Amazon is the largest online retailer in the world which makes them the largest shipper of goods in the world. Their reliance on ironclad logistics operations is crucial for their success.
In 2014, Amazon spent $8.7 billion in shipping costs for $88 billion worth of products. Amazon realized that as the company’s sales grew exponentially, so would shipping costs, and they were right.
In 2018, those shipping costs grew to $27.7 billion on the $233 billion worth of products. In order for Amazon to cut down on their shipping expenses, they needed to innovate their shipping operations and that is why on November 1, 2015, Amazon Prime Air was launched. It initially started with a fleet of 20 Boeing 767 aircraft.
Amazon owns the delivery service using Amazon branded aircraft however the fleet is operated by Air Transport International ABX Air, Atlas Air and Southern Air. These companies take care of the day to day operations of the air fleet from their pilots, planes, schedules and maintenance.
The service began in Seattle where Amazon headquarters are based at. Then it quickly spread throughout the United States. There are 21 airports that Amazon Prime Air operates out of as per data obtained in 2019.
From the 20 planes they started with in 2015, they grew to more than 80 in 2021. In mid of 2019, Amazon processed, shipped, and delivered 26% of their online sales without the help of a third party company.
Amazon estimated that it saved around $2-$4 per package at destination. If the packages were handled by FEDEX, UPS, USPS or any other third party shipper, it would have cost around $9 per package. Morgan Stanley estimated that in 2019, Amazon saved around $1-$2 billion in shipping costs by handling its own shipping.
Prime Air keeps growing fast, their $1.5 billion air hub at Cincinnati/Nothern Kentucky International Airport is set to start operations soon. It has capacity for 100 planes and Amazon plans to schedule 200 flight landings and departures every day.
When Amazon started the highly attractive 2 day shipping guarantee to prime members, it grew its customer base by over 17%. This attracted a lot of eyeball on how Amazon can meet commitments and be profitable at the same time.
A lot of people speculated that Amazon made a very favorable deal with the United States Postal Service where they were paying below average rates. This lead people to believe that USPS was losing money because of it.
A key figure who was very critical about this deal was then the president of The United States, Donald Trump.
After President’s Trump attack on Amazon’s deal with the post office, Amazon felt more inclined to develop their logistics network.
One huge hurdle that Amazon encountered was that USPS had a long reach all over the United States. The very remote homes, where it would not be economically feasible for Amazon to build shipping infrastructure in. This was the main reason why Amazon relied so heavily on USPS.
Amazon wanted to take more control of their supply chain management.
That is why the e-commerce giant ordered 20,000 vans in 2018 and contracts drives to do that final step in the delivery system to land packages at doorsteps.
In addition, to meet delivery deadlines, the company expanded the delivery service partner program which offered current Amazon employees with $10k and 3 months salary to start their own logistics company and deliver amazon packages.
The partner program, first announced in 2018, includes access to Amazon’s delivery technology, hands-on training and a suite of other discounts for assets and services like vehicles leasing and insurance.
To get a better understanding on how Amazon customers get their packages, it’s important to explain every step in Amazon supply chain management.
Packages eligible for prime shipping, are kept in one of 185 fulfillment center across the United States. Once the order comes in, employees pack the items into Amazon shipping boxes. The package is then put in the bins where it will be loaded into semi trucks heading towards the closest prime air hub. The airplane will fly to one of the 21 airports that Amazon Prime Air operates at.
Once the airplane lands, the bins are uploaded and packages are sorted by location then they are transferred to FedEx, UPS, USPS or an Amazon partner for delivery to its final destination.
In April 2019, Amazon announced that they were slashing delivery time in half for more than 10 million of their products. One day shipping was going to be made available to large cities and eventually spread down to smaller cities. In order for Amazon to meet this ambitious goal, Prime Air had to grow.
Amazon had began testing more advanced delivery methods like Scout sidewalk robots in Los Angeles.
In London, Amazon tested out a program called shipping with Amazon. Sellers who used the service said amazon offers shipping rates at half the price of UPS.
The most anticipated move from Amazon is the drone delivery. If you live within 10 to 20 miles of Amazon’s fulfillment centers, they will be able to send a drone with your package. As long as it weigh less than 5 pounds it will be on your door in less than an hour.
The drone program being in the works since 2015 when it was announced has been a challenge for Amazon engineers to get right.
Amazon says that they are close to having a working program. It’s future mission for prime air is not only extremely ambitious with plans to make deliveries even faster than today but to do it 100% carbon free.
The initiative is called shipment and zero and their immediate goal is to lower the carbon footprint by 50% before the year 2030.
Currently, their facilities are powered by solar and wind power but only a portion of their energy consumption is complemented by renewable energy. In addition to the electricity consumption provided by conventional means in regards to the actual shipping of the packages, the development of electric semi trucks like Tesla’s and the use of biofuels and airplanes can help amazon reach this goal.
Amazon is a pioneer in the e-commerce industry and they are revolutionizing the logistics industry as society becomes more demanding. One day shipping is not going to be enough.
We are going to want to have our purchased products in our hands within hours or minutes of us pressing the order button. Amazon knows this and will come up with new ways to improve their delivery times. For now, the sky’s the limit for amazon, literally.
