Amazon Shapes Future of Internal Logistics Operations

by | Jan 11, 2019

3 min read


Rate Hikes from FedEx & UPS Throw Wrench in Free Shipping

Since 2010, the average rate hike imposed by both UPS & FedEx has been 4.9% every year. With the surcharges and ancillary fees that come with free shipping, some rates could rise to as much as 30% in the near future according to some analysts.

The 2019 FedEx General Rate Increase (GRI)  went into effect on Jan. 7 while UPS notified shippers that it was implementing their GRI the day after Christmas; less than a month’s notice for most shippers. Some shipping costs could increase by an average of 9% or more from the rising rates – all correlated with the zip code of the consumer. (Stay tuned for our analysis).

With the rising of rates, SurePost, SmartPost, and Parcel Select are the main options that retailers are going through when offering free shipping. This allows retailers to maintain parity with Amazon. However, this forces retailers to operate on inflated margins and these imposed rate hikes could make free shipping impossible moving forward.

Amazon saves on average $2 to $4 per package by using their own private fleet, saving up to $2 billion a year. This adds up to 10% of the $21 billion that Amazon ended up spending in 2017. With rate hikes by FedEx & UPS, Amazon will only be more encouraged to build out its delivery business further.

As Amazon grows, so does their shipping profile, meaning more packages leaving their warehouses daily. Some analysts say that 45% of Amazon’s packages go through USPS, some analysts say that number is even in the 60s. Either way, the rest of the percentage goes through UPS & FedEx. With the rising rates however, free delivery becomes unprofitable at a certain point for Amazon.

Amazon’s Air Fleet Expanding to More than 50 Planes

Amazon announced that a new gateway operation in Wilmington, Ohio will open in 2019  allowing Amazon Air jets to refuel at more than 20 locations.  With this gateway addition, two-day shipping is possible almost anywhere in the US, news that Amazon Prime members will love to hear.

With Amazon’s original launch of Prime Air in 2016, it began to take control of its US shipping operations, allowing for faster shipments and reduced prices. With more than 50 Amazon jets now shipping across the skies, it is evident that Amazon is reducing its reliance on third-party carriers.

When asked about this, FedEx CEO said the following: “Amazon is a good customer of ours and we don’t see them as a peer competitor. The addressable markets that we deal with are growing. And as we’ve said over and over again, we’ve grown market share, particularly in the sectors we want to grow.”

Amazon is planning to launch a regional Air Hub at Fort Worth Alliance Airport followed by another at the Cincinnati International Airport. Both Air Hubs should be open sometime during 2021.

In addition to the new air fleet initiative that Amazon is currently undergoing, more resources are being put behind ground shipping. Whether FedEx or UPS will admit it or not, Amazon is building its own logistics operation taking over package delivery from national carriers and shaping the future of logistics across the US.

Topics: Amazon, Customer Experience, FedEx, UPS