Amazon’s delivery self-help may have an AWS effect. The e-commerce goliath’s rapid expansion left it needing web-based storage and databases in a quest to save time and money. Selling that computing prowess elsewhere became the big and profitable Amazon Web Services(AWS). With Jeff Bezos now testing ways to ship goods to cut costs, he may stumble onto a solution that for others causes yet more problems.
Growth takes precedence over the bottom line at $470 billion Amazon. That’s partly why it subsidises cheap and fast delivery. The company spent $16 billion on shipping last year, and lost $7 billion in the process. Online shopping habits, however, translate into overstuffed warehouses, trucks and planes during the peak holiday season. In 2013, packages missed Christmas. UPS and FedEx raised prices to cope with the stress.
Some of the costs have been shouldered by Amazon’s customers. In 2014, the company jacked up the price of its Prime membership, which covers the cost of shipping. In 2016, it raised the spending required to secure free delivery to $49. Shipping losses as a percentage of total revenue remained relatively stable at about 5%.
E-commerce wars with the likes of Wal-Mart are starting to change the equation, however. Amazon hacked back the free-shipping minimum earlier this year. That leaves it shouldering more of the burden.
Experimentation abounds at Amazon. It has built warehouses, set up lockers where customers can pick up purchases, and is transporting more items using its own jets and trucks. Amazon also pays people to deliver packages with their own vehicles. Now it’s expanding a two-year-old project in India to help American merchants get their goods to U.S. shoppers, according to Bloomberg.
Amazon says it’s using UPS, FedEx and the U.S. Postal Service. Rolling out a broader logistics project also would be complicated and bigger online vendors might be hesitant to hire Amazon to deliver its wares. The parcel giants also should be able to handle multiple routes cheaper. And yet Amazon has powerful financial incentives to find ways to get packages from warehouses to doorsteps on its own, especially in cities. It’s also a good bet that if it can, other companies will be willing to pay Amazon to do it for them, too.
( The author is a Reuters Breakingviews columnist. The opinions are his own)
