Who is delivering your parcels? Amazon secretly delivering non-Amazon orders

Amazon is reportedly working on shipping cargo for third-party companies to beat UPS and FedEx at their own game.

This means that the online retailer giant will start moving items that aren’t bought in its online store simply because its logistics prowess has improved. There are even unconfirmed reports that the company is already shipping goods for the U.S. Postal service, according to CNBC.

Amazon started shipping goods bought from its online store back in 2014, and since then, it’s grown its shipping business to include 400,000 drivers, 40,000 transport trucks, 30,000 vans, 70 planes and more. It even recently opened up a new Air Hub in Kentucky that cost around $1.5 billion USD (roughly $1.8 billion CAD) to ship products more efficiently.

Last year, Amazon created its own custom electric delivery van with Rivian to help lower its emissions while making it more productive to deliver packages. Investments like these have helped Amazon gain ground on FedEx and UPS. The tech giant already ships over 72 percent of its own packages, and we can assume it plans to get that number to 100 percent in a few years.

Analysts expect Amazon to launch this new ‘logistics as a service’ platform in the U.S. over the next year and a half.

The scary part for FedEx and other shipping companies is that since Amazon is already running so many shipping routes and has other revenue streams to supplement its logistics business, it can massively undercut the competition’s prices.

Amazon now ships more parcels than FedEx
For years, three companies — FedEx, UPS and the U.S. Postal Service — have controlled nearly the entire last-mile delivery market in the U.S. But Amazon, through its shipping arm Amazon Logistics, is no longer a marginal threat to these companies — it has, in fact, begun shipping more parcels than FedEx, and is nearly at the shipping levels of UPS.

According to data from Pitney Bowes, a technology company focused on shipping and postage, Amazon is now one of the top deliverers of parcel shipments — meaning boxes and packages delivered to people’s homes. In 2020, Amazon Logistics delivered 4.2 billion parcel shipments, up from 1.9 billion in 2019. It now makes up, by volume, 21% of the parcel shipments in the U.S., behind the USPS (38%) and UPS (24%) but ahead of FedEx for the first time (16%).

That shift has happened with incredible speed. Amazon only opened its shipping and warehousing network to third-party sellers in the past decade. Since then, it has turned a relatively marginal operation into a parcel shipping behemoth.

In 2014, Amazon delivered just 20 million packages, versus the 4.2 billion last year. Those figures make concrete what many in the industry have known for a while: Amazon has become one of the biggest delivery forces in the U.S.

Amazon’s astounding growth in the fulfilment sector points to bigger ambitions. In recent months, Amazon has broadened out its Multi-Channel Fulfilment program, which allows brands that sell on non-Amazon platforms to warehouse and ship with Amazon — its first attempt to become a standalone carrier in the vein of UPS and FedEx.

Amazon’s ambitions are likely to involve selling its logistics business as a service to a larger assortment of brands and retailers.

Amazon is spending big to beat the competition
Amazon is investing heavily in adding more warehouses and growing its fleet of airplanes, trucks and vans. The company has revealed that its capital expenditures grew a whopping 80% over the trailing 12 months.

The investments are part of Amazon’s goal to manage its own deliveries and speed up the process, thereby relying less on third parties such as UPS and the U.S. Postal Service.

While the coronavirus pandemic pushed many businesses to slow spending, Amazon ploughed profits back into physical expansion, growing its transportation and logistics presence across the country. The company added more warehouses and grew its fleet of airplanes and linehaul trucks and continues to grow its contracted delivery network to oversee more than 100,000 drivers.

All told, the company increased capacity of its in-house logistics operations, known as AMZL, by 50% year over year and is expected to keep spending big in these areas throughout the remainder of 2021 and potentially into 2022.

Logistics expansion is critical for Amazon as it seeks to speed up deliveries and, in the future, make the business of delivering packages more cost effective.

Amazon still relies on third-party providers such as UPS, FedEx and the U.S. Postal Service to handle a portion of deliveries. But the company has steadily grown its fleet of planes, trucks and vans to inch closer to its shipping partners.

By operating its own fulfilment and logistics network, Amazon can continue to optimize the process of preparing and delivering packages to shoppers’ doorsteps. In doing so, Amazon has already shifted from a two-day delivery model to one- and even same-day delivery.

Ultimately, these investments in fulfilment and logistics also strengthen Amazon’s “flywheel effect.”

As shoppers continue to flock to Amazon, it pushes more businesses to have a presence on the site and, if they’re not already, buy ads and pay to tap into Amazon’s warehouse footprint. Amazon makes money from selling third-party seller services, by taking a cut of each sale and collecting fees from sellers who use its warehouses. Revenue in that segment surged 64% during the quarter.

Amazon used the pandemic to build a logistics operation that rivals UPS
When the economy sputtered with the spread of the coronavirus pandemic, unemployment surged as employers laid off workers by the thousands.

Amazon took a different tack, hiring 400,000 workers to stow, sort, pick, pack and deliver goods from its warehouses across the country, and pushing its total employee count over 1.1 million people.

It didn’t stop there. The e-commerce giant leased 12 Boeing 767-300 cargo aircraft, bringing its air fleet above 80 jets. It added 220 package facilities since the start of the year, ranging from urban delivery stations to giant warehouses, according to an industry consultant.

Amazon used the crisis, when prices on everything from commercial real estate to cargo jets plummeted, to amass an empire already beginning to rival the U.S. operations of United Parcel Service and FedEx, long the most dominant logistics companies, which helped the e-commerce giant get its start. The company is building a logistics system to one day deliver packages for customers to compete directly against UPS and FedEx, something it’s already doing in the United Kingdom.

“They are building the world’s biggest package-delivery company,” said David Glick, a former Amazon logistics executive who serves as chief technology officer at Flexe, which helps retailers warehouse and deliver goods.

While Amazon’s move into shipping its own packages and freight has been building for years, the implications will provide it a stark advantage this holiday season, when Amazon’s rivals will probably wrestle with getting packages delivered by a network already clogged with pandemic shopping.

That will probably hand Amazon a massive advantage in a holiday season in which U.S. e-commerce purchases will climb 35.8 percent to $190.5 billion, according to a forecast by the research firm eMarketer.

When the pandemic started, there were few e-commerce companies that seemed less prepared than Amazon. It went beyond just logistics. Warehouse staff around the globe sounded alarms that company policies put their health in jeopardy. Rogue third-party sellers gouged buyers on such hard-to-find items as hand sanitizer and listed products making dubious claims about virus protection.

Meanwhile, shipping delays led customers to gripe about third-party sellers at the highest levels ever. The clogged network, and the new hurdles caused by the pandemic, led Amazon to throw money at the challenge. It sped up spending it had planned for next year on acquiring new warehouse space, to supplement a logistics network straining under the weight of pandemic-fuelled shopping.

For the time being, Amazon and UPS and the Postal Service are dependent on each other. (In 2019, FedEx announced it decided not to renew key domestic contracts with Amazon.) But analysts say the company’s hiring spree and the rapid expansion of its fulfilment capacity hint at its long game: to enter a new market large enough to make a difference to Amazon’s finances.

Already, Amazon’s logistics business will handle 5.1 billion packages in the United States this year, just shy of the 5.3 billion packages UPS will ship domestically.

UPS spokesperson Kara Ross called the carrier’s relationship with Amazon “mutually beneficial,” noting that other large customers handle pieces of their transportation business.

“We are confident in our ability to compete and will continue to focus on opportunities that generate good financial returns,” Ross said in an emailed statement.

The U.S. Postal Service declined to specifically address the Amazon threat but said generally that the agency competes by “providing reliable service at a competitive price.”