Amazon is reportedly planning to launch a delivery service in the next few weeks that would put the e-commerce giant in direct competition with FedEx and UPS. Thus far, despite operating an elaborate network of fulfillment, sortation and delivery centers, Amazon has ceded control over the “last mile” to the companies it now looks set to start competing with.
As Amazon continues to grow, its logistics costs have skyrocketed over the past decade. In 2017, the company’s fulfillment and shipping expenses amounted to $25.2 billion and $21.7 billion respectively, up from just over $1 billion each ten years earlier. Introducing its own shipping service would not only give Amazon the chance to keep shipping costs at bay, it would also reduce the risk associated with relying on UPS and FedEx for last-mile delivery. In its 10-K report, Amazon notes: “We rely on a limited number of shipping companies to deliver inventory to us and completed orders to our customers. If we are not able to negotiate acceptable terms with these companies or they experience performance problems or other difficulties, it could negatively impact our operating results and customer experience.”
As the following chart shows, the relative weight of fulfillment and shipping costs on Amazon’s bottom line has increased over the past decade. Last year, the two cost factors amounted to 26.4 percent of the company’s net sales, up from 16.6 percent in 2007.