Amazon Doesn’t Need to Own Ecommerce Delivery

In an interview this week with Recode editor Walt Mossberg at the Code conference, Amazon founder and CEO Jeff Bezos said his company was not aiming to take over the last mile in ecommerce delivery, or even the preceding miles, despite its recent spate of logistics moves.

Rather, Bezos said, Amazon wanted to “supplement it heavily” through its vast fulfillment infrastructure as well as additions like cargo planes, truck trailers and contract drivers.

“We’re growing our business” with the U.S. Postal Service and UPS, Bezos said, quipping a short time later that “Better prices on transportation would be acceptable to us.”

A couple quick observations:

Amazon has its finger in so many pies – ecommerce, artificial intelligence, cloud computing, multimedia devices, now physical stores, the list goes on – that it doesn’t need to add last-mile dominance or ownership. And it also makes perfect sense that Amazon wants to protect its business by hedging against future network issues with its carrier partners, especially in the crucial Thanksgiving-to-Christmas holiday peak season. Both Bezos and the carriers have stated their mutually beneficial relationships remain strong.

That said, his last remark is very interesting, indicating the various logistics moves achieve two key goals. While adding a bulwark against a repeat of the 2013 holiday delivery meltdown – when millions of packages, many from Amazon and many hauled by UPS, arrived late – they give Amazon added leverage in its contract negotiations with carriers. Of course as ecommerce growth shows no signs of letting up, parcel volume will grow right along with it, network capacities will be strained, shippers will seek alternative strategies and innovative delivery startups will succeed.

Gaining leverage with carriers is critical for Amazon, given its rapidly escalating shipping costs, which grew 36.7% to $4.17 billion in the fourth quarter – despite whatever volume concessions it was able to extract. Amazon, long known for failing to show a profit even with all its innovation and market dominance, has ended in the black for the past few quarters. That kind of continued spike in shipping costs would at some point make profitability unsustainable, even with the massive growth in cloud revenues.

So expect to see Amazon continue flexing its logistics muscles, but don’t expect it to try to replicate what the major carriers bring to the table, or to ultimately try and completely shut them out.

Mike O’Brien is Senior Editor of Multichannel Merchant

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