Amazon’s ardent experimentations in shortening delivery times and inventory costs have forayed a new segment that inches the e-tail giant closer to the logistics market led by delivery partners like United Parcel Service Inc. and FedEx Corp.
Amazon ensures two-day deliveries on a vast range of fast moving product skews. In an effort to increase cargo handling capacity and reduce storage costs, the e-commerce behemoth is looking to internally absorb greater levels of logistics operations that are typically handled by its delivery partners.
Bloomberg reports, that according to two individuals familiar with the plan, Amazon originally incubated the idea in India and began marketing it to U.S. Merchants as a service called, ‘Seller Flex’. The new transaction model will see Amazon picking up packages of goods listed by third-party merchants on Amazon.com directly from warehouses and delivering them to the client’s doorstep. As firms across industries seek innovative frameworks to resolve last-mile delivery bottlenecks, Amazon’s self-sanctioned last-mile distribution would allow it greater flexibility in delivery times and allow it to store merchandise in the sellers chosen storage facility rather than overcrowding its own warehouses.
This is not Amazon’s first segue into the logistics sphere. It’s stratified delivery gambits include ‘sortation centres’ where packages are categorised by zip codes and driven to U.S. Post Offices in corresponding locations. While Amazon still relies on the postal service to complete deliveries, the sortation centres absorb a portion of postal responsibilities to reduce margins of error and delivery times associated specifically with Amazon products – thereby, increasing customer satisfaction and loyalty by exerting greater control of the larger supply chain.
Similarly, Amazon Flex contracts independent delivery personnel and private vehicles, to deliver Amazon packages collected from strategically located shipping hubs. Delivery chains are guided by a mobile app to ensure high-quality service.
Considering the company’s previous encroachments into the logistics sphere, investors are cautious of its endeavours and expansions. UPS still considers Amazon a valued customer and FedEx notes the scale of infrastructure required to facilitate a global transportation network. Still, Amazon’s efforts are noteworthy. The e-tailer constitutes between 5-10% of revenues at UPS and 2-3% of revenues at FedEx.
“Shares are going to be under pressure” for UPS and FedEx “because it’s Amazon and no one wants to go head to head with them,” said Kevin Sterling, a Seaport Global Holdings analyst. “But if you look at the world of e-commerce and double-digit growth year after year, FedEx and UPS are still going to get their share of growth. If Amazon does take a few customers, the whole e-commerce pie is growing so fast that FedEx and UPS won’t miss a beat.”
Even as Amazon tests the model on America’s west coast, analysts point out at capacity issues over the holiday season and internal bottlenecks that could strain Amazon’s in-house delivery systems. Yet, the e-tailer’s volume and inventory concerns are precisely the currents driving its last-mile experimentations. As long as these concerns persist, Amazon will continue extending its considerable reach across the supply chain.
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