The Differences Between Amazon Routes and FedEx Routes

With the increasing growth in the e-commerce delivery space, many potential FedEx Ground investors often ask if Amazon is a threat to their success. The answer? No.

Our team has received many questions about the differences between being an Amazon DSP and a FedEx Ground contractor. While the end product is similar, how the two business models function is very different.

FedEx Ground Does Not Deliver Amazon Packages

FedEx Ground severed its agreement with Amazon in Q4 of 2019 with minimal impact to the FedEx Ground network. When Amazon was still a customer of FedEx Ground, Amazon packages accounted for less than 2% of FedEx Ground’s entire volume. For every 100 packages within the FedEx Ground network, only 1 or 2 packages belonged to Amazon. FedEx discontinued the relationship during a time of intense growth and FedEx contractors barely noticed the separation. 

Key Operational Differences 

Even though FedEx Ground and Amazon Logistics both provide last-mile delivery services, the operational structure of the two networks is very different.

Contract Differences 

FedEx Ground contractors own the exclusive rights of the territory they deliver to for their P&D routes. On the linehaul side, a contractor owns the lanes between two cities and has the right to a certain quantity of trailers traveling between the two cities. This provides contractual consistency, security, and equity in the business.  

As an Amazon DSP, you do not own the exclusive contract rights of the territory. For residential delivery, the territory can and does move weekly based on Amazon-generated assignments. This means that a DSP does not build financial history or equity based on a territory. 

With this structure, Amazon can utilize a DSP’s operation one week and decide the next week to discontinue or postpone their contract with that DSP. This makes a mess of resource planning!

While being a DSP does provide a high paying job, being a FedEx Ground contractor provides operating income and equity value. Having operating income and equity value provides a FedEx Ground contractor with the opportunity to sell their business later on, making their contract transferable. Amazon agreements are non-transferable, meaning the agreement is solely between Amazon and the DSP. 

Entry Costs Vary 

For Amazon, a DSP will pay few upfront costs to start the business. As a DSP, there is not an existing business to acquire, and DSPs receive Amazon subsidization for the purchases made for the business, such as vehicles and scanners. While it can be much cheaper to get into the Amazon DSP space, competition for territory assignments can be high and it is ultimately up to Amazon to decide whether or not you get approved to deliver in a particular area.

With FedEx Ground routes, a potential contractor has to purchase the rights to a territory with significant Total Revenue. Costs for a P&D operation typically range between 75% and 85% of one year’s Total Revenue. 

For a linehaul operation, costs are usually between 90% and 110% of one year’s Total Revenue. Additionally, there may be capital costs such as trucks, fleet technology, and uniforms. Starting costs such as legal fees and closing costs are also common when purchasing a FedEx Ground business. 

Revenue is Not the Same 

FedEx Ground routes are a guaranteed revenue stream. Daily, FedEx Ground contractors have an idea of how many stops they have to make or the number of miles to complete. This means contractors can expect a certain amount of Total Revenue each month. 

Amazon DSP routes are the opposite. Amazon provides only a prediction of the number of routes or miles to complete, which varies week to week, and results in inconsistent revenue. For example, one week a DSP could utilize 50 trucks and drivers while the following week they only have enough work for 20 trucks and drivers. This business model creates challenges for DSPs because they can have too many employees for one week and not enough team members the following week.

Operating Authority

As an Amazon DSP, you must secure your own Department of Transportation (DOT) number or operating authority. This is incredibly costly and high risk for a new investor. 

Why?

With your own DOT number, you must be a good steward of safety and manage your compliance with DOT to keep your operating authority. For this reason, the weight and implications of any violations fall heavy on DSP operators. 

If an operator loses their DOT number, they are out of business immediately. You must have operating authority to deliver any packages within the Amazon network. 

Also, the insurance policies and general liability needed as a DSP are critical and expensive. We see that sourcing and managing the right insurance policies in the Amazon space is essential. This is an area where DSPs want to control the costs of their premiums, including managing their modifiers and losses within their operation. 

In the FedEx network, you operate under the FedEx Ground DOT operating authority. Contractors use the same DOT number facilitated by FedEx Ground. FedEx Ground indemnifies you from general liability. For Amazon DSPs, you do not have this blanket umbrella policy since you operate under your DOT number.  

Note: You must understand while you are an independent contractor, you are operating in a branded Amazon or FedEx Ground vehicle. This can attract legal implications and ramifications for any operator. So running a safe operation is imperative. 

As an Amazon DSP, securing your own operating authority is not uncommon. It is standard practice in the transportation industry. 

Load Time

Another difference between an Amazon DSP and FedEx Ground contractor is the day-to-day dispatch and management perspective. DSPs receive the number of routes they will dispatch directly from the Amazon network. Based on this data, the operator will know the number of vehicles and drivers to dispatch for the day. 

However, on the FedEx Ground side, contractors receive a volume projection. And it’s up to the contractor’s discretion to determine how many routes, drivers, and vehicles to dispatch. 

In some ways, this puts a significant amount of profitability and control in the hands of the FedEx operator. On the flip side, the quality of data and Amazon’s ability to determine the most efficient and optimal allocation of resources are a huge plus to increasing DSP's efficiency and profitability. 

This data will often outpace a local operator's ability to allocate resources based on projections rather than factual data such as the data provided by Amazon. It can make a difference in overall efficiency and profitability. 

It’s also common to see multi-wave dispatches within the Amazon facilities. On the FedEx side, they have one dispatch each morning that occurs consistently across all terminals. 

We have seen Amazon load times start as early as 6am and continue as late as 2pm. With multiple wave dispatches, overall efficiency and profitability are impacted based on the early or late dispatch times. Drivers are only so efficient when delivering at night in unfamiliar territory compared to making deliveries in broad daylight. 

Daily Involvement 

Amazon DSPs are strongly encouraged to be on-site at the station every day. On the FedEx side, it is highly common to see operators maintain remote ownership, operate multiple businesses, and visit the delivery locations a few times per year. 

On the contrary, DSPs must show daily presence at the station, impacting how they spend their time, the responsibilities expected of them, and their ability to manage other investments. 

Our team has seen Amazon DSPs be one station operators. This approach can impact your ability to scale and create profitability in a larger volume or magnitude. It’s similar to the early days of FedEx Ground, when it was common to see one location operator. We will continue to watch this evolve as Amazon continues to expand. 

Want to Learn More?

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