One-Day Shipping is Costing Amazon Big
Amazon Spends Upward of $3 Billion on One-Day Shipping Rollout
In April, when Amazon announced their plan to make one-day shipping a reality for Prime members, the company said that the rollout would cost $800 million in the second quarter. It seems that Amazon underestimated the financial impact of the plan, which has cost the company almost four times more than its original estimate.
While Amazon has not given a specific number for the cost increase of one-day shipping, Youssef Squali, the global head of internet and media-equity at SunTrust, said that Amazon has likely spent close to $3 billion this quarter. The dramatic increase in money spent has likely stemmed from the company’s push to build its own last-mile network.
Amazon previously relied on carriers like FedEx or XPO Logistics, but they have recently scaled back or completely terminated their relationships with these companies. Instead, Amazon is relying on their own delivery network, which it has said is cheaper and more precise.
The unexpected costs of rolling out their new one-day shipping plan that relies heavily on the company’s internal operations is causing some in the industry to question Amazon’s decision. Only time will tell if Amazon’s one-day idea will continue to eat away at the company’s revenue.
UPS to Begin Sunday Deliveries
In an announcement last week, UPS said that it would joinFedEx in delivering packages on Sunday. Both UPS and FedEx will begin their Sunday delivery programs in January of 2020.
In order to execute this plan, UPS has invested in automated technology that will allow for faster and easier sorting. The additional automated facilities, which should be added to UPS’ network this year, will be able to sort an additional 400,000 packages per hour.
The move represents a larger trend in the parcel industry of traditional carriers striving to keep up with Amazon’s rapidly-expanding logistics operation. While FedEx sees Amazon solely as a competitor, UPS has actually said that Amazon is both a competitor and a customer for the company.
According to an article by Business Insider, “Some estimate around 10% of UPS’ revenue comes from its partnership with Amazon.” Regardless of any mutually beneficial partnerships, traditional carriers like UPS and FedEx will continue to have to evolve to keep up with Amazon’s innovative methods.
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