Is Amazon’s new last mile scheme a threat to the integrators?


Amazon has launched a new scheme to bolster its last mile delivery capabilities in a move that fuels the notion that it is ultimately looking to develop a self-reliant logistics network.

Under the plans, Amazon will encourage entrepreneurs to form small last mile delivery companies for Amazon packages. These start-ups will be allowed to operate a fleet of up to 40 delivery vehicles and employ up to 100 drivers. They will be tempted to join the scheme by potential profits of up to $300,000 per year and up-front costs as low as $10,000, according to Amazon. In addition, the company will provide discounts on a range of assets and services, including vehicle leases and insurance. Amazon’s faith in its delivery technology capacities is such that it is offering the scheme to entrepreneurs with no experience in the logistics industry, although it will provide further hands-on training.

Amazon’s strategy has seen it focus on increasing volumes to the extent to which it now controls vastly significant market shares of online retail markets home and abroad. In the US, its share is estimated at around 40%. To this end, the new last mile network aims to handle some of the volumes that it believes UPS, FedEx and USPS cannot.

Whether these companies are really under pressure from increasing volumes is up for debate. What is certainly true is that a number of larger parcel companies have shown strain over peak periods. Notably, UPS spent a further $125m over the festive period in purchasing additional transport to cope with surging volumes.

Another key consideration for Amazon is its sizeable logistics costs which have grown rapidly year-on-year. In 2016, its outbound shipping costs totalled $16.2bn, whilst its outbound shipping revenues totalled $9.0bn. It did not provide updated figures in its 2017 accounts, but assuming growth in line with its fulfilment expenditure, these figures are likely to total a substantial $23bn and $12.5bn respectively. Analysis of Amazon’s logistics costs can be found in Ti’s Global e-commerce Logistics 2018 report.

Its costs have been further threatened by President Trump who has argued that the fees that USPS charge Amazon for shipping are far too low. USPS currently carries out last mile services largely in rural areas, where delivery is more expensive. Because of its scale, it has been able to negotiate lower fees with the state provider. Deutsche Bank analysts have estimated that if rates went up by $1 a package, it could cost Amazon an estimated $1.8bn. Perhaps threatened by Trump, Amazon will have more luck in negotiating fees with individual start-ups.

The scheme points to the fact that Amazon is mindful of its logistics costs and is keen to continue exploration of its own last mile network development. The scheme is no great threat to the integrators or USPS at the moment in time but every step Amazon makes towards a self-reliant network makes these companies increasingly wary.

Author: Andy Ralls

Source: Transport Intelligence, July 3, 2018

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