How Amazon’s shipping empire is challenging UPS, FedEx
Firm has blanketed U.S. with warehouses, flooded streets with vans and taken to the sky
Amazon.com Inc.’s recent breakup with longtime shipping partner FedEx Corp. shows how far the e-commerce giant has come in creating its own delivery network.
Over the years, Amazon has played down its ambitions. But as consumers flock to its site for everything from toilet paper to TVs, Amazon has quietly blanketed the nation with hundreds of sprawling suburban warehouses and neighborhood package-sorting centers, flooded the streets with tens of thousands of vans and even taken to the airways. The costly effort is enabling Amazon to control how goods reach its customers—and increasingly turning it from a customer of delivery companies into a rival. Here is a look at Amazon’s vast shipping empire.
Storing, Sorting and Shipping
The 2013 holiday season was a turning point for Amazon, after orders overwhelmed carriers in the U.S. and led to late packages and upset customers. Since then, Amazon has multiplied the number of fulfillment, sorting and other delivery facilities from about 65 to roughly 400, according to an analysis of data from logistics consultant MWPVL International; before 2005, it just had three fulfillment centers for the entire country, MWPVL said. Amazon has planted facilities near city centers across the country to be as close to each customer as possible. That has enabled Amazon to deliver more packages to doorsteps within a day and cater to demanding online shoppers.
This year it started to shift the standard free two-day shipping option for its Prime members to one day.
Big Spender
Amazon’s aggressive pursuit of greater shipping control and speed has raised the amount it spends on shipping and fulfillment.
Over the past decade, those costs have risen from about $5.5 billion in 2010 to about $61.7 billion in 2018, and they now equal more than a quarter of Amazon’s revenue.
Prime Time
A big driver of those skyrocketing costs?
Amazon has rapidly signed up subscribers to its Prime membership, which promises fast, free shipping on more than 100 million items.
It spent more than $800 million alone in the second quarter to shift its standard free shipping option to next-day from two days.
Amazon’s Prime membership has topped 100 million subscriptions in the U.S., according to equity research firm Consumer Intelligence Research Partners. At $119 a year, Prime memberships helped boost Amazon’s subscriptions revenue 37% in the second quarter from a year prior.
Heavy Lifting
Amazon is no longer handling a small glut of overflowing orders. It is the primary carrier of its brown boxes.
The shift over the past few years is staggering.
Amazon now delivers nearly half of its orders, compared with less than 15% in 2017, according to estimates from research firm Rakuten Intelligence.
It is now handling an estimated 4.8 million packages every day in the U.S., according to MWPVL International. The U.S. Postal Service, once the primary carrier of Amazon parcels, delivers about half the share of packages than it did two years ago.
“We have great partners in our traditional carriers and appreciate all the work they do in delivering packages to our customers,” an Amazon spokeswoman said.
By Land, Sea and Air
All of this means Amazon needs more ways to transport its increasing volume of packages. Last year it created a program where entrepreneurs with their own delivery companies could begin delivering packages in Amazon-branded trucks, and it also pays contracted drivers through its “Flex” program to drop off packages using their own cars.
Amazon also recently introduced a program that will give its existing employees as much as $10,000 to start their own local package-delivery business.
In June, Amazon said it would rent another 15 Boeing Co. 737800 jets converted to carry cargo, in addition to five it is already leasing and 40 larger planes. Amazon said it expects to add another 10 rented planes by 2021. It has even sought to manage ocean freight.
While Amazon has become a force in the shipping industry, it still works with other delivery companies.
“We believe UPS and Amazon work together to attain a mutually beneficial relationship,” a United Parcel Service Inc. spokesman said. UPS and FedEx remain much bigger in terms of shipping volume and operations.
“FedEx has already built out the network and capacity to serve thousands of retailers in the e-commerce space,” said a FedEx spokeswoman, adding that the company is teaming up “with major retailers to support their growth” through its network.