LDN - Business

How will Amazon deliver in its second biggest market?

[October 23, 2019] By Emma Thomasson and Riham Alkousaa

MANNHEIM, Germany (Reuters) - Every half an hour, 50 vans sweep into Amazon's distribution center in Mannheim, Germany and sweep out again with up to 200 parcels and a precise delivery plan in each.

The tightly choreographed morning operation is designed to maximize speed and minimize costs, preconditions for the success of Amazon's rapid expansion in its biggest international market.

But contractors which hire delivery people say that finding drivers is increasingly difficult.

Salem Ahmad runs a small logistics company which recently won a contract to deliver parcels for Amazon in the city of Bochum. An Iraqi who has lived in Germany since 2001, he is struggling to find around 50 to 60 new drivers.

Many migrants with families calculate they will get more in benefits than the average 1,600 euros a month Ahmad can pay them, he said. "They think, why bother and work in such demanding job if it won’t benefit them financially."

Raising salaries could help attract more drivers, Ahmad said: "But at the current rates we have, it's not easy to solve this problem."

Amazon sends almost a third of the 1.4 billion parcels delivered to private customers in Germany each year, said Horst Manner-Romberg, head of logistics consultancy MDU. He estimates the parcel delivery sector overall is short of as many as 9,000 drivers.

In Munich, where Amazon launched its own delivery service for Germany in 2015, it has recently begun hiring drivers directly. An Amazon spokeswoman said there is usually a shortage of drivers in the city during the Christmas shopping peak.

Bernd Gschaider, Germany director for Amazon Logistics, which covers deliveries from distribution centers, denied there was shortage of delivery drivers in Germany. "Of course we are competing for the best workers as in many other sectors but we believe we offer our drivers - and those of our partners - a good package," he said.

"HARD LABOR"

Several drivers currently or formerly employed by contractors told Reuters working conditions were punishing.

"The days were difficult: hard labor in every sense of the word,” said one of them, Ihsan Hardan, a 35-year-old father of four from Syria who spent seven months delivering parcels for a subcontractor driving for Amazon until he quit in May.

Working days were as long as 12 hours, some drivers said, because there was no way they could deliver so many parcels in a standard eight-hour shift. A few drivers said they had to turn up at the depot well before they started driving and return undelivered parcels.

"You have 180 stops, 180 times to get out of and in the car, 180 times you have to find parking, 180 times knocking on client house, sometimes they are there, sometime they aren't," Hardan said, declining to name the subcontractor which hired him.

Amazon says it designs routes to fit a regular shift and that contractors should bring in relief drivers if they find they cannot deliver within the time.

Yves Delmas, chief operating officer Europe for parcel delivery firm DPD, owned by France's La Poste, noted DPD's turnover of workers is as much as 40 percent a year in Germany. "Home delivery will become more and more expensive," he said.

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Ihsan Hardan is pictured in Mannheim, Germany, September 17, 2019. REUTERS/Ralph Orlowski

The other two major logistics companies in Germany which both deliver for Amazon - Deutsche Post DHL <DPWGn.DE>and Hermes - have both hiked prices for parcel deliveries in the last year - citing the need to pay more to attract drivers.

PRICE RISES

Melanie Kreis, finance chief of Deutsche Post DHL, said recently that few delivery staff are prepared to work for the German minimum wage of 9.19 euros ($10.24) per hour. DHL pays its employee drivers at least 13.37 euros per hour.

Amazon said it will pay the drivers it has begun employing directly in Munich 12.80 euros per hour. Reuters did not interview any drivers working directly for Amazon.

Hermes plans to increase parcel fees for contractors so they can eventually hike hourly pay to 12 euros from 9.50 euros now.

"Shortage of personnel is a massive challenge," a Hermes spokeswoman said. "We are convinced that the job of parcel couriers needs to be financially more attractive."

A German law is expected to pass by the end of the year making companies responsible for ensuring their contractors pay social security for their employees.

Kira Falter, a labor expert with German law firm CMS, said companies will have to hire controllers to ensure their contractors make those deductions, pay workers properly and stick to working time regulations.

"The latest amendments will result in significant additional costs, which will either be borne by the e-commerce company itself or by the customer through higher prices," Falter said.

Amazon's Gschaider said its auditors already perform spot checks to ensure contractors comply with working time and other rules so the changes would not affect its business.

The company's sales in Germany rose 17% in 2018 to almost $20 billion, or 9% of the group total.

Overall, Amazon missed analyst expectations for profit for the first time in two years in July as it ramps up spending on one-day delivery and its own network. https://tmsnrt.rs/2o8SqJy

Amazon reports third quarter results on Oct. 24, with analysts predicting a fall in earnings per share to $4.60 from $5.75 a year ago, Refinitiv data shows.

The online retail giant plans to almost double its number of distribution centers in Germany this year, to 24, and open another warehouse, bringing its staff total to more than 20,000 across more than 35 sites.

(Editing by Vanessa O'Connell and Philippa Fletcher)

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