A report published in today’s edition of The Wall Street Journal literally confirms that Amazon is pursuing alternative parcel transportation delivery methods which is straining its relationship with longtime partner UPS. This report, Amazon Seeks to Ease Ties With UPS (paid subscription required) merits a read and review by any of our readers directly involved in online commerce.
Citing interviews with more than a dozen current and former UPS and Amazon executives, the article reports that Amazon’s shipping costs have increased to 11.7 percent of total revenue in the third quarter alone, up from 10.4 percent a year ago. In the case of the relationship with UPS, the Amazon account exceeds $1 billion. The average logistics cost of a parcel was reported as $8 last year, and Amazon’s goal is to reduce its reliance on parcel carriers such as UPS.
Amazon reportedly is concerned that the UPS hub and spoke driven network is growing obsolete, hence the online retailer is instead building out regional fulfillment, distribution and package sortation centers while augmenting physical semi-trailer and other transportation assets. The report authors performed some research that observed that more than 40 former UPS supervisors, managers and executives have also been poached by Amazon over the past three years.
Amazon again refused comment to the WSJ on its report.
Some industry participants may well question the daunting cost and complexities for an online retailer building out its own national logistics and transportation network. However, from our lens, this is Amazon, which often challenges current thinking and instead places a focus on finding or developing innovative new methods.
Supply Chain Matters and the Ferrari Consulting and Research Group just published our deep-dive into Prediction Nine: Alibaba and Amazon expanding their presence in customer logistics fulfillment. For the record, we began formulating our prediction in October, when the major parcel carriers adopted increased rate and fuel surcharge rates. We felt that a change was occurring.
Indeed, the industry dynamics of B2C retail, and to some extent B2B online commerce, are about to change in 2016 as major customers play out industry disruptors.