Truck shipping

How Amazon ships for third parties to compete with FedEx and UPS

Amazon is on a spending spree to grow its shipping business and doesn’t just deliver products purchased on its own site. The company now moves cargo for external customers in its latest move to compete directly with FedEx and UPS.

“They want to be a new kind of US postal service where anything can happen anywhere, but also fast,” said Chris McCabe, e-commerce consultant, who served as a seller performance investigator at Amazon from 2006 to 2012.

Amazon said in its first quarter earnings report that capital spending rose 80% from a year ago, helping it increase the capacity of its internal logistics network by 50% year-on-year. the other. According to SJ Consulting Group, Amazon now ships 72% of its own packages, up from 46.6% in 2019.

In 2014, Amazon started building its global transportation network from scratch. Seven years and 10 billion deliveries later, Amazon now has 400,000 drivers worldwide, 40,000 semi-trailers, 30,000 vans and a fleet of more than 70 aircraft. Perhaps the biggest investment yet is the new $ 1.5 billion Amazon Air hub that opened in Kentucky in August.

For external merchants, Amazon already offers a variety of shipping services. In the UK, Amazon has a ‘logistics as a service’ program – a business model that DePaul University researchers predict Amazon will launch in the US within the next 18 months, while Morgan Stanley predicted that it could happen this year. Amazon has already started sneaking freight on its planes for the U.S. Postal Service, according to an investigation, although analysts say it won’t try to replicate the wide range of services offered by FedEx and UPS.

“They won’t just be that cover carrier that will deliver any package you want, to any address,” said Dan Romanoff, who does Amazon research for Morningstar. “Amazon kind of chooses their routes. They want to run and sort the sizes of packages they want to deliver.”

Amazon’s algorithms also allow sellers to take advantage of LTL truck space (less than load) at discounted rates, while allowing Amazon to make money on otherwise wasted space. Amazon seller Keith Gregory has just started using the program, called Amazon Freight. Gregory’s vitamin and supplement company, Highland Laboratories, is based in a town of 3,500 Oregon residents and has approximately $ 4 million in annual sales on Amazon. Gregory says Amazon charges up to $ 1,700 less than FedEx or UPS for some of its routes from Oregon to Southern California.

“For us, being in a rural community, the fact that someone is ready to please us, and that they are ready to adapt to the pick-up times and not just say, ‘Okay, we will be there every day at 3.30pm “, is also very attractive. So not only the price, but the fact that they are also willing to use their large fleet of vehicles to help us with our logistics, what UPS and FedEx are not co-operating in that sense, ”said Gregory.

Amazon also offers its Fulfilled By Amazon, or FBA, services for orders not placed on, which is why some orders from eBay, Walmart, and others arrive at your doorstep in Amazon packaging.

“There have been times in the existence of our business where Amazon really shipped 100% of our orders for all channels,” said Amazon seller Bernie Thompson, who uses what Amazon calls multi-channel fulfillment to. many consumer electronics products sold by his company, Pluggable Technologies.

“If you’re going to buy a plug-in today on eBay today, it will actually come from an Amazon warehouse and will very often be delivered by an Amazon delivery service,” said Thompson.

Former Amazon Product Safety Officer Rachel Greer said the current expansion in shipping is reminiscent of other times Amazon has used immense resources and data to disrupt an industry, such as with Prime Video and Amazon Web Services.

“I was part of the process to make sure FBA sellers were compliant over a decade ago. And they were like, ‘Well, we’ve got excess capacity. Let’s use it, ”said Greer. “And then when AWS started, we had excess capacity. Let’s use it. So of course if Amazon does develop a platform, it works fine, and of course if it’s going to have excess capacity, they’re going to try to sell it to Someone. “

Watch the video to learn more from former Amazon executives and online sellers on how third-party shipping is the company’s next big business.

Correction: This story has been updated to reflect the correct name of the UPS service that Gregory compared prices to.

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