Amazon boom in demand for logistics

The congestion seen across ports, railways, road freight markets and air freight in the US, in particular, and the world in general, is understandable in the light of Amazon’s latest results.

The giant e-retailer, which is now catching up with Walmart in terms of its sales in North America, saw revenue for the entire Amazon Group, which includes the very large Amazon Web Services (AWS) operation, increase by 44% year-on-year to $108.5bn. Operating income more than doubled to $8.9bn.

At one time ‘AWS’ propped up Amazon with its high profits, however, such has been the explosion in internet retailing that the ‘North America’ and even the previously loss-making ‘International’ retail divisions of the business now make money. For ‘North America’ profits climbed by $18bn to $64.4bn whilst operating income more than doubled to $3.5bn. Even the ‘International’ business, which retails in major developed markets, notably Germany but also the UK and Japan, grew its revenue by 50% year-on-year, to $64.3bn whilst delivering a profit of $1.3bn in contrast to the loss of $398m in Q1 2020.

The breakdown in terms of activity across the group saw ‘On-line Stores’ sales grow by 44%, whilst ‘Third Party Sellers’ sales grew by 55%. Compared with this, AWS’ revenue increase was a comparatively modest 32%. Logistics costs as a proportion of sales fell slightly, from 15.3% in Q1 2020 to 15.2% this quarter, or to put it another way, an additional $5bn was spent by Amazon on logistics of various types over the three months to March 31.

Of course, Amazon Prime includes a lot of non-physical media products, however, the underlying numbers indicate a jump in sales of physical goods of at least around 40%. This represents a major stimulus to the US logistics sector.  

The medium-term trajectory of retail growth in the US and elsewhere is difficult to estimate, for as the country opens up so to will conventional retailing giving the likes of Amazon more competition. However, what these numbers do illustrate is that consumer demand in the US is very strong and it is straining the capacity of the logistics sector to cope. The result is congestion and inflation. 

Source: Transport Intelligence, May 4, 2021

Author: Thomas Cullen