News Article

Amazon Prime Day creates logistics challenges and opportunities alike

This year marks the fifth year of Amazon Prime Day. And while it has become an event eagerly awaited and anticipated by consumers, the logistics planning and preparation it requires by Amazon grows incrementally by the year.

As you may likely know, today and tomorrow are both part of Amazon Prime Day, which the global e-commerce titan refers to as “a 2-day parade of epic deals.” If that does not sum up exactly what Amazon Prime Day is, then there is a chance not much else will.

This year marks the fifth year of Amazon Prime Day. And while it has become an event eagerly awaited and anticipated by consumers, the logistics planning and preparation it requires by Amazon grows incrementally by the year.

That was made especially clear earlier this year, when Amazon announced in late April on its first quarter earnings call that it was at on evolving its ubiquitous Prime Two-Day Shipping program into a One-Day Shipping program, to the tune of an $800 million investment, in tandem with the more than 20 years Amazon has spent expanding its fulfillment and logistics network.

While this endeavor is for every day, not just Amazon Prime Days, it speaks to what its plans are for faster shipping on an accelerated basis, said Amazon CFO Brian Olsavsky on the first quarter earnings call.

“We have been offering…faster than Two-Day Shipping for Prime members for years, one day, same day, even down to one-to-two hour delivery for Prime now,” so we are going to continue to offer same day and Prime Now selection on an accelerated basis. But this is all about the core free Two-Day offer morphing into – or evolving into a free One-Day offer. We’ve already started down this path. We’ve in the past months significantly expanded our one-day eligible selection and also expanded the number of zip codes eligible for one-day shipping.”

While Prime Day does materially bump up demand and subsequently network volume levels, it also has a trickle-down effect, of sorts, on other major supply chain stakeholders, too, like UPS and the United States Postal Service, among others.

Since Amazon initially introduced Prime Two-Day shipping in 2005, domestic margins for UPS fell from 15.7% in 2005 to 8.9% in 2018, noted Robert W. Baird and Co. analyst Ben Hartford in a research note earlier this year.

“Amazon has been increasingly developing its own logistics capabilities since the early 2000s, leading some investors to believe that insourcing from Amazon’s logistics efforts have led to margin erosion at UPS (and FDX),” he wrote.  “We think the impact has been less direct but nonetheless still very consequential: Amazon’s creation of customer demand and expectations for B2C led to e-commerce’s rapid development over the past 10-15 years. As a result, we recognize the risk a similar headwind being presented to parcel providers if the migration to free ‘One-Day’ becomes adopted and expected in customer preferences.”

This article was originally written on July 15, 2019 by Jeff Berman for Logistics Management. Read the full article here.