Do retailers have to catch up to Amazon’s logistics powerhouse?
Amazon.com has made significant progress over the last year in last-mile fulfillment with its vans crisscrossing neighborhoods with greater frequency. Company officials last week detailed the many benefits coming from its expanding logistics network.
On its quarterly analyst call, Brian Olsavsky, CFO, noted that Amazon increased its fulfillment capacity — including through its own shipping service, Amazon Logistics (AMZL) — by 50 percent in 2020. He confirmed the “majority of our units are going through AMZL today” rather than UPS, U.S. Postal Service and other third-party carriers.
Amazon was delivering about two-thirds of its own packages last July, according to ShipMatrix data.
Mr. Olsavsky noted that Amazon’s 80 percent hike in capital spending in the trailing 12 months in the first quarter reflects not only investments in fulfillment centers, but in-line haul trucks, Amazon Air and sorting centers to support “middle mile” needs. Amazon’s DSP (delivery services partner) program has expanded to more than 100,000 contractor drivers.
Among the benefits of internal delivery capabilities, the cost of delivering packages on its own “has become very competitive” with third-party delivery, Mr. Olsavsky said on the call. Shipping costs rose 57 in the first quarter.
But a major advantage, he noted, is sending out packages in a “continuous flow.” Batches of orders leave warehouses five or six times a day, rather than being handed off in a single batch to a third-party carrier once a day.
“That gives us a lot of ability not only to control the flow of the product, but also the flow of information,” he added. The visibility helps Amazon better tell customers how many stops away their package is as well shorten “cutoff times” between order and expected delivery.
“So, lots of advantages. We are continuing to invest and we’ll see a large investment in this area through 2021 as well. We do think that it may also spill to 2022,” Mr. Olsavsky said.
The growth comes as third-party carriers have increased rates and extended peak surcharges amid elevated e-commerce volume.
- Amazon.com Inc (AMZN) Q1 2021 Earnings Call Transcript – Alpha Street
- Amazon is spending big to take on UPS and FedEx – CNBC
- Optimal Prime: Amazon’s big quarter reveals its post-pandemic potential – Geekwire
- Amazon Logistics’ historic growth spurt in context – Freight Waves
- Will technology even the last-mile playing field with Amazon? – RetailWire
DISCUSSION QUESTIONS: Where are Amazon’s largest logistics advantages (costs, speed, control, information access) as it builds out its internal network? How can Amazon’s retail and shipping competitors best compete?