Amazon has once again initiated a thunderbolt action that has implications for B2C/B2B online customer fulfillment and last-mile delivery capabilities. The online retailer announced it is ordering 20,000 Mercedes parcel delivery vans to build-out its own independent contractor last-mile delivery fleet.
Taking advantage of this week’s plant opening ceremony of the new $500 million Mercedes-Benz Sprinter truck manufacturing facility in Charleston South Carolina, Dave Clark, Amazon’s Senior Vice-President of Worldwide Operations made the joint-announcement that the online retailer is ordering a total of 20,000 new Sprinter vans badged with the Amazon Prime logo.
Our Supply Chain Matters blog commentary published in June, Amazon’s Latest Announcement in Last Mile Logistics Have Strategic Purposes, highlighted the Amazon announcement of inviting independent small business operators to form small package delivery companies, leasing between 20 and 40 Amazon Prime branded vans to perform contracted last-mile delivery. Consistent with the strategy to not own rolling assets, ownership of these delivery vans will be assumed by fleet management firms who will then provide special lease rates to independent delivery firms now being recruited and trained by Amazon. The online provider expects to have 100 of the new badged parcel delivery vans in service by the end of this year and will take delivery on the total 20,000 vans by the end of 2019. Judging from the factory photo, Mercedes already has a head start on available vans.
The vans themselves represents what Mercedes describes as the third-generation of the Sprinter class vans, which include new multimedia systems, digitization, and connectivity.
This week’s joint press conference and purchase commitment announcement with Mercedes represents the next step in this strategy. Consistent with Amazon’s corporate culture for making significant actions relative to market influence, Amazon had initially ordered a smaller amount of vans for testing, and then increased that order to a significant number. Mercedes was quick to state that this single order makes the online retailer the world’s largest Mercedes-Benz Sprinter customer, a marketing statement to savor. No doubt, other truck van producers would relish having that opportunity.
What it Means
As noted in our June insights commentary, the supply chain community now knows by now that all initiatives by Amazon have broader strategic purposes that manifest themselves in incremental phases. Similar to its unveiling of the first branded Prime air cargo aircraft in the summer of 2016, these ongoing 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 online customer fulfillment process.
Ongoing 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. Indications are that last year, Amazon shipped roughly half of its package volume via the USPS. President Trump’s direct attacks in April alleging that the online retailer was getting preferred shipping rates for the postal service seem to serve as the tipping point.
We have further noted that Amazon stands to gain 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’s package delivery services. 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.
Yes, Amazon’s new augmented fleet of branded parcel delivery vans does not meet the scope or volume of existing global parcel carriers. From our lens, 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 and online consumers. The strategy is not to be a direct competitor, but rather have the capabilities to provide more unique delivery experiences to the online customer. That will likely include integration of acquired buyer intelligence into the delivery experience.
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