The real Amazon drones

I found this story through the Huffington Post:

At least five days a week, Myron Ballard races around Washington, D.C., with a cargo van full of Amazon Prime packages. A career delivery driver with 20 years behind the wheel, Ballard typically gets paid $1.50 for each address he visits. If he delivers 150 Amazon boxes -- a fairly routine number -- he can pull in $225. Not bad for a day's work.

That is, until he starts tallying up all his out-of-pocket costs. Ballard works for an Amazon contractor called LaserShip. He's technically an "independent contractor," not an employee, meaning all of the costs stemming from the deliveries fall on him rather than on LaserShip or Amazon.

Ballard had to purchase the cargo van he drives for work. He doesn't get reimbursed for the wear and tear he puts on it; for the gasoline he pours into it on a near-daily basis; for the auto insurance he needs to carry; or for the parking tickets he inevitably racks up downtown. He doesn't even get reimbursed for the LaserShip uniform he's obliged to purchase and wear.
At the end of the day, much of that $225 has vanished.

"It's like they want us to be employees, but they don't want to pay for it," said Ballard, 45.

Anyone who shops regularly online, particularly with Amazon, has to marvel at how quickly and cheaply packages arrive on the doorstep these days. Many of the millions of Amazon Prime members -- including this reporter -- may have noticed, however, that not all packages are ferried by workers wearing the familiar UPS, FedEx or U.S. Postal Service uniforms. Instead, they’re sometimes handled by smaller companies like LaserShip, with drivers working on contract and out of their own vehicles.

Delivery drivers are the real Amazon drones -- workers who hustle to feed our growing demand for next-day or same-day delivery from online retailers. And as the e-commerce industry continues to grow, the drivers classified as independent contractors are the ones feeling the squeeze.

These particular drivers work under a system that shifts the costs associated with employment away from the company and onto the worker. In this arrangement, a busted transmission can be the difference between putting food on the table and being out of a job. That's partly why the service is so cheap for retailers, and, ultimately, for customers as well.

For starters, a delivery company using independent contractors avoids paying payroll or unemployment taxes on its drivers, as well as workers' compensation insurance -- nevermind basic workplace benefits like health coverage and a 401(k). Such companies also aren't obliged to pay workers overtime under federal law, meaning no time and a half when the delivery day stretches into a 12-hour shift. And since they pay drivers on a per-delivery basis, they don't owe them anything for non-delivery work, like loading the van at the warehouse before hitting the road, a task that can take up to two hours.

The arrangement also makes it virtually impossible for the drivers to unionize since they're non-employees.

"The biggest savings for the employers, and the reason they're so devoted to the business plan, is the workers’ comp and the tax stuff. It's really lucrative," said Catherine Ruckelshaus, a lawyer with the National Employment Law Project, a worker advocacy group. "The work is all dictated by the employer, and they're not investing anything in [the driver's] business."

The arrangement appears essential to the bottom line of LaserShip, a once-small "last mile" courier company founded in 1986 and based in Vienna, Va., that's grown right along with the e-commerce boom. Although as a privately held company LaserShip doesn't disclose its size or revenue, it now handles deliveries for Amazon and others in areas stretching from New England down to Florida. Without the elaborate and costly distribution network of, say, UPS, a courier company like LaserShip is well-positioned to perform fast, cheap deliveries in dense areas like Washington.

The story is fairly long, and especially illuminating on how companies are exploiting the independent contractor clause.  LaserShip has expanded their service area into New Hampshire, Rhode Island, West Virginia, and Delaware for driver deliveries, while at the same time, forcing drivers to accept new contracts which reduced their pay by around 10 percent.  LaserShip also extracts fees from driver's earnings through a $6 "administrative" fee, a $23 weekly "insurance" fee that is separate from drivers own auto insurance costs, and a $22.50 weekly fee to "lease" LaserShip's hand-held computers for scanning boxes for delivery.  According to the Huffington Post, "over the course of a year, a driver could pay as much as $1,170 for the privilege of renting a piece of equipment that the company requires him or her to use."  This doesn't even include the costs for vehicles, gas and maintenance that drivers need to spend for working their profession.

According to the Huffington Post:

A driver like Ballard can gross $60,000 a year if he's willing to work 80-hour weeks, but expenses will drive that haul down closer to $40,000. Then he takes a big tax hit come springtime, having had no withholdings throughout the year. He also gets no health coverage or paid time off through the job, and his pay fluctuates from week to week.

Despite his two decades in the field, Ballard said he now earns significantly less than he used to in a previous job with UPS. According to the job survey site Glassdoor.com, hourly UPS drivers earn an average of about $55,000 per year, and salaried drivers make $70,000 with benefits.

One current LaserShip driver, who asked to remain anonymous for fear of losing his contract with the company, said that when his vehicle recently broke down while delivering Amazon packages, he invested in a used van to make sure he kept his route. In addition to leveraging $7,000 of his own savings and credit, he took out a loan facilitated by LaserShip. The principal plus interest were deducted directly from his paychecks, which were reviewed by HuffPost.
After taking on debt in order to keep his job, the man was asked to accept a lower per-delivery pay, he said.

"That's part of their pitch: 'You're investing in your company,'" the driver said. "I thought I was investing. But now I'm facing a pay cut."

The problem is that companies have forced extreme cost cutting, reduced pay and incentives on the backs of drivers.  With LaserShip, there is no guarantee on the delivery routs or number of packages drivers are expected to deliver.  There is no job security for the drivers, and LaserShip can terminate the contract if a driver refuses to accept lower pay.  LaserShip is forcing the drivers to pay the cost of company equipment, such as the hand-held computers as "leases," and extracting profit from administrative and insurance fees.  In other words, LaserShip has discovered a loophole in misclassifying drivers as independent contractors, rather than employees, as a means to reduce costs and save money.  With the extremely tight labor market, and companies continued demand for increasing productivity in doing more with less, it is not surprising that companies like LaserShip can find contractor drivers to work for them at slave wages.   As the drivers are independent contractors, and not employees, there may be a diffusion of opinion and potential single voice to represent the interests of such contractors, or even to unionize.  But that change may be coming--at least in the courtroom.  According to the Huffington Post, a judge has approved a class-action settlement where LaserShip is required to pay $800,000 to drivers in Massachusetts due to this missclassifying of the drivers as independent contractors, giving them minimum wage and overtime protections. 

The problem doesn't just stop with LaserShip.  There is also a WalMartization effect taking place here.   According to the Huffington Post article, delivery companies are forced to relentlessly cut costs in order to maintain contracts with Amazon.com, and if they can't perform the work at the price Amazon demands, then Amazon will terminate the contract with the delivery service:

That's what a LaserShip co-founder, Farhang Aryan, suggested in a deposition related to the Massachusetts lawsuit. Aryan said an increase of 5 percent in what the company asks of its customers like Amazon could get it "terminated" from its contracts.

"I know of situations [where] a customer says, 'If you do not increase the rates, I will give you [an] additional year of contract, and if you want to do any increases, this has to go to a bidding process,'" he said.

William Deschenes, a former Lasership manager, noted in his deposition that Amazon is now LaserShip's largest customer by any measure. According to Deschenes' testimony, Amazon expects that 98.5 percent of its deliveries arrive on time, and LaserShip drivers are measured under a rubric known as "deficiencies per million opportunities," or DPMOs, i.e., failed deliveries. Drivers told HuffPost that LaserShip management informed them they could lose their work through Amazon if the drivers can't keep their DPMO levels down.

It isn't clear how large or small a piece of Amazon's delivery operation LaserShip handles, or how much the retailer relies upon companies using contractors and their personal vehicles. Amazon didn't respond to interview requests.

One of the plaintiffs in the Massachusetts lawsuit, Milton Sanchez, testified that LaserShip management suddenly cut his pay. He alleged that it was customary for drivers to be pressured "under duress" to sign new contracts lowering their own rate.

"At the beginning we were making a decent pay," Sanchez testified. "And then they started cutting, cutting. … They couldn't make money with the client, so they make money with us. That's the way I see it." Asked about the various costs that drivers are forced to swallow, Sanchez said, "You break it down, and I'll start crying."

 If what LaserShip's co-founder Aryan suggested is true, then even Amazon is complicity guilty in the abuses of independent contractors.  Amazon is forcing relentless cost-cutting of delivery service contracts on LaserShip, which forces more pay cuts and fees on its drivers, who end up performing the deliveries for almost no pay.  Again, it is do more with less, but only now it is Amazon that is forcing LaserShip to do more deliveries with less cost.  It is a system that can't sustain itself--sooner or later, the system will end up crashing.  If a driver for LaserShip is forced to sign contracts for less pay to LaserShip than last year, due to Amazon's insistence on reducing LaserShip's delivery rates for shipping Amazon's packages, then that particular driver is not going to be purchasing products through Amazon.  We have a reduction in demand for Amazon's products, and a need for delivery services through LaserShip.  This is a demand problem here.  If companies do not want to pay workers for labor, the workers are not going to purchase company products.