AMAZON TAKES STEPS TO OWN MORE OF THE HOLIDAY DELIVERY CRUSH
Online retailer recently bought fleet of its own trailers
Amazon’s holiday nadir came in 2013, when shipping issues meant some packages didn’t arrive in time for Christmas. This holiday season, things are very different.
The company has made changes some see as signs it’s building out an Amazon-owned delivery system.
Recently, Amazon purchased a fleet of “thousands” of Amazon-branded trailers that will move goods between its more than 50 fulfillment centers in the United States to Amazon’s sorting centers, locations where employees sort packages by ZIP codes. The trailers moving the freight are owned by Amazon, but the trucks are owned and driven by Amazon’s current trucking partners, said spokeswoman Kelly Cheeseman.
That’s presumably so Amazon doesn’t have to register itself as a commercial trucking company, with the regulatory oversight and costs that would entail.
There have also been rumors that Amazon might be looking into launching its own air cargo service. Press reports have suggested Amazon is considering flights out of Wilmington Air Park in Wilmington, Ohio.
Asked about the possibility, Cheeseman said: “We’ve long utilized air capacity through a variety of great partners to transport packages, and we expect that to continue.”
Forrester analyst Sucharita Mulpuru predicted several years ago Amazon would begin competing head-to-head with companies like UPS and FedEx. Now it appears “they may be getting more active with those efforts,” she said.
“They are indeed trying to own more of their fulfillment logistics. It’s likely to improve their delivery economics, their capacity particularly during peak times like the holidays and their timing for deliveries,” she said.
Amazon watchers believe the company wants to “insource” more of its transportation and logistics as it reaches a size where it makes more financial sense to do so, rather than paying a third party to move and deliver products.
Just as it has with Amazon Web Services, Amazon could first build out capacity for itself and then offer it for sale to others.
Amazon could end up eventually offering “parts of their fulfillment and distribution infrastructure as a service to third parties. Will we eventually see Amazon cargo planes moving goods from New York to San Francisco? I would not be surprised,” said Colin Sebastian, an analyst with Robert W. Baird & Co.
Even though the new Amazon trailers are not actually bringing products directly to customers, they’re vital to lowering costs.
In the past, an item might be packed at one of Amazon’s fulfillment centers, loaded onto a UPS or FedEx truck and then sent to one of those carriers’ own hubs to be sorted and then shipped.
“It could go all the way from Tracy, Calif., to Louisville, Ky., just to get sorted,” said Scot Wingo, executive chairman of Channel-Advisor, an e-commerce company.
Now, those packages are sorted down to ZIP codes at Amazon’s own sorting centers.
The revision originally came about when Amazon signed up the U.S. Postal Service for Sunday deliveries. “But it’s ended up being a nice win” more broadly, Wingo said.
Financially, Amazon needs to get a handle on shipping costs, said Colin Gillis, technology analyst with BGC Partners.
Amazon is on track to exceed the $8.7 billion it spent last year on shipping. Those costs are partially offset by revenue, which is about $4 billion. That means the company has spent more than twice what it’s earned from selling goods that have to be shipped, Gillis said.
Overall, shipping costs for Amazon are 6.6% of net product sales, which is the sale of actual physical products that have to be moved from a warehouse to a customer’s home.
The number doesn’t include sales from streaming audio and video and its web services division, said Gillis.