Way back in December 2013, many American families experienced a serious holiday letdown: The gifts they had ordered through online retailers, including Amazon, didn't arrive on time. Crushed by the volume and hampered by bad weather, the shipping companies failed to deliver, literally.
Since then, Amazon has spent an estimated $37 billion to fix the problem. In the process, it has become the fourth-largest shipping company in the U.S., after FedEx (FCX), UPS (UPS), and the United States Postal Service.
By late 2020, Amazon was delivering 67% of the goods it sold directly to consumers, up from about 50% in 2019.
Amazon's Delivery Mix
Amazon's logistic mix still includes FedEx, UPS, and the USPS. Since June 2018, it has also built an entrepreneurial delivery network, Delivery Service Partners. This is in addition to its expanding network of Amazon Flex crowdsourced drivers.
Amazon’s delivery system is a key point of interest for the company, its stakeholders, and the logistics industry overall. Amazon keeps its partners on close watch.
As the company expands its delivery services, it has more latitude to adjust its relationships with its partners. In December 2019, Amazon briefly suspended its relationship with FedEx Ground, citing poor performance. It lifted the ban just in time for that year's holiday rush.
In April of 2020, Amazon announced it would end its specialty business-to-consumer shipping business, Shipping with Amazon, which accounted for a small portion of deliveries and competed directly with other carriers.
Regardless, Amazon has an enormous logistics and delivery presence, shipping its own warehoused items worldwide with its fleet of nearly 70 cargo planes and almost 20,000 vans, along with about 20,000 distribution trailers. Building out its delivery has been a big push since 2013.
- Amazon directly handles 67% of its deliveries.
- The company is already the nation's fourth-largest package delivery service.
- It still shares the load with FedEx, UPS, and USPS.
How Amazon Works
Amazon has a variety of shipping options for its own products and those sold by its retail partners.
Amazon prime members gets priority with no shipping fees and fast delivery. There were 200 million Prime members in 16 countries as of 2020.
Amazon drivers and Delivery Service Partner affiliates make one-hour, same-day, and one to two-day drop-offs. Sellers have the option of using FedEx, UPS, USPS, or a combination of shippers.
The logistics work begins long before the products get onto a delivery truck, After purchasing Kiva Systems, Amazon leveraged the company’s robotics and distribution systems to improve efficiency in its warehouses.
Products at Amazon are not shelved in any particular order, nor are they continually displaced and reorganized like books in a library. Products are stored where they fit and robots and human pickers fetch the products for packaging.
Delivery Service of Choice
Amazon fulfills most of the orders that are available in its own warehouses, strategically located around the U.S. and abroad and stocked with its biggest-selling items.
When a package is ready to go out the door, it may be loaded in one of several ways. In a handful of cities, Amazon contracts couriers to deliver parcels to customers within an hour or on the same day (depending on the option chosen by the customer).
In other situations, Amazon may use FedEx or UPS. Moreover, Amazon has opened “sort centers” across the U.S. where millions of parcels are sorted by zip code and then delivered to local post offices for delivery by the USPS.
Sellers that don’t house their goods in an Amazon warehouse have the responsibility of managing their own shipping and delivery. These sellers generally turn to UPS, FedEx, or USPS.
A drone delivery service has been years in the testing stages.
The U.S. Postal Service made a $1.6 billion profit delivering for Amazon in 2019, according to internal documents seen by GeekWire.
The Distribution System
In operational distribution, Amazon has upped its independent delivery power with a jet fleet. Amazon Air currently has about 85 planes flying mostly within the United States. The company has two main hubs for the air service, at Cincinnati/Northern Kentucky International Airport and Textron Aviation’s Cessna Sky Courier.
Being able to move packages from warehouse to warehouse quickly and easily has big benefits for Amazon. The company can have smaller warehouses and less stock in most locations, and ship in goods as needed, packaged and ready for delivery.
Speculators estimate that Amazon has another plan. If Amazon has spare cargo space in its own planes, it could profitably fill them and operate daily flights between each city in which it has a distribution center.
A Slippery Slope
Amazon has been ramping up its own delivery services but is still heavily dependent on its delivery partners.
The company continues to see increases in sales volume. In 2019, it delivered 1.9 billion packages in the U.S. alone, a 155% increase over the previous year.
With that, it has set a high bar. Amazon wants to guarantee shorter delivery times and deliver 24 hours a day seven days a week. It is building out Amazon Air to help improve its operational distribution. It is also hiring to make sure every angle of the business is equipped for service.
It wants to have more control over its own delivery system but until it gets to nearly full ownership it will have to schmooze its delivery partners into helping it fulfill its lofty goals. As Amazon moves forward, it will be interesting to watch how the delivery strategies integral to its success evolve.