In April, Supply Chain Matters highlighted a PwC Omni-channel fulfillment survey that highlighted among other findings that 67 percent of CEO’s believe that the cost to fulfill orders across channels is increasing, and that a near total consensus cited transportation and logistics as a fulfillment capability that needs the most attention.
Even Amazon, an icon in online B2C fulfillment is not immune to such transportation cost realities. Transportation costs in its latest fiscal quarter increased 29 percent to a reported $2.34 billion.
Financial and business media have recently reported that Amazon is testing a new program currently termed Ship by Region. The program would allow certain site sellers to designate where they are willing to ship goods in two days or less for Amazon Prime members. If a Prime customer’s ship-to address is outside the specified region, shipping my take longer since it will be likely routed via a less costly segment. Previously all online merchants distributing via Amazon had to ship their goods to Amazon customer fulfillment centers in order to participate in the Prime program.
According to a published report from The Wall Street Journal, Amazon is currently limiting the Ship by Region option to a select group of sellers, including when goods are stored in non-Amazon customer fulfillment centers. The report indicates that the program aims to expand the number of items showing up in search results for Prime. However, some items may not be subject to two-day free shipping since Amazon will not guarantee such fulfillment based on distance traveled. As an example, a small appliance or power tool warehoused on the U.S. West Coast, many not qualify for two-day shipping for a Prime customer located in the Northeastern U.S… However, if the same item is stocked on the U.S. east coast, if may be eligible.
Separately, the WSJ reports that Amazon may introduce a further program, Amazon Day that combines particular customers’ orders in fewer boxes and ships on fewer days of the week. For customers, the program aims to for predictability, receiving all Amazon shipments on a specific day. For Amazon, it could turn out to be a means to save on overall transportation costs.
A Bernstein Research analyst recently indicated to Bloomberg BusinessWeek that the United States Postal Service may have accounted for 40 percent of Amazon’s hipping volume in 2014, more than either FedEx or UPS. In turn Amazon, performs much of the pre-processing sortation prior to handover to the USPS, and secures an attractive last-mile package delivery rate in doing so.
The rising costs of online and Omni-channel related transportation and logistics has indeed become a high-level concern, and industry icon Amazon is developing more innovative programs to buffer such costs. Others will do so, as well, and the need to fully understand and contrast all aspects of transportation costs by fulfillment channel are going to be critical table stakes.