These past two weeks, Amazon has made some noteworthy announcements that should capture the attention of our readers. Similar to its unveiling of the first branded Prime air cargo aircraft in the summer of 2016, the announcements are the forerunner to a broader unfolding strategy for branded parcel and package delivery capabilities that provide more personalized services and added options for controlling the full customer fulfillment process.

Last week, the online retailer announced the rollout of termed Hubs by Amazon service capability, a last-mile delivery option available to other parcel carriers such as FedEx, UPS, and private mail. This is described as an extension of Amazon lockers, tailored for apartment buildings or multi-resident complexes. Delivery carriers who contract for this service can enter a code to open the door of the Hub and deposit a package. The recipient receives notification of delivery  via Amazon, along with a separate code to gain access to the package. According to business media, Amazon has already secured contracts from property managers to place these Hubs at designated properties. In its reporting of the announcement, Business network CNBC indicated: “It’s another hint that Amazon is eyeing a broader logistics play and the first time the company has ventured beyond its own transactions and shipments.

This week features the announcement of inviting small business operators to form small package delivery companies, leasing between 20 and 40 Amazon Prime branded vans to perform contracted last-mile delivery. According to reporting by The Wall Street Journal: “The new initiative will give it (Amazon) a visible presence on the streets in bigger metro areas that could help it to start to resemble UPS, FedEx and the Postal Service.Amazon Deliver Service

Amazon’s Vice President of Global Operations is quoted as indicating that there is so much growth in parcel delivery that there is more than enough volume for all carriers.

 

What it’s All About

The supply chain community should know by now that all initiatives by Amazon have broader strategic purposes that manifest themselves in incremental phases. We discovered that in 2016 with Amazon’s eventual deployment of a global leased air cargo transportation capability whose scheduling was purposefully designed to overcome timing and flexibility shortfalls of FedEx and UPS hub and spoke air transport networks. Today, the online retailer has a leased network of 35 branded aircraft and 7500 truck trailers supporting its global air operational needs. Amazon further gained the advantage of being able to load aircraft much later in the day and fly that cargo directly to an airport adjacent to a major customer fulfillment center.

From our lens, the timing of these two new announcements related to broadened last-mile delivery have a lot to do with what’s happening with the United States Postal Service, which became one of Amazon’s preferred carriers for last mile delivery, especially during the critical November-December holiday fulfillment period. The WSJ cited sources indicating that today, Amazon ships roughly half of its package volume via the USPS.

In April, President Trump took to social media to attack Amazon, claiming that the online retailer was ripping-off the USPS. The President soon issued an Executive Order calling for a review of the agency’s contracts with major shippers, such as Amazon.

The timing of these latest initiatives are not coincidental to what is occurring around the USPS. With promoting new businesses to take-on guaranteed last-mile parcel delivery needs in certain metropolitan regions, Amazon gains a fallback position if the U.S. Congress elects to privatize the USPS, especially if one of the existing large parcel carriers elects to take on the management of the postal agency.

Amazon also gains further flexibility of offset current and future higher rates that FedEx or UPS would impose to continue to fund higher levels of automation in their networks. Amazon gains another bargaining chip in contract negotiations.

Finally, and more-likely more strategic, the online retailer adds additional capabilities to offer last-mile fulfillment not only to retail customers, but to Amazon hosted sellers and services providers. Similar to the Amazon Web Services (AWS) business model of offering all forms of Cloud computing resources to businesses, Prime can evolve to be an end-to-end parcel and package fulfillment capability available to select businesses.

This is definitely a step in the direction of broader logistics fulfillment networks.

 

Bob Ferrari

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