Is Amazon Logistics a better opportunity than FedEx routes?
I’ve been watching the landing page Amazon Logistics application page for quite a long time and saw it recently change in late June 2018.
Since history tends to repeat itself, we can get an idea of where we are now by looking at how we got here.
For those of you that missed what that Amazon Logistics page used to look like, it was a page where Amazon was advertising they needed help with delivering packages from existing transportation contractors. It was basically free to get started, almost similar to the way FedEx started when the original routes were given (or were dirt cheap) as FedEx Express started to expand its newly created Ground division resulting from the acquisition of RPS in late 2000. The difference is that FedEx always was exclusive and didn’t want someone delivering stuff for a shipper besides FedEx, but Amazon didn’t mind at all.
For Amazon, I don’t think there was enough volume such that they could pay as little as they wanted to and for the contractor to really be able to have a profitable business. The contractors needed to have income from other deliveries and then when there were a few packages to deliver for Amazon, it was only minimal effort to make the amount Amazon was willing to pay.
Now, that web page has 2 notable changes: 1) You have to pay $10k to get started and 2) You don’t need to be an established transportation company that wants to add on Amazon deliveries.
So, it brings up a couple very good questions:
1) Is buying an Amazon route worth it?
2) Are Amazon routes actually profitable?
So let’s dig into each of those:
1 – Is an Amazon Logistics business a good alternative to buying FedEx routes?
To address the first question, the issue here is that we simply don’t know enough yet. For people that have worked with me in learning strategies to evaluate FedEx routes, they know that the stuff we cover is specific to FedEx and not vague ideas like ‘business’ or ‘management’ in general. For example, if you don’t know the contractual requirements specific to FedEx on what it takes to continue to renew your contract, it doesn’t matter how many MBAs you can stack up on top of each other or how much alphabet soup comes after your name, evaluating a route becomes impossible. This is why many incredibly brilliant and successful business leaders have reached out to me to learn more on FedEx routes specifically, as they’re already very financially and business savvy in general.
The same problem of needing specific company information is going to occur for Amazon route evaluation.
While anyone can make decent guesses on things if they’re already experienced in FedEx, logistics, or business, those guesses will have a limited amount of value without having specific knowledge of Amazon. This is precisely why the training I give on route evaluation must be very specific and unique to FedEx routes. Someone’s experience reading hundreds of P&Ls of random businesses in the past doesn’t help us evaluate FedEx routes to the degree that I think is needed for proper evaluation.
Understanding whether it’s worth it or not starts to come clearer from what we can see in the requirements that Amazon has laid out. Two things stick out there, 1) Amazon mentions it being a 7 day a week, 365 days per year operation, and 2) Amazon states that they want their owners to be hands-on.
I don’t buy the absentee hype that some FedEx routes tend to carry. However, it’s definitely possible and I know several absentee contractors that are doing well.
I know someone personally that won the mega millions lottery as well back in the 90s, does that mean I advise playing the lotto?
While the majority of successful FedEx contractors are not absentee, I do feel that FedEx is a lifestyle business where you’re not working nonstop. A lot of people think they own a business, but in reality, the business owns them. FedEx, for the most part, should be a business YOU own and not the other way around and it’s one of the many reasons that I think some FedEx routes can have the potential to be a massive opportunity for the right person (there’s lots of italics in that statement).
I could change my tune as more info is revealed, but from the sounds of it, Amazon is going to own you and not the other way around.
And maybe that’s ok for you with where you are in life.
Or maybe finding the cash to buy a FedEx route (or even a down payment amount, if you were looking into financing a FedEx route) is so out of reach that it’s the difference between having to stay in the current awful business / job you’re in now vs getting your foot in the door in transportation by getting started at Amazon.
If the only other business or franchise you can start for $10k is a carpet cleaning business, Amazon logistics may be the opportunity of a lifetime. For those with options though, FedEx continues to strike me as a tremendously appealing alternative.
Stepping back from the projected cash flow, you need to consider your lifestyle at the end of this tunnel.
2 – Are the Amazon Logistics routes actually profitable?
The biggest question I get on FedEx routes is trying to validate if the net income is accurate from what’s being claimed and how to best figure it out. That’s the easiest part of the due diligence game in terms of coming up with estimations of income, basing it off of a tremendous amount of data points to come up with good ideas on what’s really going on and how much the seller has potentially exaggerated.
Verifying only the net income on a FedEx route is a sure fire way to get screwed when you buy a route.
This is counter-intuitive to people, and this is also where it pays to have an extra set of eyes looking at the route you may have been digging into. The reason why is because if you’re not considering the sustainability of a FedEx business, you’re blind to a lot of what the sellers are doing to manipulate their business to be better. That said, I don’t think all sellers / brokers are evil, but inevitably the mistakes on P&Ls and other critical documents always tends to favor the seller in its ‘error’ form. Maybe it’s just a coincidence that it’s always errors in their favor, but I doubt it.
The same logic has to be pertinent for Amazon as well.
Before I get to my next point, there’s a couple important stats to keep in mind: 1) there’s estimations that Amazon is nearly 50% of the eCommerce share, 2) eCommerce is only about 9.5% of the US retail sales.
Therefore, let’s all take a deep breath from the hype, to point out that that Amazon only has about 5% of retail sales.
That’s still a significant figure, and I certainly don’t believe Amazon is going to stay at that level, but when people are yelling that Amazon is a monster that’s taking over the world, it’s good to have some perspective.
When people see eCommerce as the future and growth in FedEx and UPS, they think buying a FedEx route has little to no risk unless something insane happens (eg. teleported packages, drone delivery).
Of course, this is not true and FedEx routes have elements that can be exceedingly risky depending not only on the route, but for the specific person. That sounds crazy to think that the exact same ‘safe’ business is incredibly risky for someone else, but consider how true this is for a moment. If someone gets a loan and uses up every drop of their money such that they have a dangerously low amount of working capital for a new truck, that business may fail. Contrast this to the same business with someone that has additional working capital to get a new truck, and therefore has low risk of failure in the event of truck breakdowns for that business. There’s definitely other examples like this that are important and specific to FedEx routes.
Therefore, I think we’ll start to have some questions on Amazon routes that aren’t P&L based.
How transferrable are the contracts? Even in FedEx, some people go through all their due diligence, negotiations, and so on and discover during the interview with FedEx management, that they have their contractor’s application rejected and therefore not allowed to buy the business. It doesn’t happen often, but it definitely happens for sure.
So, how will it be for Amazon? Will Amazon readily let you sell your business later on as it grows? How long would you have to own it before they allowed the transfer? Would they take it back themselves? Will there be a “golden boy” contractor that they just give the routes to and not give you any compensation?
If you can’t sell your business at all, you don’t have a business, you have a job you paid for.
This is just one of the points I start to think about, among many others, and we simply won’t know until some amount of time that passes. Even if you researched 1,000 articles, it’s likely that things could change. I’ve worked with many FedEx contractors that want to comb through every word of the FedEx contract – this is definitely a very good idea, but latching onto what’s said can potentially be an issue. The problem is that FedEx changes those contracts and they often have short durations of 3 years or less. FedEx has been doing this for decades and is still working out kinks here and there in their own contract, therefore I think it’s pretty reasonable to presume that Amazon will amend / change their contract quite a bit especially at first.
One of the best things about FedEx routes that our territory is legally protected.
Other contractors aren’t our competitors (for the most part) and FedEx provides an environment of being cooperative with each other – I feel it’s one of the best places to have worked at. What’s that mean for Amazon routes though? Can you be undercut by other contractors? Will Amazon wash their hands of the matter by letting contractors race to the bottom by competing with one another?
The answers to these questions as of right now doesn’t even matter, because I think there will be a lot of changes in the first year these Amazon delivery routes start getting serviced.
Amazon tends to have one focus – to be customer obsessed and everything else falls into place.
It’s clearly worked out. But a lot of other businesses that work with Amazon don’t always fare the best, and sometimes even when things are going well, a change in their contract has put people out of business overnight for businesses that sold through Amazon.
Will Amazon delivery routes have this same sort of level of risk? Or will there be ways that Amazon demonstrates that the contractors are important and has to treat them well? I’m hopeful Amazon will treat their contractors well and allow them to grow with Amazon and view them as an asset, as opposed to just another expense to try to strangle out of their expense reports.
What’s your time worth?
Clearly, when it comes to the future in business we never know what the numbers will be, and it’s very clear on Amazon’s contractor application page that it will take an unknown amount of time to achieve the profits they’re estimating. There’s also a chance that not only will it take longer than anticipated to fully ramp up, but that the amount of money you were chasing may never happen. Now that can be the case in FedEx as well, but that risk point is a bit less when you can see what the route made in revenue last week by analyzing the FedEx settlements correctly.
So, how do you feel if you work incredibly hard on an Amazon delivery business and spend a year full of 7 day work weeks and discover at the end of the year that the business you’ve built is likely to make $90k the next year? The amount of success may have had less to do with you and just a bit of the roll of the dice in terms of how much growth and demand happened to be in the city that you selected to work from.
If you spent $10k at the onset, and only pocketed $80k and experienced a ton of stress and workload, that might be a bitter pill for some people. Again, I’m sure some people are working 80 hour weeks, traveling endlessly, and experience crazy stress and making $90k a year. Maybe making $80k a year and not having as much stress, work, etc is a home run.
Profits aside – it boils down to you in regards to whether this endeavor is worth it or not.
There’s risk in everything, and FedEx routes are no exception to that, but there may be more risk with Amazon routes at this point in time. Often times, with more risk comes more reward (except for getting proper due diligence, which decreases risk somewhat and increases reward).
Amazon routes may be the opportunity of a lifetime, they may even be better than FedEx routes for the right person (eg. someone that only has $10k vs a million), or they could be much worse overall, but we won’t know until some amount of time passes. I want to emphasize that only time has the answer, and not a spokesperson necessarily, because I think there will be some dust that settles in the next several months and then we’ll be able to see how things are currently, and then make good guesses in regards to what will stay the same vs what’s not working and will be changed.
Opportunity of Amazon aside…Is FedEx and their contractors going to suffer from Amazon’s competition?
It’s entirely possible, as most things are. I think better questions though are how much profits could FedEx lose from this? How much of that pinch that Amazon puts on FedEx and UPS going to trickle down into FedEx contractors? And finally, how long will it take before any of this actually starts to manifest? Will it take 2 years? Maybe 5? Or even 10 years? Amazon plays the long game really well, so just because something is happening today doesn’t mean we’ll feel that effects in any meaningful way for quite some time.
If Amazon focuses on delivering their own shipments only, it may be only mild consequence. If when you want to ship a package you have the option of USPS, FedEx, UPS, and Amazon, that might change things. Also, the logistics industry is growing so rapidly that maybe there’s even room for a 4th carrier, and maybe instead of FedEx contractors seeing the low double digit percentage growth many have been accustomed to, they see 3% growth (which is great by many industry standards) since the growth will be spread out between 4 major carriers instead of the 3 we currently have.
My final thoughts are that I remain very confident that FedEx will be a viable business to buy for years to come.
I could change my tune at any point – we never know the future. But I think a lot of the hyped up ridiculous headlines out there online saying “UPS and FedEx will be bankrupt due to Amazon!” is likely just to get you to click so they can sell some ads.
Finally, our opinions on whether it’s a good opportunity or not may not matter if you’ve got no reasonable chance of getting in. If there’s a few hundred contractors that they need, and 10,000 applicants, your application is never even getting seen in all likelihood. You’re playing the lotto more than applying for a business in my opinion.
The lotto may be worth playing, unknowns and odds aside, but if you’re looking at keeping things in perspective and exploring FedEx routes, let’s get to work.