WEBVTT - Amazon Part 5: The Price of Speedy Delivery 0:00:00.080 --> 0:00:03.040 You probably see them in your neighborhoods, those grayish blue 0:00:03.120 --> 0:00:05.840 vans delivering the stuff that you and your neighbor has 0:00:05.880 --> 0:00:09.799 recently bought on Amazon dot Com. Climbing in and out 0:00:09.840 --> 0:00:13.440 of those vans are delivery drivers wearing Amazon uniforms. But 0:00:13.520 --> 0:00:17.600 they aren't Amazon employees. They work for what Amazon calls 0:00:17.800 --> 0:00:23.160 Delivery service Partners or DSPs for short. Over the last 0:00:23.239 --> 0:00:26.920 few years, Amazon has been on a hiring spree looking 0:00:26.960 --> 0:00:29.920 for entrepreneurs who are willing to sign up as delivery 0:00:29.920 --> 0:00:34.120 company owners. Somebody from HR from Chicago calls me and 0:00:34.120 --> 0:00:37.800 gives me the congratulations you are you have been chosen 0:00:37.800 --> 0:00:41.040 to be a dsp oh and I was like, oh wow, 0:00:41.120 --> 0:00:44.440 now this is serious. That's Ted Johnson. He was a 0:00:44.520 --> 0:00:48.000 veteran who ran a small consulting business in Illinois. He 0:00:48.120 --> 0:00:52.000 stumbled onto an online ad looking for delivery partners, interviewed 0:00:52.000 --> 0:00:55.240 with an Amazon recruiter, and a few weeks later, Ted 0:00:55.320 --> 0:00:57.400 got a phone call Where am I going to work 0:00:57.400 --> 0:01:02.320 out of? And she gives me ten locations Oakland, Los Angeles, 0:01:02.840 --> 0:01:07.959 San Diego, Brooklyn, Long Island, Pennsylvania. We've never been to 0:01:08.000 --> 0:01:10.360 New England. We did a lot of research and we said, 0:01:10.440 --> 0:01:13.679 let's uh, let's pack up. Ted and his wife Karen 0:01:13.720 --> 0:01:17.720 were optimistic. It seemed like an opportunity to prove themselves. 0:01:18.240 --> 0:01:21.480 Amazon was opening a brand new delivery station and they'd 0:01:21.520 --> 0:01:24.480 be helping to build it from scratch. I was pretty excited. 0:01:24.480 --> 0:01:26.720 I'm gonna be straight up with you. Um, I've run 0:01:26.840 --> 0:01:30.080 a small business, uh, me and Karen and what they 0:01:30.080 --> 0:01:34.240 had told us during our training on how many packages 0:01:34.319 --> 0:01:37.959 we'd be delivering, how much money we'd be making, and uh, 0:01:38.120 --> 0:01:41.240 it was a quality of life changing. It would be 0:01:41.280 --> 0:01:44.240 more money that I could make in any other job 0:01:44.400 --> 0:01:47.400 in my life. Amazon said the delivery partners could earn 0:01:47.480 --> 0:01:50.720 up to three hundred thousand dollars and profits each year. 0:01:51.320 --> 0:01:54.160 But there were a lot of costs associated with making 0:01:54.200 --> 0:01:57.600 Amazon deliveries that Ted would learn about the hard way. 0:01:57.960 --> 0:02:00.160 I've done a lot of big projects and everything, and 0:02:00.320 --> 0:02:04.080 this thing was overwhelming. How are we gonna do liability insurance? 0:02:04.080 --> 0:02:06.640 How are we gonna do workman's comp insurance? You know, 0:02:06.680 --> 0:02:08.680 we're how we're going to do a payroll system? And oh, 0:02:08.720 --> 0:02:10.360 by the way, you may not get vans, so go 0:02:10.400 --> 0:02:12.320 out and on the market and look to get white 0:02:12.320 --> 0:02:14.679 Man's So it was kind of a shoot from the 0:02:14.760 --> 0:02:18.040 hip show, and I thought, well, you know Amazon, you know, 0:02:18.080 --> 0:02:21.160 there's this big tech company. Uh, and maybe the reason 0:02:21.240 --> 0:02:23.640 they're shooting from the hip is because the station is new. 0:02:24.320 --> 0:02:28.480 From the start, the experience felt rushed and disorganized. And 0:02:28.560 --> 0:02:32.880 on top of that, Amazon had aggressive expectations for how 0:02:33.040 --> 0:02:36.799 fast they could deliver a package, so drivers were rushing 0:02:36.840 --> 0:02:40.680 to make these delivery targets. Minutes and seconds mattered, which 0:02:40.720 --> 0:02:44.440 led to injuries. Yeah, a lot of drivers um slip 0:02:44.440 --> 0:02:48.679 and falls probably our biggest. And then the next one, 0:02:49.520 --> 0:02:52.720 believe it or not, up here were dog bites. Dog 0:02:52.800 --> 0:02:57.360 bites are a big problem. Actually, it's horrible. We had 0:02:57.400 --> 0:02:59.280 them getting bit on the hand. We've had them getting 0:02:59.320 --> 0:03:02.280 bit on the the calf, on the butt. We get 0:03:02.360 --> 0:03:05.480 him to the doctor as soon as possible, you know. 0:03:05.639 --> 0:03:09.320 But Amazon's remember, uh, it's it's the customer. It's the 0:03:09.320 --> 0:03:12.919 package that's important, So be smart about it. And oh, 0:03:12.960 --> 0:03:15.560 by the way, you're the business owner, so it's your 0:03:15.600 --> 0:03:18.520 decision and it ain't ours. Ted tried to be a 0:03:18.520 --> 0:03:23.040 responsible employer to his injured employees. His insurance paid for it, 0:03:23.639 --> 0:03:25.880 but it wasn't lost on him that he was doing 0:03:25.919 --> 0:03:29.920 all of this for Amazon, that in a way, a 0:03:30.000 --> 0:03:33.360 big part of his role was to absorb responsibility and 0:03:33.480 --> 0:03:36.880 liability for his driver's I would have never thought I 0:03:36.920 --> 0:03:41.360 would assume so much liability and so much headache as 0:03:41.480 --> 0:03:46.680 as I did, UH to serve uh this company that 0:03:47.000 --> 0:03:50.360 could give her rat's ass about people. And that's that's 0:03:50.400 --> 0:03:54.400 that's the truth. You're listening to Foundering. I'm your host, 0:03:54.480 --> 0:03:57.560 brad Stone. We'll get back to Ted Johnson's story in 0:03:57.600 --> 0:04:00.600 a bit, but first we're going to tell the story 0:04:00.640 --> 0:04:04.760 of Amazon Logistics, the transportation division of a company that 0:04:04.840 --> 0:04:08.120 fulfills the promise of delivery in one or two days, 0:04:08.600 --> 0:04:11.960 but at a hidden cost. It's a story that begins 0:04:11.960 --> 0:04:15.840 with Amazon being blamed for ruining Christmas, leading to the 0:04:15.840 --> 0:04:19.480 fury of Jeff Bezos, and it ends with the formation 0:04:19.560 --> 0:04:23.039 of one of the world's largest delivery fleets. There are 0:04:23.080 --> 0:04:26.000 also thousands of people like Ted Johnson, stuck in an 0:04:26.040 --> 0:04:29.599 unhappy codependence with one of the largest companies in the world. 0:04:30.400 --> 0:04:40.839 We'll tell you that story after the break. We start 0:04:40.920 --> 0:04:45.080 during the holiday shopping season two thousand thirteen. Amazon was 0:04:45.120 --> 0:04:48.120 a much smaller business then. It had about one tenth 0:04:48.160 --> 0:04:51.200 as many employees as it does today. Even though sales 0:04:51.240 --> 0:04:54.080 were growing, it barely eked out a profit that year, 0:04:54.600 --> 0:04:58.479 So the holiday season was crucial for Amazon. Back then, 0:04:58.839 --> 0:05:02.000 Amazon didn't have of a delivery arm. It's relying on 0:05:02.080 --> 0:05:06.159 large carriers like UPS, a one hundred year old company 0:05:06.440 --> 0:05:10.640 with a unionized fleet of drivers. It's an existential crisis 0:05:10.680 --> 0:05:14.080 every Christmas, in every peak season that they may not 0:05:14.200 --> 0:05:18.920 have enough capacity to deliver packages to their customers. And 0:05:19.279 --> 0:05:23.719 you know, if Amazon fails, if UPS fails, like the 0:05:23.720 --> 0:05:27.720 whole country locks up. Right, Chris, there's no Christmas. Uh, 0:05:27.800 --> 0:05:30.719 some kids going to be unhappy. That's Dave Click, a 0:05:30.760 --> 0:05:34.719 former logistics vice president at Amazon. He said that back 0:05:34.760 --> 0:05:38.680 then Amazon sales were growing at more than twenty a year, 0:05:39.400 --> 0:05:44.039 but UPS was growing their capacity at about two. It 0:05:44.200 --> 0:05:47.440 wasn't a problem in Amazon's early days. And so back 0:05:47.480 --> 0:05:52.720 in UH, UPS was fine, right, we were dropping the bucket. Uh. 0:05:52.760 --> 0:05:56.640 They had effectively infinite capacity. But as Amazon grew much 0:05:56.720 --> 0:06:00.000 much faster than UPS and the other carriers, UH, they 0:06:00.279 --> 0:06:05.800 to uh to use a material portion of that capacity. 0:06:06.000 --> 0:06:09.680 Amazon was becoming a burden on UPS. The companies were 0:06:09.720 --> 0:06:14.359 mismatched because think about it, UPS gives its driver Sundays 0:06:14.400 --> 0:06:18.839 and holidays off. Meanwhile, the Amazon website is always available. 0:06:19.440 --> 0:06:22.760 It's kicking out packages seventais a week, twenty four hours 0:06:22.760 --> 0:06:26.479 a day. So the backlog of Amazon packages was growing 0:06:27.120 --> 0:06:30.960 like water pushing against a dam. And then over the 0:06:31.000 --> 0:06:35.200 holidays and there was bad weather, and for UPS the 0:06:35.320 --> 0:06:38.920 dam was breached. They just got a little over their skis. Yeah, 0:06:38.960 --> 0:06:40.839 you know, you sprinkle some snow in there, and that 0:06:40.880 --> 0:06:44.280 makes everything just that much worse. And and these you know, 0:06:44.320 --> 0:06:48.520 if you're running your plant, whether it's fulfillment, sortation, chemical 0:06:48.600 --> 0:06:50.360 or whatever, if you're running your plante at full out 0:06:50.400 --> 0:06:53.200 capacity and you lose a day or you lose it 0:06:53.279 --> 0:06:55.960 two days because of weather event, you can't catch up. 0:06:56.320 --> 0:06:59.480 Bad weather is being blamed for ruining some Christmas mornings. 0:06:59.640 --> 0:07:02.000 Up us admits it failed to deliver a lot of 0:07:02.040 --> 0:07:06.400 packages despite guarantees from online stores like Amazon. UPS and 0:07:06.440 --> 0:07:09.479 Amazon will offer refunds to customers whose packages did not 0:07:09.560 --> 0:07:11.920 make it in time for Christmas. Some people are still 0:07:12.000 --> 0:07:14.280 waiting to get the gifts they ordered in the first place. 0:07:14.680 --> 0:07:17.480 Some of them guaranteed huge delays this year for some 0:07:17.640 --> 0:07:20.880 FedEx and UPS shipments. You know, we had one mom 0:07:20.920 --> 0:07:22.240 talked about how do you explain to your kid that 0:07:22.320 --> 0:07:31.920 Sannah didn't show up? Holiday gifts were stranded on the tarmac. 0:07:32.480 --> 0:07:35.679 Amazon had to issue twenty dollar gift cards and attempt 0:07:35.760 --> 0:07:39.800 to make amends, and the Great e Commerce Christmas Meltdown 0:07:40.160 --> 0:07:45.400 made national headlines. I think we were all appalled, and 0:07:45.480 --> 0:07:50.760 this is like the worst possible customer experience for Amazon, 0:07:50.840 --> 0:07:53.400 and nobody knows. Oh, it's ups is fault. They bought 0:07:53.400 --> 0:07:55.560 a package from Amazon. They bought a product from Amazon, 0:07:55.920 --> 0:07:59.520 and Amazon needs to deliver it. Jeff Bezos was apoplectic 0:08:00.120 --> 0:08:03.240 in his universe. This was just about the worst thing 0:08:03.280 --> 0:08:07.040 that could happen, and Bezos directed his anger at a 0:08:07.040 --> 0:08:10.520 guy named Dave Clark. He's known as the driving force 0:08:10.640 --> 0:08:14.280 behind the growth of Amazon's warehouses and delivery network. Here 0:08:14.280 --> 0:08:18.280 he is in talk to us about that fulfillment center. 0:08:18.360 --> 0:08:22.160 I don't see too many humans. Help us understand the 0:08:22.200 --> 0:08:24.840 amount of robots you have versus the amount of people 0:08:24.920 --> 0:08:28.800 you employ. Well, our focus is about combining software with 0:08:28.960 --> 0:08:33.160 automation through robotics and the human performance and process development. 0:08:33.280 --> 0:08:36.000 And we continue to focus on automation for cost reduction 0:08:36.160 --> 0:08:40.240 and speed improvement for delivery. And we're excited about the results. 0:08:40.760 --> 0:08:44.640 When Dave took over Amazon operations in there were about 0:08:44.640 --> 0:08:50.240 a dozen warehouses, there were almost two hundred. He's known 0:08:50.320 --> 0:08:54.480 as a drill sergeant. He keeps things marching forward. He 0:08:54.559 --> 0:08:57.600 also has a reputation as kind of a ruthless guy. 0:08:57.920 --> 0:09:01.560 Some of his underlings called him the niper because in 0:09:01.600 --> 0:09:04.920 his early years as an East Coast regional manager he 0:09:05.000 --> 0:09:07.040 was quick to see who was slacking off from the 0:09:07.040 --> 0:09:12.280 shop floor and fire them. But in Dave Clark was 0:09:12.320 --> 0:09:15.439 the one on the chopping block. Bezos made it clear 0:09:15.679 --> 0:09:20.120 he would fire Clark if another Christmas meltdown happened. To 0:09:20.240 --> 0:09:24.079 save the company and himself, he would have to reshape 0:09:24.080 --> 0:09:27.320 a major part of Amazon. Dave had a very keen 0:09:27.440 --> 0:09:33.600 interest in all things transportation. Brilliant, brilliant, brilliant man. That's 0:09:33.640 --> 0:09:38.600 Mike Indrasano, another former logistics executive at Amazon. So here's 0:09:38.600 --> 0:09:43.080 what happened. After the Christmas fiasco. Dave decided Amazon could 0:09:43.160 --> 0:09:46.960 no longer rely so heavily on UPS and FedEx. So 0:09:47.080 --> 0:09:51.200 Amazon turned to the US Post Office because UPS was 0:09:51.240 --> 0:09:54.559 out of capacity, but the Post Office was seeing the 0:09:54.640 --> 0:09:58.840 volume of regular mail decline. They had excess capacity and 0:09:58.880 --> 0:10:01.680 they were already o to practically every house in the 0:10:01.720 --> 0:10:05.720 country six days a week. Now, while the Post Office 0:10:05.760 --> 0:10:08.640 is great at mail delivery, they're actually not all that 0:10:08.720 --> 0:10:12.480 fast and mail sorting. And that's where Amazon stepped in. 0:10:13.080 --> 0:10:17.000 They would build out sortation centers where packages get organized 0:10:17.040 --> 0:10:20.560 by zip code, and then they'd hand those off to 0:10:20.640 --> 0:10:24.200 the mailman. Here's Mike. I got a phone call I 0:10:24.200 --> 0:10:28.440 think it was Deer six and it was Dave Clark 0:10:28.640 --> 0:10:31.400 and and then he asked me, he said, so, you know, 0:10:31.440 --> 0:10:34.439 how many sort centers do you have in the plan? 0:10:34.720 --> 0:10:37.600 And I said, well, we had. We have sixteen queued 0:10:37.679 --> 0:10:40.760 up to launch over the next couple of years. And 0:10:40.920 --> 0:10:48.400 he simply said, launched them all. And I said, okay, 0:10:48.720 --> 0:10:53.480 gulp um, and we did. I mean, it was amazing. 0:10:53.800 --> 0:10:56.320 I've never seen anything like that in my thirty years 0:10:56.320 --> 0:11:01.040 in transportation. They raced to build all six sortation centers 0:11:01.040 --> 0:11:03.720 in just a year, and they had a loose formula. 0:11:04.600 --> 0:11:08.560 Put the sortation centers near a major interstate, near big cities, 0:11:09.240 --> 0:11:12.920 near colleges that provided a hard time workforce. It was 0:11:12.960 --> 0:11:17.120 a huge operation inside the company. They called it the 0:11:17.200 --> 0:11:21.680 Sweet sixteen. The next step to Amazon reducing their reliance 0:11:21.720 --> 0:11:26.080 on UPS and FedEx was acquiring planes. Here's Mike. I 0:11:26.160 --> 0:11:30.200 remember getting a phone call from day saying I need 0:11:30.280 --> 0:11:32.760 you to get an airplane. I'm like, I need to 0:11:32.760 --> 0:11:35.320 get an airplane. Get can you you know, do you 0:11:35.360 --> 0:11:38.000 know how any contacts? Can you get us an airplane? 0:11:38.080 --> 0:11:41.760 And I'm like, what for? The planes come in to 0:11:41.840 --> 0:11:45.520 shuffle inventory around, particularly when Amazon needs to meet its 0:11:45.559 --> 0:11:49.120 prime delivery promise. They'll fly an item across the country 0:11:49.320 --> 0:11:51.960 if it's out of stock at the local warehouse. And 0:11:52.040 --> 0:11:54.200 the first thing they wanted to rush out was a 0:11:54.200 --> 0:11:57.800 batch of kindles in December, when they had sold out 0:11:57.840 --> 0:12:01.959 in Seattle once again, UPS and FedEx said they were 0:12:01.960 --> 0:12:05.720 out of capacity. They couldn't help Amazon at its most 0:12:05.760 --> 0:12:09.600 critical time of year, so Dave asked Mike to charter 0:12:09.760 --> 0:12:14.599 some cargo jets. It worked out naturally. Jeff Bezos and 0:12:14.679 --> 0:12:18.320 Dave Clark immediately wanted to double down right after it 0:12:18.440 --> 0:12:20.440 was how many planes can we get? And hey, if 0:12:20.440 --> 0:12:22.679 we can fly one plane, you know how many should 0:12:22.679 --> 0:12:25.960 we be flying. This was the start of Amazon Air 0:12:26.640 --> 0:12:32.080 in Amazon least forty seven sixty seven freighters from two airlines. 0:12:32.880 --> 0:12:35.959 It also started to develop a cargo hub at Cincinnati 0:12:36.080 --> 0:12:40.080 Regional Airport. Amazon was learning that it could mold a 0:12:40.120 --> 0:12:44.760 transportation network to its own needs, control costs, and most 0:12:44.800 --> 0:12:48.600 of all, keep up with its growth. Bezos, of course, 0:12:48.679 --> 0:12:54.280 watch this build out carefully. Jeff was very concerned and 0:12:54.520 --> 0:13:00.000 stayed closed Beazos's email addresses public Jeff at Amazon dot com. 0:13:00.120 --> 0:13:03.679 Whenever he got an email from customers about a botch delivery, 0:13:03.960 --> 0:13:07.040 he'd forward it on with a single piece of punctuation, 0:13:07.800 --> 0:13:13.400 the question mark. Throughout fourteen I got a lot of 0:13:13.559 --> 0:13:18.240 emails from Jeff with question marks, and oh what a 0:13:18.240 --> 0:13:21.520 powerful tool. Mike says that executives would have to craft 0:13:21.600 --> 0:13:25.720 detailed solutions to these emails and fix the core problems, 0:13:26.360 --> 0:13:31.400 or else you cannot reply with a surface answer. In fact, 0:13:32.120 --> 0:13:36.360 one response to Jeff could take three or four weeks 0:13:36.440 --> 0:13:41.120 and could have twenty people involved. Jeff was not looking 0:13:41.240 --> 0:13:44.640 for an answer to his question. He was looking for 0:13:44.720 --> 0:13:48.280 a solution to the underlying problem. At the time, there 0:13:48.360 --> 0:13:51.640 was no bigger question at Amazon than how to deliver 0:13:51.720 --> 0:13:56.280 packages reliably and fast. Dave Clark wasn't happy relying on 0:13:56.320 --> 0:13:59.520 the Post office either to keep up with its rapid growth. 0:13:59.800 --> 0:14:03.079 The company was going to have to start delivering packages itself, 0:14:03.559 --> 0:14:07.680 kicking off another wave of very public problems. Will tell 0:14:07.720 --> 0:14:20.240 that story next. First they built sortation centers, then they 0:14:20.320 --> 0:14:25.080 leased planes. They also added long haul trucks. This speaks 0:14:25.120 --> 0:14:28.920 to Amazon's strength. When they find something is working, they 0:14:29.000 --> 0:14:32.880 throw money and technology at it and rapidly expand. They 0:14:32.960 --> 0:14:36.320 do not equivocate. And the last piece of the puzzle, 0:14:36.840 --> 0:14:40.560 Amazon wanted to deliver their own packages to customer doorsteps 0:14:41.000 --> 0:14:45.360 in transportation. They call this the last mile. There were 0:14:45.400 --> 0:14:47.720 a number of false starts in countries like the UK 0:14:48.000 --> 0:14:51.600 and India, and a grocery delivery, but these early efforts 0:14:51.640 --> 0:14:55.160 were costly and slow. Inside the company, there was a 0:14:55.200 --> 0:14:57.720 feeling like they really hadn't figured out how to navigate 0:14:57.760 --> 0:15:01.080 home delivery. Here's Mike again. There was a lot of 0:15:01.160 --> 0:15:04.760 discontentment at times. I think the belief was speed wasn't 0:15:04.840 --> 0:15:08.480 happening fast enough. Why couldn't we go faster, Why couldn't 0:15:08.480 --> 0:15:11.160 we get to a lower cost. To get that lower 0:15:11.200 --> 0:15:14.360 cost and to move more quickly, Dave Clark introduced a 0:15:14.440 --> 0:15:19.160 service called Amazon Flex that let gig workers take delivery jobs, 0:15:19.200 --> 0:15:21.360 just like they might sign up for Uber or Lift. 0:15:22.440 --> 0:15:25.920 It was Amazon's first major attempt to get delivery drivers 0:15:26.120 --> 0:15:30.400 without hiring them as employees. Amazon didn't actually want to 0:15:30.480 --> 0:15:34.440 employ drivers, just as it didn't employ pilots or truckers. 0:15:35.440 --> 0:15:38.680 They wanted a hands off relationship, which is a model 0:15:38.720 --> 0:15:42.480 that's also used by FedEx and d h L. One 0:15:42.480 --> 0:15:47.160 big reason trucking tends to be heavily unionized, and Amazon 0:15:47.360 --> 0:15:52.720 absolutely avoided unions at all costs. Jeff Bejos explains his 0:15:52.880 --> 0:15:58.200 mindset in an on stage interview with Business Insider. When 0:15:58.280 --> 0:16:01.440 you are just in a new way, and if customers 0:16:01.480 --> 0:16:06.080 embrace the new way, what's going to happen is incumbents 0:16:06.240 --> 0:16:09.560 who are practicing the older way are not going to 0:16:09.680 --> 0:16:12.400 like you. You know, in our view, you know, we 0:16:12.480 --> 0:16:15.560 have very we have we have workers councils, of course, 0:16:15.640 --> 0:16:19.200 and we have very good communications with our employees. We 0:16:19.800 --> 0:16:22.280 don't believe that we need a union to be an 0:16:22.280 --> 0:16:25.720 intermediary between us and our employees. But of course, at 0:16:25.720 --> 0:16:27.720 the end of the day, it's always the employee's choice, 0:16:28.520 --> 0:16:31.880 So Basio says, it's always the employees choice. But as 0:16:31.920 --> 0:16:35.120 we've seen in union elections at Amazon warehouses, like the 0:16:35.200 --> 0:16:40.000 high profile one in Bessemer, Alabama, Amazon fights tooth and 0:16:40.080 --> 0:16:45.000 nail to persuade employees to vote against unionizing, and transportation 0:16:45.120 --> 0:16:50.360 is a heavily unionized industry, more than warehouses. Even after all, 0:16:50.600 --> 0:16:54.000 this is the turf of the famous hard bargaining Teamsters union, 0:16:54.680 --> 0:16:57.880 Amazon wanted no part in it, which is one reason 0:16:57.920 --> 0:17:01.840 why they brought an independent contractor. Here's Mike. You know, 0:17:01.880 --> 0:17:06.520 when I look to the industry, I certainly would say 0:17:06.560 --> 0:17:10.920 that the independent contractor models tend to be non union 0:17:12.160 --> 0:17:15.640 and the employee models tend to be union. In bazos 0:17:15.720 --> 0:17:19.480 this world, unions are a deal killer because unions agitate 0:17:19.520 --> 0:17:23.760 for higher wages, lower quotas, and fewer hours. There's one 0:17:23.800 --> 0:17:27.680 thing that I'll say about Amazonians is you know they 0:17:27.720 --> 0:17:31.880 like to control um for a lot of reasons. I mean, 0:17:32.200 --> 0:17:35.680 you know, customer experiences paramount. It is the number one thing, 0:17:35.800 --> 0:17:39.800 and so sometimes, you know, seating control or giving up 0:17:39.840 --> 0:17:42.960 control is perceived as is not doing all that you 0:17:43.040 --> 0:17:48.520 can do for the customer. Dave Clark had an ingenius plan. 0:17:49.359 --> 0:17:52.960 Amazon could have its cake and eat it too by 0:17:53.000 --> 0:17:56.920 contracting middlemen to come in to employ the Amazon drivers 0:17:57.920 --> 0:18:00.919 that June Dave gathers members the tech press at the 0:18:00.960 --> 0:18:05.000 Waterfront and Seattle to announce that Amazon was recruiting ordinary 0:18:05.080 --> 0:18:10.080 people to start independent delivery franchises. This program is really 0:18:10.119 --> 0:18:12.600 a very different program. It's about building your own business. 0:18:12.960 --> 0:18:18.080 Amazon would provide uniforms, van leases, fuel, and access to insurance. 0:18:18.800 --> 0:18:22.240 It would set quotas and control these companies with software 0:18:22.480 --> 0:18:25.800 while having none of the headaches of employing actual drivers. 0:18:26.520 --> 0:18:29.679 And this environment, our entrepreneurs don't have to fight for 0:18:29.720 --> 0:18:32.000 customers and they don't have to fight for sales. They 0:18:32.040 --> 0:18:35.280 get the opportunity with our demand to have a good 0:18:35.320 --> 0:18:38.480 consistent volume and to grow with Amazon. As we grow, 0:18:38.920 --> 0:18:42.720 Amazon starts to advertise for entrepreneurs who can start and 0:18:42.800 --> 0:18:47.000 run these delivery companies. Here's one narrated by a successful 0:18:47.080 --> 0:18:52.879 DSP owner, Sebastian Festa, who's originally from Haiti. THENDA thank 0:18:52.880 --> 0:18:59.960 you say starting the delivery service partner business wasn't easy 0:19:00.119 --> 0:19:02.879 have a logistics background at all. Amazon provised me with 0:19:02.880 --> 0:19:06.479 the expertise, They guide me, counsel me, They provide me 0:19:06.640 --> 0:19:09.159 with the tools that I need to be successful. The 0:19:09.240 --> 0:19:12.880 rest is up to me. Within months, tens of thousands 0:19:12.880 --> 0:19:16.320 of people applied. Amazon was throwing open the gates for 0:19:16.400 --> 0:19:20.960 small business owners come build a business delivering packages for 0:19:21.040 --> 0:19:26.000 the world's largest online store. But Amazon ran this business 0:19:26.000 --> 0:19:29.680 in a very Amazon like way, with software and algorithms 0:19:29.760 --> 0:19:33.800 running everything instead of human managers, just like how it 0:19:33.840 --> 0:19:39.080 operates the global marketplace. This goes back to Bezos because 0:19:39.359 --> 0:19:43.840 automation allows for faster growth, higher revenue, and lower costs 0:19:44.440 --> 0:19:47.320 that allows him to fund his pet projects like Alexa 0:19:47.400 --> 0:19:51.040 and Amazon Studios. That was the recipe that had made 0:19:51.080 --> 0:19:53.760 Amazon one of the largest companies on the planet and 0:19:53.880 --> 0:19:57.320 Bezos one of the richest people in the world. So 0:19:57.560 --> 0:20:01.600 in Dave Clark's new transportation business, instead of human dispatchers 0:20:01.680 --> 0:20:06.200 handing out routes and calculating payments, it was algorithms and software, 0:20:06.720 --> 0:20:10.040 and a lot of it was new For entrepreneurs like 0:20:10.080 --> 0:20:12.480 Ted Johnson, who we heard from at the beginning of 0:20:12.520 --> 0:20:16.320 the episode. The drawbacks of Amazon's approach started a great 0:20:16.680 --> 0:20:19.600 soon after he moved to New England. I'd always say, 0:20:19.640 --> 0:20:21.639 you know, how can a company I think at the 0:20:21.680 --> 0:20:25.080 time a million and a trillion and a half evaluated company, 0:20:25.520 --> 0:20:28.320 the richest man in the world, the biggest employer in 0:20:28.359 --> 0:20:31.239 the world. They gotta have their stuff together. But I'm 0:20:31.280 --> 0:20:33.359 gonna be honest with you. They were half baked and 0:20:33.400 --> 0:20:36.960 they were winging it. Ted says his drivers were overloaded 0:20:37.000 --> 0:20:40.800 with packages. The software seemed to set quotas based on 0:20:40.880 --> 0:20:44.400 how many packages needed to be delivered. It didn't take 0:20:44.440 --> 0:20:48.560 into account what was realistic or safe, particularly in bad weather. 0:20:49.200 --> 0:20:52.240 The estimated delivery times were as low as three minutes. 0:20:52.800 --> 0:20:55.399 Here in real New Hampshire. You know, every house is 0:20:55.480 --> 0:21:01.600 five acres apart and each driveways feet. It's icy, so 0:21:02.119 --> 0:21:04.119 you're not gonna You're not gonna do a delivery in 0:21:04.160 --> 0:21:08.280 three minutes. Ted said. The Amazon software pressured business owners 0:21:08.480 --> 0:21:12.680 to make deliveries in hazardous weather like snowstorms. They'd say 0:21:12.720 --> 0:21:14.680 it was up to him, but if he didn't make 0:21:14.680 --> 0:21:17.240 the deliveries, then he would get a bad report card. 0:21:18.080 --> 0:21:22.120 Amazon's tracking systems issued weekly score cards for the drivers 0:21:22.200 --> 0:21:25.960 and for Ted. The company was measuring their performance for 0:21:26.040 --> 0:21:31.679 things like wearing a seatbelt, speeding, hard stops, and abrupt turns. 0:21:31.720 --> 0:21:36.359 Sometimes the software made mistakes and wrongly ding drivers, and 0:21:36.400 --> 0:21:40.199 the stakes were high. Ted could lose a package or routes. 0:21:40.240 --> 0:21:43.640 If he was deemed to be unreliable. His drivers quit 0:21:43.720 --> 0:21:48.280 in droves. They were wearing my driver's out. About thirty 0:21:48.320 --> 0:21:51.320 three of my initial workforce that I recruited from day 0:21:51.359 --> 0:21:54.160 one had quit on me. If you had a driver 0:21:54.320 --> 0:21:57.560 that was kicking butt for some reason, the algorithm would 0:21:57.560 --> 0:22:02.359 train track that dry ever and would add more and 0:22:02.440 --> 0:22:05.760 more and more onto their routes to or just break them. 0:22:05.920 --> 0:22:08.520 And I had I had my you know, people that 0:22:08.600 --> 0:22:10.560 were my day one guys that I thought these guys 0:22:10.560 --> 0:22:13.320 would be with me for three years. I said, I'm done. 0:22:13.800 --> 0:22:17.280 Ted was frustrated by the working conditions of the drivers. 0:22:17.320 --> 0:22:20.040 He says, some things just didn't sit right with him. 0:22:20.119 --> 0:22:23.960 I'm gonna tell you straight up. Our employee urinating bottles, 0:22:24.040 --> 0:22:27.280 and they wore diapers, and they ship in bags and 0:22:27.400 --> 0:22:30.800 it was awful, and that redlined me. That pissed me off. 0:22:31.440 --> 0:22:35.320 Ted got started at a tough time. The pandemic was raging, 0:22:35.760 --> 0:22:41.160 stores were closing. People depended on Amazon, and Amazon's algorithms 0:22:41.200 --> 0:22:44.800 closely tracked how fast and efficiently Ted's people were working. 0:22:45.359 --> 0:22:48.520 What looked like an amazing business opportunity turned into a 0:22:48.640 --> 0:22:53.280 punishing experience, and um for the first time in my life, 0:22:53.359 --> 0:22:56.560 I had major anxiety. There were nights where I would 0:22:56.600 --> 0:23:00.840 curl up in the corner and sleep with my dog. Uh, 0:23:01.040 --> 0:23:03.280 just scared to death that how am I going to 0:23:03.359 --> 0:23:06.359 go in and and tell these people that we're gonna 0:23:06.359 --> 0:23:10.639 make it another day. By the beginning of Ted and Karen, 0:23:11.080 --> 0:23:15.119 like many other delivery company owners, were struggling. He was 0:23:15.160 --> 0:23:27.000 about to crack. That's next. So Ted and as wife 0:23:27.040 --> 0:23:29.919 Karen moved from Illinois to hooks At New Hampshire to 0:23:30.040 --> 0:23:34.600 help build Amazon's new transportation arm. He thought he would 0:23:34.600 --> 0:23:37.399 be working for one of the world's grade companies, but 0:23:37.480 --> 0:23:41.400 as boss wasn't Jeff Bezos, Dave Clark, or any one 0:23:41.560 --> 0:23:45.960 of Amazon's very smart executives. In reality, their boss was 0:23:46.040 --> 0:23:52.320 Amazon's Frankenstinian creation. It's impossibly demanding systems. It was relentless 0:23:52.560 --> 0:23:57.480 up at six down at probably seven days a week. 0:23:58.240 --> 0:24:01.000 If you cared about your drivers, you didn't quit until 0:24:01.000 --> 0:24:04.199 they got everybody got home, You go to sleep, and 0:24:04.280 --> 0:24:07.720 your mind would still spend. You're always on, you know 0:24:07.760 --> 0:24:13.000 what I mean. Then in February, with all these problems proliferating, 0:24:13.320 --> 0:24:16.080 Ted got a call from a regional executive from Amazon. 0:24:16.560 --> 0:24:20.480 He calls and there's a lawyer on the phone, and uh, 0:24:20.680 --> 0:24:25.400 he starts reading from a script. Your contract is effectively 0:24:25.520 --> 0:24:31.280 up on the third of February, and we are not renewing. Yep, 0:24:31.400 --> 0:24:33.200 we're not renewing. I said, well, what did I do? 0:24:33.880 --> 0:24:35.639 They said, we don't, we're not gonna get we're not 0:24:35.680 --> 0:24:38.560 gonna tell you why, and we're not obligated to tell 0:24:38.600 --> 0:24:40.800 you why. And I tell you what. At that point, 0:24:41.160 --> 0:24:45.840 I was so pissed. However, Um, after UM, a couple 0:24:45.840 --> 0:24:48.600 of deep breaths, ME and Karen looked at each other, 0:24:48.640 --> 0:24:52.240 and you know what, we said, Thank God, the pain 0:24:52.359 --> 0:24:55.520 is over. Ted estimates he lost more than one hundred 0:24:55.560 --> 0:25:00.199 thousand dollars delivering Amazon packages, largely due to damage is 0:25:00.280 --> 0:25:03.240 he had to pay for least vans. He regrets that 0:25:03.320 --> 0:25:06.200 he even went into business with Amazon. If we knew 0:25:06.240 --> 0:25:08.720 what we know now and somebody would have been out 0:25:08.720 --> 0:25:11.600 there telling we wouldn't have done this thing. There are 0:25:11.640 --> 0:25:16.480 about these small delivery companies like Ted's. Most have less 0:25:16.520 --> 0:25:20.160 than one hundred employees each. In two thousand twenty one, 0:25:20.440 --> 0:25:23.320 they allowed Amazon to deliver about two thirds of its 0:25:23.359 --> 0:25:27.960 own packages. They basically saved Amazon from the infamous supply 0:25:28.080 --> 0:25:32.880 chain disruptions of the pandemic. The program has been extraordinarily 0:25:32.960 --> 0:25:36.439 successful for Amazon, even though many of the delivery company 0:25:36.440 --> 0:25:41.600 owners shared Ted's complaints, My colleague Spencer talked to fifteen 0:25:41.600 --> 0:25:47.439 delivery partners. They also brought up unrealistic delivery expectations, buggy software, 0:25:47.680 --> 0:25:52.600