Amazon already delivering over half of its own packages in the US

(December 13, 2019) Amazon has steadily expanded it logistics operations during the last decade. According to a Morgan Stanley estimate Amazon now delivers over half all its US packages

This is a very large increase over just the last few years. Amazon is now has its own freighters and cargo planes. Amazon appears to be pushing to own its own entire logistics chain ending its relationship with firms such as FedEx and UPS.

Amazon's shipping volume may surpass that of FedEx and UPS

Right now FedEx delivers 3 billion packages a year and UPS 4.7 billion compared to Amazon's current 2.5 billion. However, at the current rate of expansion Amazon could pass both in volume. Just last year alone Amazon doubled its volume from about 20 percent of its own packages to over half.

A big factor in Amazon's increase in package volume delivery has been the company's one-day Prime shipping initiative that was kicked off earlier this year. Amazon intends to bring Prime to more markets and products in the future.

A recent article notes: "“We see more of this going forward as our new bottom-up US package model assumes Amazon Logistics US packages grow at a 68% [compound annual growth rate from 2018 to 2022],” Morgan Stanley said. That would put Amazon Logistics at 6.5 billion packages per year by 2022, according to the firm, far exceeding its estimate for UPS at 5 billion packages per year and FedEx at 3.4 billion packages per year.“To us, Amazon Logistics is already-large scale and with a fleet ~1/5 the size of competitors, it speaks to its ability to use density and technology to drive efficiency,” Morgan Stanley said."

Chief Executive Officer (CEO) of Amazon Jeff Bezos claimed: “Customers love the transition of Prime from two days to one day — they’ve already ordered billions of items with free one-day delivery this year. It’s a big investment, and it’s the right long-term decision for customers.”

Amazon wants to vertically integrate its operations

Amazon not only wants to deliver more packages to more customers quickly it wants to own everything involved in the process. In the past Amazon paid tens of billions of dollars to FedEx and UPS to deliver its parcels but now wants to itself deliver right to the door. This has been difficult for many companies but Amazon appears poised to do so.

In 2016 Amazon launched its own Prime Air brand which includes not only a fleet of cargo planes but drone delivery operations. Amazon has been steadily adding to its fleet of cargo planes over the years.

Amazon ends contracts with FedEx

Earlier in 2019 Amazon ended its contracts with FedEx for ground shipping and air delivery. Amazon still uses UPS but has been increasing its own network of delivery drivers using the Amazon Flex platform. This is a type of on-demand system similar to Uber and companies such as Door Dash. Flex has suffered from complaints that the company places too heavy demands on drivers contributing to accidents.

Amazon's plans are costly

In October this year Amazon reported that it spent $9.6 billion more in June to September on fulfilment due the one-day Prime shipping program and general expansion of its retail program in the US, However, Amazon will be able to control its entire delivery chain from beginning to end. In the final analysis over the longer term and at a larger scale Amazon may save money and become even more efficient at delivering its products.

Previously published in the Digital Journal