Amazon Flex – Delivery Disruptor or Disaster Waiting to Happen?
After months of speculation, Amazon launched its crowd-sourced delivery service Amazon Flex at the end of September. Could this be the delivery world's "Airbnb"?
Under Amazon Flex, drivers would be paid $18-$25 per hour to use their own car and smartphone to make deliveries for the Amazon Prime Now service.
Post and parcel delivery companies have built up systems and expertise of decades – even centuries! What practical hurdles are there for a “sharing economy” service such as Amazon Flex?
At the warehouse
Picture a typical delivery centre in the morning. Parcels being sorted, delivery drivers scanning parcels, parcels being loaded into vans, vans entering and leaving the yards.
Imagine the utter chaos as semi-professional drivers attempt to park, negotiate loading bays, pick up the right parcel, scan faulty barcodes with smartphones, and so on.
How will access to delivery docks be controlled? Will authorised drivers have ID? Will authentication by smartphone be sufficient?
Or will Amazon Flex drivers only collect from retailers and never go near an Amazon distribution centre? According to Amazon’s website, drivers will pick up consignments from a nearby location for delivery in a local radius, based on length of the delivery block the driver has signed up for.
Insurance
A long-held concern of the insurance sector is that some commercial courier delivery contractors take private vehicle insurance rather than commercial vehicle insurance.
Private vehicle insurance costs much less than commercial vehicle insurance. When (because it’s not a matter of “if”) an Amazon Flex driver has a serious accident while delivering a parcel, what will happen from an insurance perspective?
Failed first-time delivery
No matter what sophisticated systems are put in place, there will be a small percentage of failed deliveries. Inexperienced drivers might go to the wrong address. Drivers might get stuck in traffic. Then there’s the classic case of the customer being at home but not hearing the doorbell because they’re in the shower.
Even with urgent deliveries under the Amazon Prime Now service, there’s a chance of a failed delivery for any of the above reasons.
So what happens when the delivery fails? Where will the delivery be taken? How will the driver be paid? What happens if the driver stores the package at home overnight?
Fraud and theft
Amazon will perform a “background check” on prospective drivers. But that’s not a guarantee against fraud and theft.
What happens in the case of disputed deliveries, where the customer claims not to have received the delivery while the driver is adamant that the package was delivered?
How many times will an Amazon Flex driver be able to pilfer a parcel before Amazon cottons on?
These are serious security issues that Amazon will need to overcome in order to ensure the trustworthiness of its delivery network. The delivery network for a service such as Amazon Prime Now must be reliable and trustworthy.
Parcel companies have developed serious security and anti-fraud measures over the years. Is Amazon prepared to deal with all that entails by operating its own network of drivers? Or is it importing knowledge from the parcel delivery companies that it has acquired?
Contractor status
Uber has recently faced a challenge to the status of its drivers. This is nothing new – FedEx forked out $228m to settle a long-running independent contractor status case.
On what little information is available, it seems unlikely Amazon Flex drivers would be classified as employees.
Tax
Some tax authorities are struggling for consistency when it comes to services in the “sharing economy” such as Airbnb and Uber.
This year the Australian Tax Office announced that Uber drivers must register for GST (the Goods and Services Tax – a consumption tax like a VAT), while Airbnb hosts do not need to register for GST.
Under ATO rules, Airbnb hosts must declare income from renting properties, but the earnings will be classified as residential rents, which are exempt from GST.
In the US city of Philadelphia, Airbnb rentals are now subject to an 8.5% hotel tax.
How will tax authorities deal with independent drivers working for Amazon?
Customer acceptance
Will customers be prepared to accept delivery by their neighbours? The answer is “probably yes”, going by the success of Royal Mail’s “Delivery to Neighbour” scheme.
If customers are prepared to trust their neighbours to receive parcels on their behalf, they will be prepared to accept delivery from their neighbour.
Conclusion
Amazon Flex will be a delivery option only for Amazon Prime Now customers...for the time being. Customers will continue to make delivery choices based on cost, speed, trust and convenience.
Customers may accept the concept of delivery by a driver who isn’t in uniform and isn’t in a van with corporate livery, especially if it saves them money. However, customers invest a degree of trust in the fact that the delivery driver is in uniform, is wearing ID, and is driving a van with corporate livery.
Success for Amazon Flex will in part hinge upon the number of people who sign up to be drivers, and how often they make their services available.
There are many practical matters for Amazon to take into consideration with a “sharing economy” delivery service - but these considerations aren’t insurmountable.
Amazon is already acquiring parcel delivery companies. If Amazon finds that delivery by Amazon Flex is cheaper and more reliable than delivery through established parcel companies, then we may see Amazon further expand its own delivery capabilities.
Parcel delivery companies can’t be complacent in the face of competition. Small, nimble competitors are out there now, chasing a slice of the delivery market.