Amazon continues to pour billions into its growing shipping operations, an area where the company says it is facing “intense competition.”
Amazon listed “transportation and logistics services” as a business where it is battling plenty of competition in its annual 10-K filing. The filing with the U.S. Securities and Exchange Commission gives a snapshot of the company’s business at the end of the year and where it sees the biggest risks.
First spotted by Forbes, the text in the 10-K doesn’t mention competitors by name. But the filing is another example of Amazon’s desire to take greater control of the delivery process as it looks to lower costs.
Amazon today doesn’t compete directly with major logistics organizations like UPS, USPS and FedEx and works with them to quickly get packages to customers. At the same time, the tech giant appears uneasy about leaning too heavily on others.
“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,” the company wrote in its 10-K.
The e-commerce giant spent $9 billion on shipping in the fourth quarter, according to its latest quarterly results. That’s $1.7 billion more than the 2017 holiday quarter, a 23 percent increase.
Amazon’s annual shipping costs have risen 140 percent since 2015 and increased by at least $4.7 billion each of the last four years. The tech giant spent $11.5 billion on shipping in 2015, $16.2 billion in 2016, $21.7 billion in 2017 and $27.7 billion in 2018.
Amazon’s rising shipping costs reflect its push to get products to customers at a faster and faster clip, along with the increasing popularity of Amazon Prime and its core benefit of free two-day shipping. Last April, Amazon disclosed that it had 100 million Prime subscribers worldwide, revealing its membership base for the first time.
On a call with investors last week, Amazon CFO Brian Olsavsky laid out why the company is taking such an active role in the delivery process.
What we like about our ability to participate in transportation is that a lot of times, we can do it at the same cost or better and we like the cost profile of the two.
We can also invest selectively because we have more perfect information we know where our demand is, we know where we’re moving things between warehouses and sort centers, and by not involving third parties all the time, we find that we can extend our ship cut offs, or excuse me, our order cutoffs and we’ve done that over the last few years. So that’s also another helpful side benefit for consumers when we are doing our own logistics, excuse me, transportation final delivery.
At least publicly, the leaders of FedEx and UPS aren’t too worried about Amazon’s growing shipping ambitions. FedEx CEO Fred Smith told investors in December that Amazon is a “good customer of ours” and “we don’t see them as a peer competitor.” UPS CEO David Abney took a similar line in an interview last month, saying of Amazon “they’re a good customer of ours” and “e-commerce is a lot more than just Amazon.”
Amazon has in the past shown the ability to blow up traditional business models, and it’s trying out everything it can to reduce the cost of shipping. Beyond handling more of the process itself, Amazon has experimented with a variety of high-tech solutions, the latest being tiny package delivering robots.