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Last year, Amazon announced a new program to have tens of thousands of drivers delivering packages in Prime-branded uniforms and vans through independent delivery companies. (GeekWire Photo / Kurt Schlosser)

Amazon is taking more and more control of how its packages are shipped to customers — and it could have big implications for the global logistics industry.

The Seattle tech giant has historically relied on partners such as FedEx, UPS, and USPS to help deliver its packages. But the company is now investing heavily in its own cargo jets, trailer trucks, and related infrastructure to help support its Prime fast-shipping program.

New data from Rakuten Intelligence shows that Amazon now carries nearly 50 percent of its own shipments.

“It’s now impossible to ignore Amazon’s logistics capabilities,” Rakuten wrote. “Amazon is now its own largest parcel carrier. Let that sink in. How did a company that started selling books out of a garage in Bellevue, WA build the world’s largest vertically-integrated D2C supply chain?”

(Rakuten Intelligence Chart)

Amazon disputes the Rakuten data. “The numbers are not an accurate representation of how Amazon shipments are shared between Amazon and our carrier partners,” the company said in a statement shared with GeekWire. Other reports show lower percentages for its own shipment handling.

But in any case, Amazon’s logistics strategy is crystalizing.

As it promises faster delivery — Amazon is spending $800 million this quarter on a new one-day delivery service — the company has quickly added shipping capacity with its own logistics infrastructure.

This month it added 15 more cargo planes and will have 70 in the air by 2021 — “Amazon Air” only launched in 2016. Last year, Amazon announced the new Amazon Delivery Service Partner program, which lets entrepreneurs start and run their own companies, delivering items purchased on in distinctive blue Prime-branded shirts and vans.

Amazon will also soon roll out delivery drones and is testing autonomous delivery robots.

By controlling more of its shipping process and infrastructure, the company is not only able to reduce costs but is also opening up opportunity to offer shipping capabilities as a service for other retailers, somewhat akin to the Amazon Web Services business model.

Amazon will be able undercut UPS and FedEx rates by 33 percent, according to a Rakuten Intelligence logistics expert who spoke to Axios. “Its trucks and planes are out delivering Amazon packages anyway so it can offer shipping at cost, instead of collecting a margin,” Axios reported.

Amazon also has an advantage with speed: its average “click-to-door” duration is 3.2 days, while the industry average is 4.3 days, according to Rakuten. Though with the increases in speed, Amazon has been “a little sloppier as it gets faster,” Rakuten reported, with an average of 15 percent of items arriving late this year compared to 5 percent in 2017.

Given that Amazon already has around 50 percent of the U.S. e-commerce market, its move into logistics could impact the package delivery market in a big way.

The competition is already responding. Earlier this month, FedEx ended its U.S. air shipping deal with Amazon.

Amazon Prime Air cargo plan on the tarmac at Sacramento International Airport in Sacramento Calif., July 8, 2018. (GeekWire Photo / Todd Bishop)

This strategy is not cheap. Amazon’s shipping costs have ballooned in recent years as the company aims to speed up delivery. In 2018, Amazon spent $27.7 billion on shipping, an increase of $6 billion or roughly 27.6 percent over the prior year, according to GeekWire research. Worldwide shipping costs reached $7.3 billion in the first quarter of 2019, up 21 percent year-over-year.

Amazon also spent $34 billion on fulfillment expenses in 2018, up 35 percent from the year prior.

Rakuten noted that Amazon does have one vulnerability: lack of physical retail space. “If items are sourced closer to where the consumer is, retailers will organically save on shipping cost and increase customer satisfaction through quicker delivery,” Rakuten wrote. Competitors including Walmart and Target have that advantage.

But Amazon is making moves to address that. In addition to its 175 fulfillment centers, it is also now partnering with retailers such as Rite-Aid for package pickup services. The company also has hundreds of Whole Foods stores as a result of its $13.7 billion acquisition of the U.S. grocer in 2017.

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