Amazon - the logistics behemoth
According to an article in the Wall Street Journal, Amazon is about to become the biggest package deliverer in the US. The Journal refers to public volume estimates from UPS, FedEx and internal estimates from Amazon. These conclude that Amazon has reached UPS in volumes and is about to overtake it. Amazon overtook FedEx in 2020.
When looking at the revenues from logistics operations (left chart on the image), Amazon has been the biggest for a while and with quite a significant distance.
At the start of 2017, Amazon’s logistic revenues (3rd party services, including logistics and fulfilment) were almost 60% smaller than the revenues of both UPS and FedEx. Since then, Amazon has nearly tripled its warehousing capacity. The two incumbents (UPS & FedEx) grew steadily until the end of 2021. Since then, both have more or less declined.
UPS and FedEx have seen revenues decline during the last four quarters. At the same time, Amazon has returned to nearly 20% growth after a few slower growth quarters.
Today, Amazon is more than 50% bigger than the former incumbents.
New fulfilment system for Amazon - even faster deliveries and growth?
Regarding volumes, the Wall Street Journal reports that Amazon forecasts growth to 5,9 billion packages. Amazon is probably continuing to grow and widen the gap between the logistics specialists. One reason is the new regional fulfilment system, which the company transitioned into early this year. Amazon went from a single nationwide region to eight smaller regions.
Image source: Amazon.science
According to Andy Jassy, the company's CEO, this represented ”the most significant changes to our fulfillment network in our history”. The change went better than the company had expected. According to Nick McCabe in an article in the Amazon Sciences blog:
“We flipped the switch overnight, and immediately started to see the results we were hoping for. It changed faster than any of us expected. It was delightful.”
The new system works as 76% of orders are fulfilled within the region. The figure used to be 62%. This is a significant shift in speed and profitability of the deliveries and, most importantly, as Andy Jassey pointed out in the Q3/2023 earnings presentation, for customer satisfaction.
“Shorter distances and fewer touches to get items to customers. Shorter travel distances and fewer touches mean lower cost to serve. But perhaps most importantly, shorter distances and fewer touches mean that customers are getting their shipments faster.
We know how important speed of delivery is to customer satisfaction and buying behavior.
When customers are getting items as quickly and conveniently as they are now from Amazon, they’re going to consider us more frequently for more of their shopping needs.”
Never overlook Amazon
The WSJ article points out that the incumbents did not take it seriously when Amazon started investing in its logistics service. In 2016 the founder of FedEx, Fred Smith, said: “In all likelihood, the primary deliverers of e-commerce shipments for the foreseeable future will be UPS, the U.S. Postal Service and FedEx.”
Things turned out differently, and Amazon is pushing full steam ahead.
”We have a long way before being out of ideas to improve cost and speed.” Andy Jassey
“We have a long way before being out of ideas to improve cost and speed.”
