TECH TALK
THE
AMAZON.COM AIR FORCE IS COMING TO A TOWN NEAR YOU
BY JOHN PAWLICKI | OPM RESEARCH
Amazon has been the poster child for the eCommerce world for some time now, and it continues to enter new markets and come to dominate many of them over time. It all started with selling books (remember that?), and now it has transitioned to pretty much anything and everything possible that can be quickly shipped. Amazon has also moved into selling Prime membership subscriptions, publishing, music, videos, online payments, cloud storage (where it competes with Microsoft) and other cutting edge endeavors. While these newer areas may
eventually overtake its bread and butter online retail store, for now, eCommerce is still the mainstay. But the challenge facing Amazon is that the cost to ship out the goods it sells is increasing, despite its constant attention to cost-cutting, as illustrated in Figure 1 from Statista. There are many reasons for this,
but one is the increased popularity of its Prime membership program, which has an estimated 150 million U.S. members, according to Amazon CEO Jeff Bezos. It has been reported that Prime members spend ~$1,400 on average at Amazon each year vs. the ~$600 non-Prime Amazon shopper. That is a lot of packages to process and ship, and many of these are one or two-day shipping, hence the increased shipping and logistics expenditures. Which brings us to the expenses
related to moving all of these must- have goods from a warehouse to your doorstep. Amazon spent $21.7B on shipping in 2017, which consist of handling and sorting, delivery
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DOMmagazine.com | june 2020
center expenses and air/ground transportation costs. This amount is almost double the $11.5B it spent on shipping back in 2015. Amazon and its main competitors have ramped up efforts to decrease the shipping time to online shoppers, and this has forced online retailers to expand its use of air cargo beyond using the USPS, FedEx, UPS, etc. Amazon has been quite proud
of its vastly expanding regional warehouses, and their increased use of robotics and automation to decrease the number of people needed and
the time necessary to process orders. But, these warehouses need to be continuously re-supplied with fresh goods to ship to consumers. This is where a captive freight airline capability comes in, and reduce its cost to 3rd parties related to shipping. Amazon has been setting up
outsourced entities for local delivery, developing drone delivery services and expanding its captive freight airline. This development will affect the entire freight and package delivery system today since Amazon is the largest eCommerce store in the USA.
Figure 1: Amazon’s Increasing Costs of Shipping and Logistics (Courtesy:
Statista.com)
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