The amount of money that Amazon lost on shipping — a.k.a. the net cost of landing all those brown boxes on your doorstep in record time — reached an all-time high of nearly $7.2 billion in 2016, according to GeekWire’s analysis of the e-commerce giant’s financial results.
The number reflects the difference between what Amazon charges customers for shipping and what the company spends to get those items to customers. Amazon traditionally takes a net loss on shipping, thanks in part to the flagship Amazon Prime benefit of free two-day shipping.
But with the company selling more and more items and promising faster and faster shipping — increasingly with no shipping charge for the customer — that net cost is getting bigger and bigger.
Amazon showed a net shipping loss of $5 billion last year, by comparison.
So what’s driving the increase? Amazon CEO Jeff Bezos noted in the company’s year-end earnings release that more than 50 million items are now eligible for free two-day shipping, an increase of 73 percent from the previous year.
Asked about the shipping costs on a conference call with reporters, Amazon CFO Brian Olsavsky also cited a 40 percent increase in items shipped from the company’s warehouses for Amazon’s own online retail business and the Fulfillment by Amazon (FBA) program for third-party sellers.
“We’re doing fulfillment for ourselves and for our partners at a much greater clip,” Olsavsky said. “It’s the usual impact of the additional free shipping programs, as well as the shift toward a higher Amazon Fulfilled growth rate.”
Amazon has also been building out its own infrastructure for ocean freight, air transport, semi trucks, local delivery and drones in an effort to give itself an alternative — not a replacement, execs insist — to UPS, Fedex and other third-party logistics and shipping companies.
As of now, this is all working out for the company’s bottom line, with some significant help from a separate economic engine inside the company.
Amazon posted an overall profit of $2.4 billion in 2016, up from $596 million in 2015, but that was largely due to the Amazon Web Services cloud computing division, which posted sales of $12.2 billion for 2016. AWS’s operating profit of more than $3.1 billion made up the majority of Amazon’s total operating profit of $4.2 billion for the past year — helping to compensate for the billions spent on shipping by the e-commerce side.