Point of No Return
Returns
Online retail has grown by leaps and bounds over the last two years. Sales were up 14% in 2021, according to the US government. Additionally, more Americans are shopping overseas, taking advantage of Asian fast fashion sites like Shein and AliExpress. We have talked about supply chain issues, which have made it more difficult for sellers to get goods to consumers, but what about the other way around?
In the U.S. alone, returns during 2021 of fast-fashion clothing jumped by 22% from the year before, according to the retail analytics firm Edited…
This is a problem, because fast fashion items tend to be inexpensive, and right now shipping things across oceans is more expensive than it’s ever been:
Shipping costs often exceed the value of the ultra-low-priced garments, with the cost of some routes up more than seven times early pandemic levels in 2021. Tax exemptions and bulk shipping, which ease the journey for garments moving into the U.S., disappear when the time comes to receiving returns.
We have become accustomed - especially in the US - to being able to easily return things we buy. Retailers are pressured to have good return policies, but it’s often more expensive to process and repackage opened goods than it is to sell them into a secondary market - NPR’s Planet Money has a good episode on this phenomenon.
For fast fashion produced and shipped from countries like China, retailers are faced with a choice: sell it into the secondary market, sell it in bulk to developing countries, or have it destroyed.
The excellent book Secondhand describes these markets in detail. Some fast fashion returns end up in flea markets in Nigeria:
Colorful bales of clothing arrive by the hundreds weekly at Apapa Wharf at the Port of Lagos in Nigeria, home to the country’s two biggest seaports. WhatsApp group chats, populated by these traders and local Nigerian sellers of all kinds, sell items ranging from children’s clothes to branded running shoes.
Some ends up at companies hired to process returns to minimize losses:
For a fee, these companies offer to optimize the money-losing headache of returns. Adam Vitarello, co-founder of Optoro, which manages returns for companies such as Target and American Eagle, says his company’s U.S.-based clients restock 90% of their returns, and most of the rest, which Optoro tracks through its platform’s reuse rate, is diverted to secondary channels like eBay, leaving about 4% headed to the landfill.
And some - even through US retailers like Amazon - ends up destroyed:
Retailers who sell on Amazon can choose to have the e-commerce behemoth manage their logistics with their in-house team. “There’s a setting where you can choose to have all of your returned inventory destroyed,” said Ada. She chooses this option most frequently. Another alternative is to have the Amazon warehouse evaluate the item’s resale potential, but she would have to pay Amazon for storage space for those items until they resold.
This is a real problem, because in a world that desperately needs to minimize waste, low cost throwaway clothing is clogging up our supply chains and landfills. The Planet Money reporter said researching the piece made him more aware of just how wasteful it can be to return things, and it’s a lesson we would do well to heed here in America, where overconsumption and waste has become a hallmark of our lifestyle.
Amazon DSP
As Christopher Mims details in his book Arriving Today, Amazon has spent the last few years quietly building what could soon be America’s largest private delivery service by volume. There are two models for building a private delivery service: centralized, corporate, and unionized like UPS, or decentralized, franchised, contractors like FedEx. Guess which one Amazon has chosen:
In June 2018, Amazon began advertising that almost anyone could become an entrepreneur, so long as they had $10,000 in cash. The company would take applications from individuals — not groups — who were willing to start their own LLCs. Once accepted into the program, Amazon would teach how to hire drivers, lease vans, pay taxes and get insurance.
Of course! The Amazon DSP (Delivery Service Provider) took FedEx’s franchise model, which granted owners a certain territory, and handed it over to algorithms - now DSP owners in overlapping regions compete to meet certain metrics. The company promised profits and autonomy to its new gig worker/owners:
The materials touted that he could make more than $75,000 and perhaps as much as $300,000 every year. The application required that you have $10,000 in startup capital, but the ad he saw also said that the fee might be waived for veterans.
For a layperson, it makes sense - Amazon has billions of packages to deliver, it also has highly sophisticated routing and tracking systems, so if they’re willing to give DSP “owners” access to all this technology, isn’t it just a matter of putting someone in a van and having them follow a GPS?
The DSP program is targeted toward people who want to be small-business owners and has no explicit prerequisite qualifications (aside from the ability to prove access to $30,000 in liquid assets). After applicants are accepted as DSP owners, they are first required to establish an LLC. That LLC then hires somewhere between 20 and 40 drivers on average, leases tens and sometimes even more than 100 vans from a company contracted with Amazon, purchases Amazon-branded hats, vests and other driver clothing, and installs the Amazon app on driver phones. On a day-to-day basis, Amazon tells the LLC owners and drivers what routes they will drive, how many packages they will deliver and when to make the deliveries.
First off, going from (potentially) no business experience to in charge of a few dozen people and a fleet of vans is not something everyone is equipped to handle. That would be challenging for an experienced small businessperson! The average small business in the US employs about 10 people, so Amazon has already thrown DSP franchisees into the deep end.
Then, there’s the question of whether a DSP owner is truly an independent businessperson or essentially just an Amazon gig worker in LLC form:
But the routes each LLC receives every day can change without explanation. If drivers fail to meet delivery timelines or otherwise violate Amazon’s expectations, the company sometimes encourages the LLC owner to discipline or even fire their driver.
[…]
Amazon then rates the delivery performance for each pay period, and the LLC is paid based on that score. Most of the LLC owners and drivers interviewed for this story said that a “Fantastic Plus” score was the only ranking that led to high enough pay for the LLC to make a profit.
That is…not how an independent small business is supposed to work! Basically, DSP owners have to meet all of Amazon’s criteria, they’re graded on a scale they don’t control, and paid according to metrics they may not have any control over - especially if Amazon is unilaterally changing their routes and success metrics.
Also, they may be out of pocket if their drivers work additional hours because Amazon doesn’t cover those:
Though Amazon directly pays the LLC for its drivers’ regular wages, it does not always explicitly compensate them for overtime hours. For DSPs where the warehouse location is far from both the headquarters and route — this is more common in rural delivery areas — the drivers usually rack up many overtime hours driving to and from the route, and Amazon doesn’t pay for those extra hours (though it does provide bonuses for excellent delivery scores, which owners could choose to use to pay the overtime), according to some owners.
Many DSPs have had to rely on pandemic relief from the government to even keep the lights on:
And of that [$90,000] number, almost half of it came not from Amazon, but from federal paycheck protection program loans that most DSPs were eligible for over the last two years of the pandemic. “If I hadn’t gotten a $40,000 PPP loan, my company would have had to shut down. I didn’t have enough working capital,” he said.
This owner is not the only one to depend on PPP loans to maintain cash flow. In January 2022, a DSP owner in Durham, North Carolina, alleged in a suit against Amazon Logistics that the company knew that DSP owners had to rely on PPP loans for cash flow and that Amazon actively encouraged it.
We’ve talked at length about the “business” “owners” but what about the drivers, the people hired to work at these pop-up franchises?
“At UPS or FedEx, they don’t really care, they just want the packages delivered. At Amazon, you got to take the photo, the photo has to be Instagram-quality worthy, you got to text the consumer it’s there. It’s kind of crazy how Amazon expects the most, but pays the least,” said one manager who works for a successful, high-profit DSP thriving in a major metropolitan area. The drivers Protocol spoke to said the pay at their respective DSPs equated to at least $1 per hour less than comparable rates at FedEx and UPS, and sometimes $2 or more.
Again, Amazon imposes its exacting standards on essentially untrained gig workers, thrust into a situation where they have little or no safety net - DSPs are responsible for insurance, workers comp, etc. This leads to high driver churn - a problem even large companies are having trouble with during the Great Resignation. But what if you’re a small LLC struggling to meet Amazon’s quotas and a third of your drivers are quitting every six months because the job sucks? Well, exiting the DSP program can be fraught:
The veteran DSP owner interviewed for this story wants to close out his business and leave the program, but he is afraid of what might happen if he does.
“They make it extremely difficult for you to get out of the program. If I were to say, ‘Hey, I can’t do this anymore.’ They write down every nick or scratch on a vehicle; the average person that tries to return the vehicle, you’re looking at well over $100,000 of damages they are going to find in your fleet,” he said. “That’s what you're going to have to pay or we’re going to sue you. I can’t even get out.”
Amos, the woman suing Amazon Logistics in North Carolina, alleged the same in her complaint, claiming that she believes the company designed the program so that DSPs couldn’t afford to leave unless Amazon forced them out. “Amazon, through Element [the van rental company], charges $6,000 on average per Amazon-branded vehicle upon termination of DSP contracts. As such, many DSPs are left with over $120,000 in ‘exit fees,’” her attorneys wrote.
Incredible. Amazon charges fees - through its third-party vendors, to avoid liability, of course - for anyone who wants to leave the DSP program, which can send them further into financial ruin.
Is any of this sustainable? It’s hard to imagine there are an infinite number of people willing to go into debt and run a 7-day-a-week delivery business with dozens of unhappy employees just to experience Amazon’s fantastical notion of financial independence. Somehow, Amazon has taken FedEx’s business model and made it more inhuman in their quest to build our algorithmic future.
Truckers
We’ve talked about truckers in the news lately, but behind the politically fueled outrage, driving a truck in the US is a terrible job:
Today, long-haul truckers are some of the most closely monitored workers in the world. Cameras and sensors dot their trucks, watching the road, the brakes and even the driver’s eye movements.
[…]
Trucking is a supremely dangerous job, with large trucks involved in 10 percent of fatal crashes in the United States in 2019.
[…]
However, experts say the fatigue that leads truckers to be unsafe — to fall asleep at the wheel or lose focus — is a direct result of low wages that encourage drivers to spend too much time on the road.
One of the many byproducts of American demand for cheap goods is that shippers pass those discounts along to freight carriers - who employ (or are owned by) truckers. Driving a truck used to be a good job:
Before deregulation during the Carter administration, trucking was an industry with high union representation. But fears of inflation pushed the government to allow less regulated, nonunionized firms to compete with the unionized common carriers. That effectively took the bottom out of the labor market, and as companies raced to offer the lowest rates to customers, wages were squeezed. Working conditions and pay cratered, and truckers fled.
Jimmy Carter has led a fairly charmed life after his time in office, and he’s easy to overlook in the specter of Reagan - who we talk a lot about here! - but his administration oversaw the privatization of key industries under the specter of inflation, and truckers were caught in the crossfire.
For forty years truckers have seen their wages decrease as their hours increase, and the best solution the government has come up with is to impose draconian monitoring systems on them:
Once, when his truck’s cabin heater broke, Mr. Knope was forced to sleep in freezing temperatures for several days while traveling across northern Ohio and New York because an automated system made sure his engine was turned off at night. The company told him there was no way to override the system.
Trucker pay is lousy in large part because they aren’t paid for a significant chunk of time they’re on the job:
Many truckers report working 100 hours or more each week. This is in part because truckers are not actually paid for all the time they spend working. They’re almost always paid by the mile.
So if Mr. Knope were to show up to, say, a pet food warehouse, exhausted from a day of driving, looking to unload quickly, find something to eat and catch some sleep, the warehouse staff might tell him there wasn’t anyone available to unload his truck for six hours, and he would be forced to wait, lonely in his truck, paid for only part of the time he spent waiting. (Other trucking companies might not compensate their drivers at all.)
Truckers have no control over the time it takes to pick up or drop off their cargo, and many employers don’t pay them for this wasted time. This runs up against federal mandates restricting how much time a trucker can be on the road - putting drivers in an impossible situation. It comes as no surprise that industry churn is insane:
For decades, truckers have quit at alarming rates, leading to a chronic shortage. The turnover rate was at a staggering 91 percent in 2019, which means that for every 100 people who signed up to drive, 91 walked out the door. Plenty of people have the commercial driver’s licenses needed to operate trucks, said Michael Belzer, a Wayne State University economist who has studied the industry for 30 years. “None of them will work for these wages,” he added. Studies even show that their pay, when adjusted for inflation, has declined markedly since the 1970s.
Again: is this sustainable? How many people - men, because the industry is nearly all male - are left to drive trucks, a terrible job with long hours and lousy wages? Truck driver shortages are a major factor in the current supply chain issues, and no one in power is proposing a solution that might convince folks with CDL licenses to come off the sidelines.
Travel Nurses
Like nearly everything in American life, the pandemic exposed the fragility of our healthcare system - doctor and nurse shortages are regularly in the news. Because just-in-time applies to health care these days, hospitals in areas with severe COVID-19 outbreaks have turned to travel nurses to fill staffing gaps:
For the nurses who have witnessed the darkest moments of the pandemic under harrowing work conditions, the rise in demand for travel nursing has come as a welcome opportunity.
Agencies that staff nurses around the country started paying as much as twice nurses’ regular salaries to those willing to travel to areas with a staffing need. Thousands of nurses have jumped at the chance.
Travel nurses are given short term contracts to live and work in far flung places across the country. Agencies connect available nurses with hospitals in need. It’s been good for nurses - as “good” as witnessing mass death can be - who can make far more than they’d made in staff jobs, and get to…see new places I guess?
So it makes sense that hospital and assisted living industry groups are lobbying to dramatically cut how much travel nurses are paid:
In the last few months, several groups, including the American Hospital Association (AHA), the American Health Care Association/National Center for Assisted Living and 200 members of Congress, have called for an investigation into claims that agencies that place travel nurses around the country have been “price gouging” hospitals in need of staff.
[…]
Rep. Peter Welch, a Democrat from Vermont, and Morgan Griffith, a Republican from Virginia, wrote that they have received reports saying staffing agencies have inflated prices by “two, three or more times pre-pandemic rates” while taking 40 percent or more being charged to hospitals in profit.
I mean…yeah, this is what happens when those same hospitals and nursing homes have lousy pay and thin schedules. Obviously it’s not good that the agencies are raking in profits - private equity firms are getting in on the action now - rather than passing that money along to the nurses doing lifesaving work, but that’s America baby!
There could be a happy medium - two states cap what nurse staffing agencies can charge hospitals:
In Minnesota, one of the two states that already caps what nurse staffing agencies can charge hospitals, pay increased for nurses in 2021 and 2022 but, for this year, is still capped at $62.36 an hour for regular pay and $107.25 in holiday pay for registered nurses. The median hourly wage for an RN in Minnesota was $38.24 in May 2020, the most recent month data is available from the Bureau of Labor Statistics.
It makes sense that on-demand staffing agencies can charge a premium to move a nurse across the country for a limited contract, but it exposes a larger problem - staff nurses are badly underpaid:
Almost 90 percent of registered nurses are women, and about 31 percent are Black, Latina or Asian, according to the Bureau of Labor Statistics. Women make up 75 percent of the health care workforce, but lower pay for nurses has helped drive a gender gap in the industry. Nationwide, the median pay for a registered nurse in 2020 was $75,330, for example, while surgeons, 72 percent of whom are men, earn a median wage of $251,650.
In many cases nurses are taking over roles traditionally handled by doctors - because we’re dangerously short on doctors and will only be more so in the future. Wages have increased some, driven by the nursing shortage, but the job has (understandably!) become much worse:
A September 2021 survey by National Nurses United, the country’s largest nurses union representing more than 175,000 members, found that about 31 percent of hospital RNs said workplace violence was slightly or significantly up during the pandemic. More than a third said they felt “traumatized by their experiences caring for patients,” and more than 57 percent reported that short staffing issues had worsened.
Even if COVID-19 becomes endemic, the American healthcare system is stretched so thin we are going to need major changes if we want to have any hope of coping with the aftermath of the pandemic, much less preparing for the next one.
Sports Betting
A wide receiver for the Atlanta Falcons was suspended for an entire season for betting $1500 on a sportsbook app. This will cost him $11.1 million in lost salary. That sucks! There is a discussion to be had about whether players should be able to bet on sports, or games they’re involved in. They could miss a catch, tank a play, and cost their team a win just to earn money on a bet. The horror! What happens, though, if the owner of the team offers the coach a bribe to lose games? Well:
According to Flores, Dolphins owner Stephen Ross, the billionaire real-estate developer, instructed him to “tank” as many games as he could during the 2019 season, dangling a $100,000 reward for each loss. Flores said he refused to do so, which created a clash with Ross and team management and ultimately led to his firing at the end of this season. Ross was “mad” that the five games the team won that season cost them a chance at the top overall draft pick, the lawsuit alleges.
As a sports team owner there are many levers you can pull to make it more likely your team loses. You could draft lousy players, or trade away your stars, or hire quarterbacks who don’t believe in vaccines, or whatever. What you probably shouldn’t do is tell your coach, explicitly, to lose games in exchange for cash:
“That was a conversation about not doing as much as we needed to do to win football games, take a flight, go on vacation, ‘I’ll give you $100,000 per loss’ -- those exact words,” Flores said in an interview Wednesday with ESPN regarding the conversation with Ross.
This is pretty bad! If you are a billionaire who owns a sports team, it is not out of the ordinary to dangle significant sums to get your underlings to do your bidding, but if the allegations are proven to be true it could make the NFL look just bad enough they’re forced to do something about it.
It’s unfortunate that ethical codes in sports often apply only to players and not to owners, but those are the rules of this particular game.
Short Cons
WaPo - “The stalemate left Washington scrambling to find solutions for the second consecutive week, while the future of the U.S. government’s pandemic response appeared to hang in the balance — stymied not by a vexing new pathogen but a now-familiar political battle over federal spending.”
NY Times - “So when the man, who went by the name Ze Zhao, told Ms. Vu, who works in customer service for a security company, that he could help her make money by trading Bitcoin and other cryptocurrencies, she was intrigued.”
Reuters - “A U.S. "KleptoCapture" task force has more targets in mind than just the Russian oligarchs who have enabled Moscow's attack on Ukraine, a senior official said on Friday, and warned it will also prosecute banks or cryptocurrency exchanges that aid and abet them.”
Wired - “I proposed more than a dozen potential patents through my company’s process and received a framed certificate for my efforts, made out to Fatty Nut Watkins, which I submitted as my name just to see if they would print it.”
Bloomberg - “Two of the mines would each require as much as $20 million to fortify power lines and avert blackouts. Each would consume enough electricity to power as many as 60,000 Texas homes.”
Tips, thoughts, or sane labor policies to scammerdarkly@gmail.com