Should I Stay or Should I Go? A DSP Owner's Perspective

Five Compelling Reasons Why DSP Owners Should Weather the Current Storm

The Current Reality for Amazon DSP Business Owners

Over the last 7 years, I've had the privilege of collaborating with Amazon DSP business owners across the country. We've bonded over our comradery—discussing everything from Amazon 101 to "Why did I think this was a good idea?" The most burning question today echoes The Clash's 1982 hit, though I suspect they weren't contemplating delivery route optimization when they wrote it: Should I Stay, Or Should I Go?

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New to the Amazon DSP world? Learn about the fundamentals of the program before diving into today's challenges.

Amazon DSP business owners today are feeling the squeeze from modern-day Goliath, Amazon—and unlike David, we can't solve this one with a well-aimed stone. The cognitive load has skyrocketed from 70 hours per week at launch to over 240 hours in 2024. For those keeping score at home, that's more hours than actually exist in a week. Profit margins have been routinely compressed, enterprise-level regulatory compliance has transformed Amazon DSP business owners into full-time paperwork champions, and business autonomy has become as rare as a perfect delivery day.....and dare I mention the topic of Auto Insurance Premiums.

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The "continuous improvements" and "technology enhancements" from above feel suspiciously like a game of hot potato, except the potato is on fire, and we're the only ones playing. There simply has been no more difficult time to operate a DSP since program launch than today. Prompting the question – Should I Stay, or Should I Go?

Why This Might Be the Perfect Time for Amazon DSP Business Owners to Stay

But wait! Before you start drafting your own non-renewal letter, here's why this might actually be the perfect time for Amazon DSP business owners to stay:

Network Build Out

I have always told newly launching DSPs looking for advice: "Launching this is going to get much worse before it gets better, but then it will get better fast." The volatility in volume, operational process adjustments, and programmatic policy changes we face are directly correlated to a rapidly growing business unit. Amazon Logistics is basically a teenager in startup years, complete with mood swings and growing pains. That said – just like launching your DSP, macro-level change will dissipate, micro-level adjustments will follow. Likely a few years from a palatable pace, it will take a little time, but eventually a semblance of steady state will appear.

UPS and FedEx Volume Share

Since 2019, FedEx basically ghosted Amazon like a bad Tinder date. That same year, Amazon Logistics internal volume increased ~150% YoY. UPS has announced they will cut AT LEAST 50% of their Amazon volume by the second half of 2026. That's 650 million packages looking for a new home—like a massive game of musical parcels, except the music's about to stop, and guess who's still got chairs?

Ship With Amazon

UPS has had a relationship with Amazon for nearly 30 years, and this year their contract is up for renewal. That renewal is significant for two particular reasons. First, it will stairstep down Amazon's guaranteed volume levels agreed upon for pricing, this will naturally cascade more volume into the DSP network (as mentioned above). But more notably – it could remove a non-compete element of the arrangement.

Ship with Amazon (SWA) has slowly been growing, but in a world where everything moves at lightning speed, what's the delay? There have been some reports of contractual restrictions for Amazon to pursue non-Amazon 3rd party shippers. Once Amazon's UPS contract expires, they might finally turn their delivery network into a profit center. They've done it before with AWS—turning their computer hobby into a perpetual ATM Machine.

Profit v Cost Center

Amazon lost about $55.8 billion on shipping in 2022. That's not a typo—they're losing more money on shipping than most countries' GDPs. We have some "Loss Leader" services at Go HQ but Amazon takes the trophy on this one. As they deploy their plan to turn this ship around (pun absolutely intended), we might all be glad we stuck around. As this great migration from incurring a necessary expense of being an e-commerce behemoth becomes margin on the P&L, the tightness of the belt can loosen a bit without raising shareholder eyebrows.

Inevitable Change

Lastly – and this one takes any remaining confidence that common sense will one day prevail – as the program matures, the level of customization on pricing models will undoubtedly follow. Today's Rate Cards are generally station specific, but we've started to see augmentation to Rate Card Models with the introduction of AMXL RSR, SSD, and MRO programs.

That is a reasonable first step, but the subsequent step is RGU specific pricing. The disparity between two operators in the same station from a profitability perspective, purely based on delivery territory, is alarming. When there is an 89% correlation between scorecard incentives and year-end profitability - the less dense RGU routes are intrinsically less profitable. This will have to be addressed as data is collected and time allows for a comprehensive look.

Looking Ahead: The Value of Your DSP

Individually these are meaningful, but collectively they could point to one very important future outlook. Today – your equity in a DSP is a lot like grey matter. It exists, but not exactly sure how. As the network matures, volume increases, profit centers emerge, and territories coverages are maxed – the basic law of supply and demand will surface and the only way in will be through what you already own.

I've been in logistics for 14 years now. A UPS veteran once told me, "Success in logistics costs two heart attacks and a divorce." I thought it was hilarious then. Now, I'm starting to think he wasn't joking. But hey, at least we're closer to success, right?