Amazon Logistics Has Arrived... Early
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It's now impossible to ignore Amazon's logistics capabilities
Amazon is now its own largest parcel carrier. Let that sink in. How did a company that started selling books out of a garage in Bellevue, WA build the world’s largest vertically-integrated D2C supply chain?
Amazon has entered the market as the top third-party logistics carrier (or 3PL in industry parlance) globally --before anyone was able to take notice. They now employ more workers (648,000) than either FedEx (450,000), UPS (481,000) or USPS (497,000) - up from just 117,000 in 2013. And they’ve built the infrastructure, which is very hard to replicate: 390 warehouses, 50 planes, 300 truck power units and 20,000 delivery vans.
During the 2016 holiday season, Amazon handled 8 percent of its final-mile shipments - that number increased to 20 percent in 2017 and to 30 percent in 2018. This year, in March and April - an off-peak time of the year - Amazon is carrying as much as 45 percent of its own shipments. In just a few years, the largest online retailer has methodically shifted its share of volume from final-mile carriers like USPS to its in-house delivery service.
Advice to retailers: not so fast
Retailers that try to take Amazon head-on will fail - unless they’re willing to dedicate nearly a decade to invest in their distribution networks while maintaining the volume needed to support those investments. The only link in the chain that Amazon has yet to completely integrate is manufacturing. However, that space could be next on the horizon as it’s already begun to push private label products across many categories.
Amazon has used Prime Now as a canary in the coal mine to work out the major kinks in this rapid delivery space, and it’s now comfortable rolling-out 1-day "free" shipping with the network they’ve created. It’s not perfect, though: we’ve seen Amazon get a little sloppier as it gets faster. In 2019, an average of 15 percent of items arrive late, while in 2017, it was only about 5 percent.
The question now is: at what point do consumers see diminishing returns for faster delivery? There are very rare cases where someone needs an item within the next day, and there is a different competitive set Amazon will go up against in the same-day delivery space, like Shipt, Instacart and Doordash.
It’s not game over: retailers have an ace in the hole
Any retailer that attempts to compete will have to take advantage of assets that are hard for Amazon to replicate - like forward-deployed retail space. If items are sourced closer to where the consumer is, retailers will organically save on shipping cost and increase customer satisfaction through quicker delivery. Amazon has been able to mask this vulnerability through forward-deployed inventory and AI to predict where that inventory should be but has needed to get its footprint closer to population centers. In fact, we’ve seen that Amazon has begun to convert closed malls into fulfillment centers.
Competing with Amazon head-on is going to be tough - Amazon has other services like AWS and (now) Ads that print money and enable other parts of the company to run at-cost/losses. General merchandise retailers will either have to offer something different, like Click & Collect options, or find their niche and get really good at it. Regardless, Amazon has arrived in a big way - again.
About this data
With a panel of millions of online shoppers, Rakuten Intelligence gives the most detailed, and accurate digital commerce data available, and is reported daily.
Rakuten Intelligence is the only service to measure digital commerce directly from the consumer, across all retailers, at the item level, and over time. Our retailer-independent methodology precisely measures commerce as it happens. By extracting detailed information from hundreds of millions of aggregated and anonymized e-receipts, Rakuten Intelligence can map the entire Purchase Graph, connecting each and every consumer to all their purchases.
Rakuten Intelligence gets its data from e-receipts – not a browser, app or software installed by the end-user – so its measurement reflects comprehensive shopping behavior across multiple devices, over time, which are key in an increasingly omnichannel retail world. Rakuten Intelligence is the exclusive e-commerce data provider for NPD’s Checkout Tracking e-commerce service.