In today’s Finshots, we look at how Amazon is building its massive logistics business.
The Story
If you start seeing big blue jet planes in the sky, don’t be surprised. You’re looking at Amazon!
The e-commerce giant has launched Amazon Air in India to ferry your big brown packages. And it’s all part of its global plan to dominate the skies. Globally, it owns 11 of its own planes, leases at least 100 other jets, and flies 200 flights daily. And it doesn’t do everything itself. It works with 7 different airplane companies to do the dirty work of dealing with pilots, following the regulations and flying the planes.
Now if you’re wondering when this obsession with airplanes began, we have to rewind a bit to one fine morning in 2014. It was just before Christmas and Amazon had a deal of the day in place. It was for the Amazon Kindle. Amazon had made a promise to deliver the e-reader just in time for the holiday. But there was a glitch. Amazon found that there weren’t enough Kindles in the Seattle area. There weren’t enough Kindles even within driving distance that they could get to Seattle in their trucks. It had to quickly fly the Kindles in from other warehouses.
So it checked with its cargo partner UPS if they could spare some planes. UPS said no. It had enough on its plate and couldn’t appease Amazon during the busy holiday season.
Amazon executives freaked out. They couldn’t break their promise to customers. Especially on Christmas day. Calls were made, everyone scrambled, and somehow, Amazon managed to charter enough planes. The Kindles made it on time to Seattle. It was a Christmas miracle.
But that incident was enough to light the fire. Amazon realized that it couldn’t leave fate in the hands of delivery companies such as FedEx and UPS. There was only one way to control these variables — get its own planes!
And in the past 2.5 years, the percentage of the US population that lives within 100 miles of an Amazon Air airport has jumped from 55% to nearly 75%.
But then, Amazon thought — why stop at planes? Because if you’re trying to have complete control over your logistics, there’s another crucial piece in the puzzle — shipping. After all, 80% of international trade happens over the waves. That means that most of the products that Amazon stocks in its warehouses make their way over via ships.
So Amazon decided to dip its toes in this segment too. And over the past few years, it has been chartering its own cargo ships. It’s even making its own shipping containers.
Remember when there was a massive global shipping problem in 2021? Containers weren’t enough and freight costs were soaring. What cost $2,000 to ship in 2019 suddenly cost a staggering $20,000. Naturally, companies that were paying through their nose for importing goods had to raise prices which hurt consumers too.
But Amazon had prepared itself well. It used its own shipping network and cut delays and costs. For instance, when cargo vessels were waiting for 45 days to dock at the Los Angeles harbour, Amazon simply rerouted its own ships to less popular ports like Washington. And then hauled it using its own trucks to wherever it needed to go.
And as per SJ Consulting Group, the e-commerce giant now controls freight for over 72% of its own packages. This number was just 45% in 2019.
All this is based on the simple idea that it makes sense to bet on the one thing that won’t change even after 50 years — that people will always want their products delivered faster. Or in Jeff Bezos’s own words, ‘It’s impossible to imagine a future 10 years from now where a customer comes up and says, ‘Jeff, I love Amazon; I just wish you’d deliver a little more slowly.” Impossible.’
Now the thing is, dabbling in ships and planes is an insanely expensive proposition. It costs billions of dollars. Sure, superfast delivery is great, but is it worth sinking all that money into?
Well, the answer might lie in Amazon’s cloud services AWS. You see, AWS began life as an internal project. To help Amazon scale its own e-commerce business. Servers were built, the cloud set-up was created, and the infrastructure was put in place. It was a high fixed cost. But it worked so well that Amazon saw an opportunity. It could simply sell this proposition to other companies. And we know how massive AWS is today.
Amazon’s logistics business could be similar. It bought and leased trucks, planes, and ships to meet its own need for speed. It has sunk the dollars and has proven how efficiently it can deliver the goods in the span of 1 or 2 days.
The next logical step is to sell this infrastructure as a service to everyone else. Get D2C companies to ditch the Blue Darts, DHLs, and Delhiverys of the world and piggyback on Amazon’s fleet.
And in a small way, you can see this starting to play out already.
In 2022, Amazon decided that Prime membership in the US was so cool that every seller deserved it. If you’re someone who sells protein bars and folks come to your website to place an order, Amazon would allow you to place the Prime stamp at checkout. The Prime logo has a certain amount of trust built in. People know and recognise it. They know that deliveries will be quick. They want an Amazon-like delivery experience. So the merchant could simply use Amazon’s delivery services to sell products on their websites too. They called it ‘Buy with Prime.’
It’s a win for customers too. They can simply utilise their Prime membership for shopping on websites other than Amazon. It’s more bang for their buck.
And the rumours are that Amazon is beginning to adopt this playbook in India too. In the past few months, it has been building out its Shipping service. It’s offering any seller the chance to use the Amazon network to ship their goods quickly. And it’s impinging on the turf of pure play logistics players such as Delhivery and Blue Dart.
So yeah, the way it’s shaping up, Amazon’s ships, planes, and trucks won’t be just for themselves. It could soon be for everyone! Amazon is building a logistics moat.
Until then…
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