Sure, the item says that shipping is free, but we all know that just means the cost of shipping is built into the cost of the item.
Apparently in April Amazon announced that it was planning on delivery Prime purchases in one day instead of two. (Part of this article)
Which got me wondering… Very little that I buy online really needs to be delivered in one day. If I get those socks, or the toilet paper or the replacement phone battery on Wednesday instead of Tuesday, it really won’t make a smidge of difference in my life.
But there is definitely an extra cost to all those rush orders. Like being able to use a credit card to pay for everything, there is a hidden convenience cost.
If I go by what UPS lists as their fees, online, 400 miles,for a 2# box, 4"x8"x12":
UPS Next Day Air cost $73.85,
UPS 2nd Day Air cost $27.87
So about an extra $46.
I know, Amazon doesn’t pay anything near to that cost, but it was some place to start.
So will Amazon be pricing themselves out of the market, for some inexpensive items that aren’t in the local Amazon hub? Will Amazon become more limited in what items are eligible for Amazon Prime shipping? Will Amazon Prime, now that so many of us are hooked on it, become more and more expensive to subscribe to. In 2014, Prime went from $79 to $99 (25% increase), and in 2018 it went from $99 to $119 (a 20% increase). Amazon does seem to already be trying to find out where subscribers’ pain points are.
So how much is it really costing for that one day “free” shipping?
Amazon says it is spending $800 million in the 2nd quarter of 2019 to improve its delivery infrastructure for one-day shipping. Note that this will only cover about 72% of the US population where the infrastructure supports it.
This confirms my personal observations that Amazon is not upgrading to UPS Overnight Air from UPS 2-day Air, but rather that they are working on getting the goods out of the warehouses and transporting them to the final destination more quickly on their own planes and trucks. Amazon now has a large air fleet of its own as well as a largetruck fleet. It has been my observation the they seldom use UPS (or similar) to deliver packages long distances overnight. They use their own fleet to get the packages to distribution centers near the destination (or sometimes use bulk cargo services provided by UPS or others, not individual package services) and from there they use local delivery services (which are increasingly provided by their own AMZL).
I think the key here is getting more warehouses strategically located and getting stuff packed and out of the warehouse faster so that it can be shipped to the destination facility faster. They need a lot of capital improvements to accomplish this, but once the infrastructure is in place, operational costs should not be so much.
I have often wondered why it takes a lot of smaller e-commerce companies a week or more to get an order packed and out of their warehouse before it is even given to UPS or FedEx which then take another week to deliver it across country. Amazon has shown that this can be cut out.
A lot of the cost is buried by abhorrent labor practices. Amazon warehouses are near sweatshop labor which is engineered to prevent employees from having as much downtime as legally possible, and also ding them, including firing, over for the slightest mistakes (some of this being a strategy to prevent any sense of seniority and the pay increase expectations that come with it from manifesting).
Amazon can essentially eat a lot of the cost because it has the infrastructure to maintain these labor practices, investment in heavy automation, and because it has the capital to essentially out-service and out-price any competitors.
That doesn’t sound convincing to me, at least not if this is supposed to answer the OP’s question. Labour practices (or, if we want to call it a little less class-struggle-y, optimisation) in Amazon warehouses may speed up the time it takes for the shipment to leave the warehouse and get on its way to the customer, but they can’t speed up delivery times between leaving the warehouse and arriving at the customer’s place.
I can’t think of anything I’ve ordered on line in my life that I couldn’t wait a week for, never mind a day. For some time now Amazon has been offering a bonus of sorts if you opt for slow delivery, a sort of e-coupon towards your next purchase on at least some orders. I’ve happily taken advantage of that whenever I could. Anyhow, the point is that if you are paying attention you’ll see there’s a cost to the fast delivery.
Not that I order much physical stuff anyway - most of my Amazon purchases are e-things.
I sell a few products in my shop that are also sold on Amazon, so I have a little bit of an inside look (well, from a competitors perspective at least). They haven’t raised their prices to cover the expense of faster free shipping (they still undercut me unless I drop my margins to next to nothing). They can do that because they buy in enough volume to fill up their warehouses which means they get the lowest possible wholesale prices from manufacturers.
This has been true for the last decade or so of course, so I suspect that the difference now is that they’re simply still not really profitable. I suspect they’re using “funny” corporate accounting to be able to cover the expenses of setting up and operating their own delivery verticals. I mean jets cost a ton of money, jet fuel is an exhorbitant ongoing cost, investing in a fleet of delivery vans isn’t as much money as a fleet of jets, but still up there. I bet they’re hedging the cost of many of these things against future profits.
One day delivery ? - I can get same day delivery. But there are some caveats that make it pretty clear how it works. I must live in a zip code where the service is available. I must order by noon to get delivery by 9pm. And most tellingly, if I increase the number of a particular item , my order may lose the same day delivery option as there may be enough widgets in the local warehouse to fulfill my order of 2, but not enough if I order 6. It’s basically the same thing as Staples same-day delivery, without the retail storefronts.
AS far as Amazon next day delivery, you can’t compared it to the individual per piece price. Not only because Amazon certainly gets a discount, but also because they use a method that isn’t really available to individual people or small businesses. When I get an Amazon delivery, it’s often with my regular mail. That package did not get into the US mail stream in Reno, Nevada. It was fulfilled in one of the eight or so distribution centers within an hour or so of my house and dropped in the mail close to the delivery point- if not at my local post office, at the local mail sorting facility. It’s almost as if I wanted to get a package to Albany overnight ( a trip that usually takes three days by mail) and to do so, I drove the package to Albany and dropped it in the recipient’s post office. It makes no sense to do it for one package - I might as well just drive it to the recipient. But that doesn’t mean it can’t make sense for 1000 packages.
Next-day delivery only works because they have removed as much of the human factor as they can. When you click that button, your order is instantly in the warehouse queue for picking. No paper is processed, no human intervention. Even the picking is probably automated and the first human to be involved is the one who puts your item in a box for shipping and that only takes a few seconds. Like this: Inside A Warehouse Where Thousands Of Robots Pack Groceries - YouTube
After that, automation to the back of the correct truck and so on through hub(s) and out for loading in a delivery van. The only other person to be directly involved with your order is the one who delivers it.
The times when your order had to be printed and processed by people who take breaks and allow work to pile up are long gone. Even the delivery driver has their route planned, timed and monitored; if they stop for an unauthorised break they will be called to account.
I live within 5 minutes of an Amazon warehouse and within 15 minutes of another. I see Amazon delivery trucks in my very small, 50-house neighborhood at least twice a day. And they work until 8 or 9 PM.
Up until very recently the drivers weren’t driving Amazon vans, but third party rented Penske, which leads me to believe that up until recently they were using contracted, independent help (like Uber). Not sure if the branded vans are a different fleet of drivers or not.
So they’re already doing things a little differently than existing delivery services. Longer hours, independent contractors, rented trucks.
Amazon is a warehousing and logistics company, first and foremost.
I have found that shipping prices, like hotels, rental cars, and many other things, are very elastic. Volume counts. That overnight package that you or I pay $73 for would cost a large company/organization that ships a lot only a few dollars. I have a friend that works for a major university and in addition to the great rates UPS gave them a shipping computer and UPS employees will even come box up packages for them.
Also if you are shipping to the same state or a nearby state, Ground will normally get there overnight anyway. So if Amazon is smart with their distribution center placement they won’t be shipping Next Day anyway.
At work we recently had to replace a lot of drives (and other stuff) on our Network Attached Storage system. Wierd issue that took a while for the NAS company to figure out.
We shipped back some of the problematic drives and the FEdex store quoted > $50. using the NAS account it dropped to $6.80 (I heard this secondhand so may be a bit off)
(one option considered was to hire a private plane to get some part to us. We were getting stuff 24/7)
The NAS is pretty mission critical so worth a maintanance contract…
I suspect Amazon’s one-day delivery is not really comparable to UPS/FedEx. For example, there is a pretty limited set of items that are Prime one-day versus the normal two-day delivery. I suspect that’s because those items are in stock in a local Amazon fulfillment center within some distance of your location, modified by what sort of infrastructure is between you and them. For example, someone who lives 30 miles out in the country may not have one-day delivery on much if anything, but someone 30 miles away along the interstate may have a lot of one-day options.
So they’re not grabbing your item from the Portland, OR fulfillment center and delivering it to your house in Boca Raton in one day for free; they’re taking it from the one just north of Miami. Same thing where I live- they’re taking it from one of the 2-3 fulfillment centers in the area, not from somewhere in Minnesota.
UPS on the other hand, is providing a service to take your package from nearly anywhere in the US and deliver it to nearly anywhere else in the continental US overnight. So as long as you dropped your package off in Miami at the right time, they’ll guarantee next-day delivery to Seattle (~2700 miles away) for $73.
I’m sure this is it. They are achieving one-day delivery by building enough distribution centers that there is one within a 1-day ground shipping distance of every customer (or almost), and stocking every distribution center with the most popular items.
Well, sorry, I meant the term “warehouse” loosely. They definitely have distribution centers, which can look just like warehouses. There’s one a mile from my house.
The main reason that Amazon isn’t profitable despite having money to spend freely is that they give stock-based compensation. As compensation, it’s deductible for the company on their tax return, as well as shown as an expense on their financial statements (debit expense, credit stock). But it doesn’t actually cost them anything - it just costs other stockholders their share of the company. If they want to maintain this level of compensation for their employees, eventually they’ll have to suffer a drop in their stock price or shell out actual money. They are able to, at least for now, have financials that show them breaking even while being able to retain more cash which they can use for acquisitions that will boost the stock price and thus enable them to keep doling out compensation in that form. Only until they are unable to expand any further will this come to a head.
