The engine behind this uptick is Amazon's growing network of last-mile delivery centers across North America. These facilities, which are popping up everywhere from North Jersey to Ontario, Canada, serve as the final stop before a package is sent out to a customer's doorstep.
The number of Amazon delivery centers increased from 163 in 2019 to 278 in 2020 so far, and MW PVL estimates there will be 415 locations by the end of the year. Walmart has made similar efforts to build out its delivery network in recent years, but Amazon has held the lead in creating a vertically integrated system that soon could rival UPS, FedEx, and even USPS.
At the top are fulfillment centers, where inventory is stored, sorted, packed, and labeled for shipping. Founder Jeff Bezos has also speculated for years about serving up packages directly via drones.
“Not only are they adding a heck of a lot of delivery stations, the delivery stations are becoming a lot bigger and able to handle far more package volume,” said Wolfram, who added that early centers were usually under 100,000 square feet, and now they're often five to six times that size. Amazon is reportedly in talks with Simon Property Group, the largest mall owner in the country, to take over large spaces left behind by struggling department stores.
UPS, for instance, usually handles deliveries to areas far outside Amazon's current shipping network, such as a remote farm in northern Canada. He predicts Amazon will cap out at shipping 80-90 percent of its own packages but continue to rely on third-parties to fill in the geographic gaps or meet sudden spikes in demands.
All of this could have implications for the cash-strapped postal service, which noted in a regulatory filing last year that increased competition in shipping “significantly impacts both revenue and volume.” Amazon clearly matches this description, but whatever the company's long-term plans, right now it's just keeping up with surging demand.
“Of all the companies, Amazon is probably under the greatest pressure to add capacity for delivery,” Index said. While USPS, FedEx, and UPS also saw package volume spike during the COVID-19 pandemic, Amazon is positioning itself for future dominance, said Sokolovsky of Ayrshire.
Index said that Amazon's ultimate goal is to expand its logistics arm to deliver packages for other companies as well, but increased demand during the coronavirus pandemic has put those plans on hold. Defending the US Postal Service from criticism that recent action taken by the postmaster general will hamper the expected surge of mail-in voting because of the coronavirus, President Trump said the agency’s biggest problem is dealing with behemoths like Amazon.
Trump, who has been feuding with Amazon CEO Jeff Bezos, the owner of the Washington Post, for years, said the online shopping giant takes advantage of the USPS to deliver its packages. We’re losing a fortune, I said, ‘You got to raise the rates, you’re going to have to raise the rates.’ But Amazon, they build a big plant always near a post office, and then they take a lot of this mail into areas where they could never go because the postal system is massive,” he said.
House Speaker Nancy Pelosi is recalling members of the chamber from August break later this week to take up legislation that would prohibit the USPS from changing services that were already in place at the beginning of the year. Democrats have raised concerns that actions taken by Postmaster General Louis DeJoy could leave the system unprepared to handle the expected surge of ballots in the mail this November.
Amazon's relationship with the US Postal Service has become political fodder in recent years as Trump has demanded USPS to up its rates on the mega retailer. Industry experts say Amazon does indeed take advantage of not only USPS's low rates but also its imperative to deliver to every address in the US.
That's because the retail giant relies on the quasi-governmental agency, which receives no tax money, to build out its own delivery network. In addition to relying on carriers like USPS and UPS to deliver packages, Amazon is its own largest delivery company.
Amazon, along with dropping off packages at costumers' homes, is now able to move a good from its factory overseas to your doorstep through an internal network of ocean freighters, trains, planes, and trucks. In the “final mile,” Amazon delivers about 46% of its own packages, according to a December Morgan Stanley analysis of about 70,000 transactions over nine years.
Industry wide, 60% of packages go to suburban homes, 20% go to urban areas, and another 20% go to rural places, according to the Morgan Stanley analysis. “To build a B2C network from scratch, we believe it makes more sense to build a network that only services dense urban areas (the aforementioned 28% of the zip codes) and rely on the USPS or third-party delivery partner to go to rural or other areas with lower delivery density,” Morgan Stanley's analysts wrote in December.
In other words, losing Amazon as a customer would decimate the US Postal Service's revenues but wouldn't save the company enough money to make up for it. “Certainly, with their popularity and the amount of packages that are shipped, Amazon has been effectively a lifeline for the post office in a lot of ways,” Cottony said.
” in which I made the argument that Walmart coached FedEx to make the decision to end its Express shipping contract with Amazon. Walmart and Amazon have greatly increased their focus on each other with both companies seeking ways to gain the upper hand on the other through strategy and logistics.
In the span of less than 30 days, both Amazon and Walmart have made a series of announcements related to same-day shipping, with Amazon one-upping Walmart by announcing free shipping on 10 million items for Prime members. The tit-for-tat taking place among retailers, especially Walmart and Amazon, isn’t sustainable.
In fact, one of Amazon ’s leadership principles is ‘Think Big,’ and the term is frequently spoken inside the company. Therefore, Amazon requires a more extensive last-mile delivery capability than traditional brick and mortar retailers.
Walmart, and even Home Depot, are investing billions in their e-commerce and retail logistics capabilities as well. The name of the game for Amazon is delivering packages to consumers in every city and state where they live.
Unlike traditional retail shopping, where customers walk into a physical retail store to buy products off the shelf, e-commerce succeeds by shipping products directly to the customer’s home. Operating a delivery truck costs money, and drivers don’t drive for free.
An even bigger issue facing Amazon, however, is the fact that Amazon ’s growth has raised a series of red flags with members of Congress, President Donald Trump and several Democratic candidates running for president. To solve its problems, I believe Amazon should proactively approach Trump with a solution for how to make the USPS more efficient and eliminate the significant losses in revenue experienced by the postal service.
The USPS has lost $69 billion since 2007 and will continue losing money unless there are major reforms. The agency has $110 billion in unfunded liabilities for retiree pension and health care, and its workforce is accruing more retirement benefits every year.
Without major restructuring, the USPS is expected to lose tens of billions of dollars over the next decade. The Government Accountability Office (GAO) has put the USPS on its “high-risk” list for its dismal financial outlook.
Amazon would be required to ship mail and packages for any company that contracts the USPS. The strategic value to Amazon is that competitors couldn’t dump the USPS as there isn’t a viable alternative.
Amazon is favored to win several pending cloud computing contracts for additional government agencies in 2019. Contract Amazon to work jointly with the leadership of the USPS to utilize Amazon ’s expertise across logistics and last-mile delivery to identify the optimal transportation and logistics network for mail and package delivery.
(Multiple studies funded by the U.S. government regarding the postal service have recommended privatizing the USPS.) Set a fee for UPS, FedEx and other shippers to deliver packages to a mailbox.
(This is significant in terms of allowing Amazon to leverage its lockers to modernize the postal service and provide consumers with a much better customer experience.) Contract Amazon to identify the optimal business model whereby physical/online retail can be integrated into the postal service ecosystem to generate additional revenue.
In many cities and states where post offices are located, there are no grocery or convenience stores. Give Amazon the authority to make acquisitions like acquiring IPO Logistics or another third-party logistics company to give the USPS increased capabilities in shipping and delivering products too large to fit into the traditional parcel network (furniture, exercise equipment and other heavy/bulky products).
Allow Amazon to form strategic partnerships with any company of its choosing, if doing so improves the customer experience; enhances efficiency; reduces costs and complexity; and increases the viability of the USPS to generate revenue and profits. Postal Service would be viewed as the nuclear option due to the massive impact on the companies Amazon competes with the most.
For Amazon, acquiring the USPS would be viewed very positively by Congress; Amazon, the company that only cares about itself, could become the savior for a money-losing enterprise (the USPS) and generate tremendous good will on behalf of Congress and the American people. Giving Amazon the flexibility to rationalize the workforce of the USPS, to close and relocate post offices, to build and open combined retail/postal service locations, and to increase the scope of services provided by the USPS would solve the issues currently plaguing the U.S.
To eliminate any concerns over Amazon “gaming the network” to give itself an advantage over shipping products for other companies, Congress could mandate that the GAO and several third-party firms audit Amazon ’s pricing and operations to ensure fairness and transparency. From a strategy point of view, I believe Amazon acquiring the USPS is the single largest move Amazon could make to create an insurmountable competitive advantage as it relates to logistics and last-mile delivery.
Trump -- who faces accusations from Democrats that funding cuts and operational changes at the post office are meant to stop mailed votes for Democratic challenger Joe Biden from being counted -- claimed in an interview with Fox News on Monday that Amazon is “maybe the biggest problem with the post office” because of the losses that the service takes on package deliveries. And in Yuma, Arizona, on Tuesday, he said Amazon should pay higher prices for shipping packages to cover the Postal Service’s costs.
The USPS has been losing billions of dollars a year for more than a decade as people use email and other online services to correspond, in addition to its onerous pension obligations. But its commercial package delivery service, which includes agreements with companies such as Amazon, FedEx Corp.
Terms of the Postal Service’s delivery deal with Amazon are confidential, however USPS has repeatedly said it doesn’t lose money on the agreement. In addition, the post office must cover its costs in its commercial package delivery business under the law.
In fact, shipping and packages have been the only growth segment for the Postal Service and jumped more than 50% to $8.3 billion in revenue in the third quarter, which ended June 30, according to fiscal 2020 results released Aug. 7. The pandemic drove up costs, including for personal protective equipment and paid sick leave, contributing to a net loss of $2.2 billion in the period, roughly in line with the year before.
Trump claimed in the Fox interview, without showing evidence, that the Postal Service loses about $3 per package with Amazon. The agreement with Amazon and other retailers has been “one of the few areas of growth in Postal Service revenues, experiencing double-digit increases in recent years and accounting for nearly 30% of its operating revenue in fiscal year 2017,” according to a letter led by the late Representative Elijah Cummings of Maryland in June 2018.
Cummings and fellow Democrat Gerald Connolly of Virginia called Trump’s charges related to the post office “inaccurate” and said the Amazon deal is comparable to other last-mile arrangements. Trump has long aimed insults at Amazon and its chief executive officer, Jeff Bezos, who owns the Washington Post, which has closely covered his administration’s foibles.
Even as the ongoing Covid-19 pandemic prompts states to step-up mail-in voting procedures, Trump, who’s trailing Biden in polls, has claimed without evidence that it routinely leads to massive fraud, raising concerns about attempted voter suppression.