Does Amazon need a separate network to woo outside senders?
In April 2020, already grappling with e-commerce volume shipments of unforeseen magnitude, Amazon.com Inc. announced that it would suspend a pilot program in the United States designed to deliver non-Amazon packages. The program, which was shut down in June, has not been restarted and the company has not publicly announced that it will be.
Various experts have said that a restart will take place over the next two years as Amazon Logistics, the delivery arm of Amazon, significantly expands its air and ground networks to better balance cargo deliveries for its own customers with businesses that may want a delivery option but do not sell on Amazon’s site and use its distribution services. However, with e-commerce traffic expected to increase over the next two to three years and with demand for Amazon’s products (NASDAQ: AMZN) With sales and fulfillment services remaining extremely high, the question is whether the company wants or even needs to leave its ecosystem if it wants to expand its delivery activity and take part in the process. .
When it was revealed in 2017, the concept seemed to mark a turning point in the history of the parcel industry. Amazon is reportedly suing FedEx Corp. (NYSE: FDX) and UPS Inc. (NYSE: UPS) shippers with a pickup and delivery service bypassing Amazon’s fulfillment and distribution network. The move would create a third national parcel delivery carrier with resources rivaling those of FedEx and UPS.
The initiative would require work. Amazon is expected to handle pickups originally, a service it still doesn’t provide. It would have to be figured out how to handle the long haul part of the move. Indeed, Amazon would build a network in less than a decade, which would have taken UPS 114 years and FedEx 50 years.
The pilot evolved in spurts for a few years, but seemed to be heading for sustained acceleration in early 2020 when the pandemic struck. It has never been available in more than a small group of US cities. The model has gained popularity in the UK, where Amazon runs a logistics-as-a-service program.
David Glick, who worked for years at Amazon Logistics and is now CTO for warehouse operator Flexe Inc., said the program will be relaunched within the next two years. By then, Amazon Logistics will have expanded its operations enough to reliably support its customers, and then pursue other shippers as a way to boost last mile delivery density by reducing fixed costs per mile and travel time. between stops, Glick said.
Others believe that Amazon Logistics’ prospects as a national third-party carrier are limited because it does not provide national coverage. It currently covers around 70% of the US population and has huge gaps in state coverage, although it should be noted that most states are sparsely populated and Amazon will dramatically increase its footprint over the next three years. years. Amazon Logistics would also be challenged to find adequate return transport capacity to fill vans and trucks with packages after unloading the items on the main transport without disrupting its existing freight flows.
Nate Skiver, founder of parcel consultancy LPF Spend Management, said the service will be limited to specific channels with the kind of volume characteristics Amazon is comfortable with. Dean Maciuba, managing partner, North America, consulting firm Last Mile Experts LLC, said Amazon Logistics would only reap additional benefits from expanding delivery services beyond its ecosystem. âThey are not an integrated transporter and they do not have the capacity to travel the intermediate kilometers to move shipments both regionally and nationally,â Maciuba said. “They still source almost all of their shipments from their distribution centers, not individual shippers.”
Satish Jindel, founder and CEO of ShipMatrix, a consultancy firm, has a different point of view. Jindel said that Amazon has no reason to create a delivery service to woo outside customers, as it can achieve this through the ever more efficient scale of its current network as well as the wealth of data on its current sellers, such as product location, transit times and delivery destinations, and detailed supply and demand data. If customers’ packages are already heading to addresses on Amazon’s existing routes, it would be effective to inject external packages into those routes.
As Amazon’s business becomes even more scalable, its density and last mile delivery costs, which are already higher than FedEx and UPS, would be further improved, according to Jindel.
Amazon has three delivery channels: items sold on its website, items sold on the site and shipped by Amazon from its own facilities, and seller fulfillment, in which merchants sell their products on Amazon. but may use other delivery providers, subject to Amazon terms. performance requirements, which have increased in recent years.
This is the third category where Amazon could plant the flag for overseas deliveries. According to ShipMatrix estimates, 55% of Amazon Logistics’ volume goes to customers who use its fulfillment services, and 45% comes from products sold on its website. Of these, seller-filled volume accounts for 15-20% of units sold on Amazon.com, according to ShipMatrix.
âWith the third group, they have full visibility,â Jindel said. “They sit at the top of the food chain.” With in-depth insight into all aspects of a seller’s business, Amazon can build a strong case for providing a cheaper and more reliable level of service than the vendors these merchants currently use, Jindel said.
Jindel scoffs at the idea that Amazon doesn’t have a strong intermediary network to support an external delivery model. That may have been the case at one point, but today it has a strong system that is self-funded and backed by 10 of the top 15 LTL carriers, all of which ship substantial loads for Amazon, Jindel said. .
Amazon Logistics could find itself in a virtuous circle of gaining “outside” business simply by leveraging its own network. It continues to gain more traders, many of whom can use other carriers. Once these companies recognize the value of Amazon’s efficient and inexpensive transportation network, they could abandon their old suppliers. The screenplay honors the credo of founder and executive chairman Jeff Bezos, who once said, “Your margin is my opportunity.”