Amazon (AMZN) has become a worldwide online retail behemoth. However, it continues to show that it can’t do it alone, at least not with its own fleet. Amazon deals in its own delivery, but it also works with FedEx (FDX), United Parcel Service (UPS), and the United States Postal Service (USPS). In June 2018, it started a new program for entrepreneurial delivery businesses, Delivery Service Partners. All of these options are also combined with its own delivery couriers and its expanding Amazon Flex crowdsourced drivers.

In general, Amazon’s delivery and delivery relationships are key points of interest for the company, stakeholders, and the logistics industry overall. Amazon keeps them on close watch and is also not afraid to move and suspend activities with some historically volatile actions. The online retailer is upping its part in retail delivery from its platform, but it is still pretty far away from owning it 100%. Through the end of 2019, Amazon reportedly took responsibility for about 50% of its deliveries through its own means.

In 2019, the e-commerce giant reported about 2.5 billion packages delivered for the year. At this rate its ramping up on deliveries and even gaining on the competition. FedEx reported about 3 billion deliveries in 2019 and UPS had 4.7 billion.

As the company increases its own delivery services, it has more latitude to adjust its relationships with other partners. In December 2019, Amazon suspended its relationship with FedEx Ground for poor performance. The two company’s picked things back up a month later. In April of 2020, Amazon announced it would be ending its own 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 all over the world with its nearly 70 cargo planes and almost 20,000 vans, along with its approximately 20,000 distribution trailers. Building out its own delivery has been a big push since 2013.

Key Takeaways

  • Amazon made 50% of volume deliveries in 2019.
  • Amazon has a lot of options when it comes to delivery, including: its own couriers, couriers from its Delivery Service Partners program, and drivers from its crowdsourced Amazon Flex platform, as well as the likes of FedEx, UPS, and USPS.
  • Managing its delivery relationships as it grows will likely be a slippery slope.

Current Situation

Amazon offers a variety of shipping options that service both itself and its sellers. The popular Prime membership gets preferential shipping terms with no shipping fees and fast delivery. Amazon drivers and Delivery Service Partner affiliates make one-hour, same-day, and one to two-day drop offs. Sellers also have the option of using FedEx, UPS, and/or USPS.

Kiva

Before the products even get onto a delivery truck, Amazon has already worked its magic to speed up the packaging process. After having purchased Kiva Systems, Amazon leveraged the company’s robotic and distribution systems to improve efficiency within their warehouses. Products at Amazon are not shelved in any particular order, nor are they continually displaced and reorganized like books in a library. Instead, products are stored where they fit and robots and human pickers fetch the products for packaging.

Delivery Service of Choice

Amazon fulfills a big part of its business from its own warehouses. 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 contracted couriers deliver parcels to customers within an hour or on the same day (depending on the shipping method chosen by the customer). Amazon is also testing drones for a cheap and quick 30-minute delivery solution. In other situations, Amazon may use FedEx or UPS. Moreover, Amazon has also built “sortation centers” where millions of parcels are sorted via zip codes and then delivered to local post offices for inexpensive local distribution.

Sellers that don’t house their goods within an Amazon warehouse have the responsibility of managing the shipping and delivery on their own. These sellers now generally turn to UPS, FedEx, or USPS.

FedEx has stated it will not renew its FedEx Express service with Amazon in 2020.

So, when it comes to delivery, Amazon’s platform has a whole host of options. While it has been ramping up deliveries from its own Amazon workers in recent years, the company and its sellers still rely on the likes of FedEx, UPS, or USPS. Maintaining these relationships can be tricky, especially since competition is becoming more and more fierce with the rising volumes from e-commerce. Third-party companies don’t necessarily have as much interest in ensuring quick delivery or upholding the best interests of the company. This is why service performance has become increasingly scrutinized by Amazon, particularly as it grows its own internal options.

Distribution

In operational distribution, Amazon has upped its delivery power with a jet fleet that helps move goods internally rather than through the reliance on outside carriers. These operations are done by its airline Amazon Air, which has nearly 70 planes flying mostly in the United States. Amazon has two main hubs it relies on for these jets. One at Cincinnati/Northern Kentucky International Airport and the other at Textron Aviation’s Cessna Sky Courier.

Being able to move packages from warehouse to warehouse quickly and easily has two big benefits for Amazon. First, the company can have smaller warehouses. There’s no need to build a super warehouse in Alaska if there’s a delivery plane coming in each day from Seattle. Secondly, warehouses don’t need to stock as much quantity as they have previously. Take a man in Phoenix who orders a product that’s sold out in Amazon’s regional warehouse but available to be shipped from another distribution center in the Northeast. Amazon workers would package the item, but instead of shipping it with FedEx or UPS, the package is flown by Amazon to a warehouse in the Southwest and then delivered by a courier.

Speculators estimate Amazon delivery planes will number into the hundreds, and there is a lot of opportunity for growth. For instance, Amazon may not be able to fill the cargo space of hundreds of planes a day but if the cargo space could be sold, Amazon would be able to profitably operate daily flights between each city in which it has a distribution center. Suddenly, there’s an airplane going wherever Amazon needs the package to be, and the idea of flying something across the country to be dropped off doesn’t sound so crazy.

Slippery Slope

Amazon has been ramping up its own delivery services but is still heavily dependent on its delivery partners. With a 50% capacity and potential recession looming ahead, it is climbing a slippery slope.

The company continues to see increases in volumes. With that, it also has high aspirations. 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 but until it gets to nearly full ownership it will have to schmooze its delivery partners into helping it fulfill its lofty, aspirational delivery dreams. As Amazon moves forward, it will be an interesting character to watch in the retail business, and its delivery strategies will be integral to its success.