Amazon is, of course, best known as an online retailer. Over the last few years, though, it’s become as much a logistics company as it is a retailer. As of recent, Amazon leases aircraft and truck fleets, and has even acquired licenses in China to operate as an ocean transportation intermediary. And, alongside Prime, the company initiated Fulfillment by Amazon (FBA) in 2005, which (among other things) offers free two-day shipping for independent internet sellers.
According to a recently-released report from Armstrong & Associates, a logistics consultancy, around 12 percent of business-to-consumer (B2C) e-commerce shipments are fulfilled by FBA, and its popularity is growing internationally.
More recently, Amazon has been building out its own last-mile delivery network and has begun to rely on that infrastructure for its deliveries and less on carriers like UPS and the USPS. Amazon has been pursuing a policy of relying on its own resources for logistics and less on outside providers in an effort to exert greater control over these processes and to reduce their costs. Amazon has reported that its transportation costs have increased from $11.5 billion in 2015 to $21.7 billion in 2017.
So it shouldn’t come as a huge surprise that Amazon was eager to respond to these costs – and plans to launch a new shipping service for third-party sellers called Shipping with Amazon (SWA). The Wall Street Journal has reported that the service will start in Los Angeles, and then pickup a few other large metro areas: Chicago, San Francisco and New York.
As an aside, this development is consistent with another Amazon business pattern. Amazon Web Services (AWS) was founded in 2006, a program through which the company rents out excess space on its servers. As FBA makes use of Amazon’s excess fulfillment capacity, SWA will presumably allow third parties access to the projected excess in Amazon’s delivery capabilities.
From Amazon’s perspective, this is all about optimizing the utilization of its resources and lowering the costs of performing shipping processes for their own operations. But what about the shippers’ perspective?
SWA and Shippers
According to Armstrong & Associates, internet retailers would need 40-50 warehouse locations in their networks in order to ship for next-day delivery and 80-100 locations for same-day delivery date in the United States. That’s beyond the reach of most internet merchants, and yet, by using Amazon’s infrastructure, they are able to provide the same competitive delivery options as the big guys. By selecting to lower their own operating costs, Amazon is able to offer fulfillment services to third parties through FBA at lower costs than some of its competitors.
When it comes to SWA, the calculus is likely to be different—because there’s no reason to believe internet sellers will want to outsource deliveries wholesale to Amazon just as it’s unlikely that Amazon will use its own delivery capacity to the exclusion of all others—but the presence of another delivery option will be a benefit to shippers.
It’s always good news when a new viable delivery alternative comes along, and it’s likely that SWA’s entry into the market will put pricing pressures on its competitors, at least in some locations. By the same token, smart retailers know that their shipping strategy should consist of multiple carriers, and that they should take advantage of the niches in which those carriers excel. The U.S. Postal Service is great for delivering smaller items direct to residential addresses. The fact that USPS delivers to every zip code in the U.S. means that Amazon will likely continue to rely on the Postal Service for many residential deliveries.
Where will SWA find its niche?
A return to densely-populated urban locations where cutting out the middleman will save money, and give SWA the edge the Prime company is seeking.
It’s important for shippers to be careful and to do their homework before throwing their lot in with a new service provider. Find out what SWA’s service parameters are going to be and how these might impact customer service and costs. Will SWA deliver on Sunday, for example? If it does, it will give sellers that extra day to meet customers’ speedy delivery expectations on schedule.
How granular SWA’s package tracking services will be will be another point of comparison with its competitors. The greater the visibility of shipment location, the less likely customers will be bothering customer support personnel about deliveries. USPS typically scans shipments five or six times during a short two-day delivery. It will be interesting to see if SWA can match that level of service.
Will SWA be crowdsourcing final-mile drivers as it does with Amazon Flex? That scheme has opened up the company to some criticism for its wisdom and for how packages are handled. Retailers should monitor feedback from their customers to make sure all carriers are delivering their packages without damaging them.
According to Armstrong & Associates, last-mile shipping now contributes 30-40 percent of the overall costs of transportation, so any new opportunity to lower those costs would represent an exciting opportunity for shippers. Shippers will have to weigh the totality of the circumstances before deciding to use SWA, if and when it is launched.
Whatever the future of Shipping With Amazon, it’s always a good idea for retailers to examine their shipping mix on a regular basis. Pitney Bowes data indicates that most of its customers do this only once every four years. With shipping rates and services constantly changing, this is not nearly frequent enough. By analyzing their stable of carriers and services, retailers will be better able to match their shipping needs with carriers’ services, saving time and money and better meeting customers’ expectations in the process.
To learn how small and mid-sized retailers can meet delivery expectations in the era of Amazon, read this exclusive whitepaper from Pitney Bowes.