Skip to content
Search AI Powered

Latest Stories

newsworthy

Amazon plans revamp of U.S. shipping with mix of private fleet, regional carriers, USPS

Company-controlled capacity to serve 40 largest population centers, consultant says.

Amazon plans revamp of U.S. shipping with mix of private fleet, regional carriers, USPS

Amazon.com. Inc. is moving quickly to revamp its delivery network to gain more control over its fulfillment infrastructure while reining in spiraling transportation costs, according to a supply chain consultant with close ties to the e-tailing giant.

James Tompkins, who runs Tompkins International, a Raleigh, N.C.-based consultancy, said Amazon has divided the nation into three segments based on population size: The top 40 markets, which comprise about half of the U.S. population; the next 60 largest population areas that account for about 17 percent, and the remaining areas, which account for about one-third.


The top 40 markets will be served by a private fleet being built by Amazon to support an expansion of its online grocery business, called "Amazon Fresh," according to Tompkins. The next 60 will be served by an array of regional parcel delivery carriers, he said. The remainder will be served mostly by the U.S. Postal Service, he said.

UPS Inc., which today handles much of Seattle-based Amazon's current deliveries, will not play a prominent role in the network realignment, Tompkins said. Nor will FedEx Corp., which manages a lesser portion of Amazon's delivery business. An Amazon spokeswoman was unavailable to comment.

Orders will be routed through Amazon's 55 fulfillment centers, with deliveries made the same day, the next day or, at most, in two days, Tompkins said. Inventory will be positioned to exclusively support local deliveries. A national delivery network as operated by providers like FedEx and UPS will be rendered irrelevant because they will be considered too slow to suit the typical Amazon customer, he said.

Tompkins said that Amazon has a timeline for its rollout, but that he is unaware of the details. "They are moving on this very aggressively," he said.

Amazon two years ago seriously considered a bid for FedEx as a means of buying into an existing delivery operation, according to Tompkins. However, Jeffrey P. Bezos, Amazon's founder and CEO, backed away after determining FedEx's network structure was too national in scope to fit Amazon's strategy of local fulfillment and delivery, Tompkins said. A FedEx spokesman declined comment.

Tompkins has worked in the supply chain management field for decades and is considered one of the nation's leading authorities on its role in e-commerce. His relationship with Amazon is not clearly defined, a status seemingly more by design than coincidence. When asked to describe the nature of his involvement with Amazon, Tompkins replied that he was contractually obligated not to comment.

A "FRESH" EXPANSION
Though Amazon Fresh has been operating for five years, it is today only available in Seattle, San Francisco, and Los Angeles. However, Amazon plans to expand the grocery business to between 30 and 40 U.S. markets in 2014, according to Tompkins.

Tompkins said the private fleet network would commingle groceries with general merchandise, thus building the scale needed to make ground shipping cost-effective and to offer a compelling value to customers, Tompkins said. It would also set in motion a chain of events that would result in Amazon competing with FedEx and UPS.

The online grocery business, which is plagued with high fulfillment costs, is not considered a particularly attractive enterprise on its own. However, Bezos has used Amazon Fresh as a proving ground to test a more ambitious delivery model rather than as a way to build a national grocery footprint, according to Tompkins. By using his own vehicles to deliver groceries, Bezos has been able to fine-tune his own delivery network and understand the pros and cons of leveraging his own infrastructure than those of the incumbents, Tompkins said. Now Bezos is poised to apply that knowledge on a broader scale, Tompkins said.

Transportation costs remain a thorny issue for Amazon. Its shipping expenses in 2012, the most recent period that full-year figures were publicly available as of this writing, rose to more than $5.1 billion, up from nearly $4 billion in 2011, according to the company's 10-K filing with the Securities and Exchange Commission.

Shipping costs in 2012 exceeded shipping revenue by nearly $3 billion, according to the filing. Amazon generates much of its shipping revenue from third-party merchants who sell products through the company's site and use its fulfillment services for storing inventory, picking and packing, and shipping.

In the filing, Amazon said it expected its "net cost of shipping"—the ratio of shipping costs to revenue—to continue rising as parcel rates increase and more customers take advantage of the company's delivery offerings such as "Prime," which charges a $79 annual fee for unlimited two-day deliveries. Amazon has said it is considering a $40 annual price hike for Prime subscriptions.

Not everyone believes Amazon will migrate from FedEx and UPS so quickly. Scott Devitt, Internet analyst for investment firm Morgan Stanley & Co., said during a late February webcast that Amazon will continue to leverage the established delivery infrastructure and will not become a disruptive force in the delivery market. Amazon will continue to use its enormous buying power to extract favorable rates from its delivery partners and will see that as a more attractive alternative to building out its own network, Devitt said.

Frederick W. Smith, FedEx's founder, chairman, and CEO, told analysts recently that only FedEx and UPS have the delivery networks capable of efficiently handling the demands of Amazon and other e-commerce providers. Smith said his company, UPS, and the U.S. Postal Service would remain at the forefront of e-commerce shipping for the foreseeable future.

Tompkins said that Amazon has been planning its strategy long before the well-publicized delivery problems that occurred during the 2013 holiday season, when about five million of its shipments were not delivered in time for Christmas. Much of the fallout was laid at the feet of UPS, though some have argued that Amazon erred by understating how many packages were coming UPS' way toward Christmas day, thus overwhelming the Atlanta-based carrier's air network and triggering the backlog.

Amazon is still smarting from the fiasco, however. The company's fulfillment executives believe UPS and FedEx are not investing enough in equipment, infrastructure, and other resources to keep up with Amazon's growth, according to a person familiar with the matter.

These days, every move in the e-commerce space is significant because of its enormous potential. E-commerce has penetrated just 10 percent of the U.S. market, and between 6 and 7 percent of the global market, according to Morgan Stanley estimates. Based on projected annualized growth rates of 15 percent, e-commerce could be a $1 trillion worldwide business by 2016, according to the firm.

The Latest

More Stories

Logistics economy grew in October

Logistics Managers' Index

Logistics economy grew in October

Economic activity in the logistics industry continued its expansion streak in October, growing for the 11th straight month and reaching its highest level in two years, according to the most recent Logistics Managers’ Index report (LMI), released this week.

The LMI registered 58.9, up from 58.6 in September, and continued a run of moderate growth that began late in 2023. The LMI is a monthly measure of business activity across warehousing and transportation markets. A reading above 50 indicates expansion, and a reading below 50 indicates contraction.

Keep ReadingShow less

Featured

port of vancouver

West coast dockworker strike could dent Canadian economy

The port worker strike that began yesterday on Canada’s west coast could cost that country $765 million a day in lost trade, according to the ALPS Marine analysis by Russell Group, a British data and analytics company.

Specifically, the labor strike at the ports of Vancouver, Prince Rupert, and Fraser-Surrey will hurt the commodities of furniture, metal products, meat products, aluminum, and clothing. But since the strike action is focused on stopping containers and general cargo, it will not slow operations in grain vessels or cruise ships, the firm said.

Keep ReadingShow less
trucks used by jillamy 3PL

Texas 3PL Mode Global acquires Jillamy’s freight brokerage arm

The Texas third-party logistics firm (3PL) Mode Global has acquired the freight brokerage business of supply chain service provider Jillamy, saying on Monday that the deal advances its strategy of expanding its national footprint.

Terms of the acquisition were not disclosed, but Mode Global said it will now assume Jillamy's comprehensive logistics and freight management solutions, while Jillamy's warehousing, packaging and fulfillment services remain unchanged. Under the agreement, Mode Global will gain more than 200 employees and add facilities in Pennsylvania, Arizona, Florida, Texas, Illinois, South Carolina, Maryland, and Ontario to its existing national footprint.

Keep ReadingShow less
Clorox partnership helps suppliers meet carbon reduction targets

Clorox partnership helps suppliers meet carbon reduction targets

Consumer packaged goods (CPG) provider The Clorox Co. has partnered with Manufacture 2030 (M2030) to help Clorox's suppliers meet their carbon reduction targets and advance the company's long-term goal of reaching net-zero emissions by 2050.

In addition to its flagship Clorox bleach product, Oakland, California-based Clorox manages a diverse catalog of brands including Hidden Valley Ranch, Glad, Pine-Sol, Burt’s Bees, Kingsford, Scoop Away, Fresh Step, 409, Brita, Liquid Plumr, and Tilex.

Keep ReadingShow less
U.S. map with drought risk

Everstream Analytics quantifies how climate risk affects supply chains

Supply chain risk analytics company Everstream Analytics has launched a product that can quantify the impact of leading climate indicators and project how identified risk will impact customer supply chains.

Expanding upon the weather and climate intelligence Everstream already provides, the new “Climate Risk Scores” tool enables clients to apply eight climate indicator risk projection scores to their facilities and supplier locations to forecast future climate risk and support business continuity.

Keep ReadingShow less