Business model

Amazon and FedEx business model targets driver compensation analysis

A large, ugly sea monster broke the surface of the ocean in April only to fall back under the waves in August. Almost no one noticed. They should have.

OK, it wasn’t the ocean. It was a federal court in the state of Washington. And it wasn’t a sea monster, it was Amazon, the fast-growing, social, commercial transport monster.

In April, with little fanfare, a California-based Amazon package delivery contractor filed suit against the company. The effort was in vain. Amazon said the complaint is up to arbitration, not the courts. Last month, a federal court in Seattle ruled in favor of Amazon. From now on, the case – if the entrepreneur decides to continue – will not be argued in public court, but before an arbitrator and in private. It is unlikely that we will ever know the outcome. The monster fell back under the water.

The contractor involved is not an independent owner-operator, but a small business that hires and supervises local delivery drivers. Amazon’s packaging operations have grown exponentially in recent years.

So should truckers care about a package delivery lawsuit?

You bet, and I’ll explain. But first a bit of context.

Contractor Dissension

Earlier this summer, former FedEx Ground contractor Spencer Patton went public with complaints about the carrier. The media covered Patton’s gathering in Las Vegas with his fellow entrepreneurs and his threat to stop shipping the day after Thanksgiving, America’s busiest shopping day. FedEx Ground did not have one. They summarily dumped Patton’s contracts and kicked him off the bus. The FedEx Ground contractor insurrection that Patton alluded to did not happen.

After this story appeared here on Land Line, an Amazon Logistics contractor contacted me with a similar story. I promised not to reveal his identity.

“Certainly the same concerns expressed at FedEx were expressed at Amazon, because no one got a raise and a pay rate increase for anything for two years, despite the skyrocketing cost tires and everything else,” said the entrepreneur.

“Amazon controls everything. We hire the people, and we have the insurance and take the risk of the vehicles, but everything else is dictated by Amazon,” the entrepreneur explained. He emailed a document from Washington’s trial. It was something much discussed by Amazon contractors in private Facebook groups and other closed platforms, he explained.

Amazon’s Fli-Lo Falcon Trial

The lawsuit was brought by a California entrepreneur called Fli-Lo Falcon LLC. I couldn’t find the contact details for the company. Fli-Lo’s attorney did not respond to my request for information, nor did Amazon. But while Fli-Lo’s case sank into the sea of ​​arbitration secrecy, the trial’s public record did not.

In it, Fli-Lo accused Amazon of “fraudulently” telling potential entrepreneurs that they “would own and operate independent businesses making profits between $75,000 and $300,000 a year.” But according to the lawsuit, Amazon “uses its technology and control to limit the ability of DSPs to realize the profits depicted.”

DSP stands for Delivery Service Provider, a subcontractor of Amazon.

The first 30 pages of the lawsuit document Amazon’s ultra-detailed control over contractor operations, including the right to veto almost any decision a contractor might make. I’m sure some entrepreneurs have done well. I’m also sure that many entrepreneurs haven’t. Either way, as a delivery contractor for Amazon, you’re about as independent as a harnessed workhorse.

All of this has served to highlight a harmful and growing anti-worker business model.

a lot in common

Amazon and FedEx Ground have a lot in common. Let’s call it the Fedezon model. The two outsourced not only the delivery trucks and drivers, but also their supervision – a whole level of business management. Contractors work for fixed rates while absorbing variable costs – higher fuel prices for example. Under restrictive contracts, they simply cannot increase their income. They can only push drivers harder and pay them less.

So why should truckers care?

This business model has evolved from FedEx Ground to the much newer Amazon operations. The Fedezon model could spread further. This might not work for most large fleets, but it might for some. This could be particularly attractive if the traditional owner-operator model begins to erode like in California. We still don’t know how California intends to enforce AB5, but in one scenario, individual owner-operators could become corporate drivers for small businesses under exclusive contract with large commercial or private carriers. .

Even if a carrier simply leases the truck from a former owner-operator but pays him as an employee, that driver will likely lose an important owner-operator prerogative, the right to refuse a load.

The tacit reason of the economic model

As is now evident, becoming a contractor for Amazon or FedEx Ground is a gamble. It’s like being a middle manager with all the constraints of working for a big company. Sure, you have a business budget – but with a big difference. Anything you spend beyond this budget comes directly from your salary.

It’s important to realize that while proponents praise the Fedezon model for its efficiency and the opportunities it offers brave entrepreneurs, it was created for two overriding reasons – reasons no one talks about.

The Fedezon model generally exists to keep driver pay low and specifically to keep unions out. If a union organizes a contractor’s drivers, that contractor will be left without a contract. Period.

One final thought: Amazon recently launched a program to help contractor employees get an education, including college. Yes, that’s a big plus, but perhaps with an unintended message: “You need an education to earn the fair wage you won’t get here.”

In my opinion, for the good of all workers, the Fedezon model should be banned. LL