To rise out relatively unscathed from the dot-com bubble crash, to now stand on the precipice of being the first ever company to breach $1 trillion valuation, Amazon has come a long way indeed. Testimony to its gains, the e-commerce sector is steadily eating into the retail market share, with it accounting for 9.5% of the total market in the U.S., with more than half of it attributed to sales on the Amazon platform.
The e-commerce behemoth’s Prime Day sales last week was a massive exercise in logistics that ended up swelling Amazon Fulfillment Centers by over 25%, as recorded by Freightos Marketplace. The incredible complexities of ramping up logistical efforts apart, Amazon had to contend with a problem that was non-existent in its first two editions – the ascent of crude oil prices. Diesel fuel prices have gone up by 45%, while jet-fuel prices have risen by over 50% since last year. Though this would have put a strain on Amazon’s resources, it makes the Prime Day success all the more astonishing.
Though the e-commerce industry has been quite successful in shielding the actual cost of logistics from the eyes of the consumer, increasing fuel costs are winding the screws so hard that even Amazon failed to bear the brunt. This was evident from the recent change in Prime membership plans, which would cost a bit more than usual going forward, as the annual price jumped to $119 from $99. Even with the rise in premium, Amazon would still be compensating heavily for the actual costs, as total logistics expenses stood at $46.9 billion in shipping and fulfillment last year – with membership premiums amounting to only a fraction of it.
It is evident from the company’s financials that logistics expenses play a primary role in bringing its profits down. And Amazon’s attempt to reduce its overhead is leading it to take interest into how its supply chain is run – bringing 3PLs under its radar. Earlier this year, Amazon announced its intention of floating out its own delivery service which would cut parallels with logistics giants UPS and FedEx. The proposed “Shipping with Amazon” solution is said to have a 360-degree view on its supply chain – picking up products from vendors, stocking it in warehouses, and delivering it to consumers.
Though nothing much seems to have followed up post-announcement, logistics companies can never afford to drop their guard against Amazon. To be fair, the company has a lot going on its side – as it remains the single largest e-commerce player in the world, holding billions of data points on consumer behavior, and with a human resource pool that is second to none.
FreightWaves spoke with Eytan Buchman, VP of Marketing at Freightos about the possibility of Amazon entering the supply chain market in the near future. Buchman’s insisted that the key to understanding Amazon’s strategy lay in the people that the company is keen on hiring, as that would serve as a primer on the company’s real intentions in the segment.
“We scraped all of the jobs that they have in the logistics and supply chain space. So we looked at their career website and tried to identify patterns there. One general interesting thing was that 5% of Amazon’s full-time jobs are in the supply chain and logistics space and it is spread across the world,” said Buchman. “There are over 20 countries where their logistics and supply chain positions are open and about half of those positions are in the U.S. and half of them are in their Seattle headquarters.”
Digging deeper, it could be seen that the supply chain jobs split into two categories – the one with experience in cutting-edge technology like machine learning, and the other with expertise in international freight. Buchman insisted that Amazon is specific in its hiring process so as to address the international freight section and alluded this to be the initial step in its advent into the supply chain ecosystem.
“Amazon is working along with third-party fulfillment companies like the U.S. Postal Service, UPS, and FedEx and at the same time they are working on expanding their own internal domestic network,” said Buchman. “Amazon announced their franchise delivery units last month, and as the market grows, we are likely to see increased Amazon involvement on the international freight side.”
The numbers are revealing – Amazon’s air fleet accounts for 32 Boeing 767-300s, with the fleet set to grow bigger once the Amazon airport at Kentucky is finished. The planned Kentucky airport is spread over 210 acres, and is expected to cater around 200 flights daily. Amazon’s warehousing, commonly called as fulfillment centers accounted for 14.2% of its net sales in 2017, a number which keeps growing every year.
In Amazon’s job listings, 1,500 job roles come under the umbrella “import” category, with 110 positions specifically for cross-border import and about 70 for cargo or freight. As the company ramps up its air fleet, warehousing capabilities, and human resources on international freight, it is a certainty that the company would make a splash when it enters the supply chain segment. The pertinent question now is not about how Amazon would be involved in the space, but rather when it would choose to step in.
Stay up-to-date with the latest commentary and insights on FreightTech and the impact to the markets by subscribing.