Amazon’s tremendous success is fundamentally rooted in an extreme focus on the customer, combined with an almost manic drive for innovation. These two cornerstones—combined with a drive for greater profitability—also explain the company’s increasingly extensive investments in its own transportation and delivery capabilities.
Some examples of initiatives in recent years include the launch of its own air cargo operation in 2016 (Amazon Air), the acquisition of 33 cargo planes in 2018, and the decision to open its own U.S. air cargo hub with an additional 40 or so of its own planes. In addition to air freight, Amazon is also investing in the development of a wide range of digital solutions and is acquiring both companies and patents in the transportation sector for transportation-related applications, such as technology for self-driving vehicles and much more. Other examples include the logistics and technology giant’s delivery initiatives, such as the launch of Amazon Restaurants, which delivers food from its own and third-party restaurants. Another well-known example is the acquisition of the grocery retailer Whole Foods Market, which ensures fast package delivery across the entire North American continent. In addition, Amazon is constantly working to develop new delivery concepts, investing in its own cars and trucks, and increasingly in its own ocean freight solutions.
But why is Amazon investing so heavily in its own transportation and delivery capabilities?
At its core, these massive investments are about fulfilling the customer promise to not only make customers satisfied but ”absolutely delighted.” To succeed, the delivery systems must be both fast and efficient. Efficiency, quite simply, is about increasing the company’s own margins, which for a long time were nonexistent in Amazon’s logistics and e-commerce operations. Amazon succeeds at most of what it undertakes, and for the past couple of years, the company has been a competitive and hyper-efficient carrier. With its in-house transportation and delivery operations, the company has taken control of both costs and delivery service, resulting in increased margins. Since 2018, Amazon’s net margin has improved from 1.7 % to nearly 5 %. And today, profitability comes not only from Amazon Web Services but also from its core business.
The Transportation Giants threatened
Amazon’s successes in the field of transportation and delivery already pose a significant threat to the established shipping giants and the transportation industry more broadly. One sign of this is that FedEx chose not to renew its transportation partnership with Amazon last year. The entire transportation and logistics industry is being driven by Amazon’s agile and innovative approach. Clear evidence of this is that traditional players in the conservative transportation industry are increasingly investing in technology initiatives designed to increase customer value and service—and hopefully match Amazon’s superior efficiency.
Now transporting 66 %
According to ShipMatrix—a U.S.-based software company specializing in transportation management and visibility—Amazon now handles approximately two-thirds (66 %) of all its shipments in-house, compared to 54 % just one year ago. According to ShipMatrix’s own data, Amazon delivered 415 million packages on its own in July alone. According to ShipMatrix founder Satish Jindel, Amazon will continue to handle an increasing share of its own package flows—perhaps as much as 80 %—which means that UPS, FedEx, and other major package carriers will need to replace the volumes lost as Amazon builds up more and more of its own transportation capacity across all modes of transport and, in the slightly longer term, compete with Amazon’s technological superiority. Satish Jindel notes that the extremely rapid growth of e-commerce right now is due to many companies beginning to recover, and he predicts that the third quarter of 2020 will result in an ”all-time peak.”.
