THE AMAZON REVOLUTION
In just a few years since Amazon began its drive into the delivery business, Amazon Logistics is already delivering more of its own packages than its delivery partners UPS or USPS. At their current growth rate, Morgan Stanley is projecting Amazon to increase from 2.5 billion packages this year to 6.5 billion by 2022. That compares to 5 billion deliveries for UPS and 3.4 billion deliveries for FedEx.
David Clark, Worldwide Operations Senior Vice President of Amazon recently stated that "Amazon’s transportation network is built on a foundation of 20 years of operations and logistics experience, an unwavering commitment to safety, technological innovation, and talented teams who are obsessed with delivering for our customers," This statement came on the heels of an announcement earlier this year that they were ramping up their Prime delivery service to get packages to customers in just one day ahead of the holiday season. To reach this goal, they bought more jets, vans, and storage warehouses spending about $1.5 billion, to support their 150 U.S. delivery stations that employ more than 90,000 employees.
Amazon wants to control its own destiny. The company has made it clear that its future lies with its own delivery fleet, which it's steadily building out. Ultimately, we should expect to see Amazon using partners only to supplement its own trucks and planes. By owning the entire supply chain from its warehouses to its customers' doors, it is generally less expensive for Amazon to move items itself. It has been projected that on average Amazon’s cost to ship a package using FedEx, UPS, and USPS is $8 while the cost for Amazon to move those packages themselves is only $6. That translates into a savings of $2 billion. The financial benefit improves as the company scales the number of deliveries it makes. This enables Amazon to deliver many more items with Prime one-day shipping than it previously could afford to do with UPS or FedEx.
Not unlike RPS in its formative years, Amazon's Delivery Service Partner Program gives entrepreneurs the opportunity to start and develop their own local delivery services. For an initial investment of $10,000, anyone can deliver packages from Amazon warehouses to their destinations using Amazon vans and logos while simultaneously operating their own delivery businesses. The program also allows Amazon a better opportunity to service last-minute deliveries. Owning the supply chain also means faster delivery. Amazon can offer later order cut-off times to shoppers for one-day delivery.
It is likely that Amazon Logistics, like Amazon Web Services, will become a service for third-party delivery at some point in the not-too-distant future. Their size would allow them to undercut FedEx and UPS while lowering Amazon’s own shipping expenses. To round out their logistics business Amazon has recently applied for an ocean shipping services license between the US and China as another sign of their desire to control their own logistics operations.
Those companies that are best in class will recognize the need to view their logistics operations as a competitive weapon, not just a transportation function. Companies will need to strategically manage their logistics operations and transportation costs to stay competitive as Amazon enters the marketplace in the not-too-distant future.
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