring in the profits they say they will.

Without a doubt though, last mile delivery is once again under the spotlight.

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