Amazon has seen an extraordinary growth rate of 44 percent during the first quarter of 2021 mirroring the overall growth rate of eCommerce in the US for 2020. Yet an old maxim still holds true in eCommerce as much as in any line of business: in order to make money you need to spend money.
Amazon spent a reported $99.6 Million in operation expenses during Q1 of 2021, which included expanding logistics, fulfillment services and data center management. But their strength isn’t based on retail sales alone. Innovation may be an overused term in the business sector, but it’s certainly applicable to Amazon. After all, there aren’t many retail marketplaces willing to expand their services into air logistics—a fleet now slated to reach 85 separate cargo planes by 2022.
That number might seem minimal compared to the air fleets operated by FedEx and UPS; numbers estimated at 669 and over 500 respectively. But then again, neither UPS nor FedEx are retail marketplaces.
Amazon’s Logistic Expansion: Disruption or Opportunity?
The lack of competition in delivery options isn’t necessarily based on service. More frequently, it’s the result of name recognition. Few US consumers can name an alternative third party logistic service provider to FedEx or UPS largely because they’ve built a track record based on their name alone.
But name recognition doesn’t necessarily equal rapid response. Or ideal customer service. A quick Google search at any given time can bring up any number of complaints lodged against FedEx and UPS, including late and damaged packages and a lack of accountability in issuing refunds for unfulfilled orders. While both providers aren’t necessarily entirely to blame for the complaints, they are symptoms which are fairly common when businesses tend to monopolize any industry. Yet monopolization comes at a price. FedEx shares reportedly dropped 13 percent in 2019 after Amazon terminated their contract to focus on in-house strategic delivery, prompting CEO Fred Smith to acknowledge the retailer as a competitive threat after spending months downplaying Amazon’s logistic potential; a threat confirmed by reports that Amazon handled 415 million shipments in July of 2020 as opposed to the 311 million delivered through FedEx.
Amazon’s focus on rapid delivery has been a historical strength, providing same and next-day shipping on virtually all items to 72 percent of the US as early as 2018. And it’s a focus clearly preferred by an estimated 80 percent of online shoppers and one of the key drivers behind the popularity of Amazon Prime. Comparatively, overnight shipping rates from both UPS and FedEx come with a hefty price tag; a factor not helped by the recent announcement of surcharges from both providers for high volume shipments.
To paraphrase the now-infamous quote from Jeff Bezos: their margin is Amazon’s opportunity.
Supply Chains, Amazon and the Post-pandemic Landscape: An Unforeseen Challenge
Supply chain management has always been one of the biggest challenges facing e-tailers. But 2020 proved to be a trickier maze to navigate than even the most seasoned merchants expected.
Strong consumer demand, equipment shortages and insufficient staff resulted in a congestion that effectively paralyzed three of the main US marine port terminals for months on end, resulting in a management nightmare—and higher costs for both retailers and consumers alike.
While third-party sellers have long relied on Amazon FBA as integral to their operations, the resulting inventory glut forced many merchants to augment Amazon’s internal fulfillment options through alternative shipping services; ironically, mainly through FedEx and UPS.
The import of consumer goods in the US increased by $4.5 Billion between February and March of 2021. While Amazon’s $108 Billion sales revenue for Q1 is predicted to be surpassed during Q2 by as much as an additional $6 Billion, meeting higher consumer expectations while ensuring realistic delivery and fulfillment options will be more of a challenge than ever before. Amazon may have proven themselves highly capable of dominating digital commerce, but are they capable of dominating supply chain logistics in the coming months? Or will the monopolization of the market revert to pre-Amazon standards?
For sellers on Amazon, the answer is simple. It’s not a question of time but inventory.
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