Published on

The Logistics of E-Commerce

The Logistics of E-Commerce

In today's digital era, e-commerce has become an integral part of our lives, and Amazon is at the forefront of this industry. As the largest online retailer in the world, Amazon's success is heavily reliant on its robust logistics operations. In 2014 alone, the company spent a staggering 8.7billiononshippingcostsfor8.7 billion on shipping costs for 88 billion worth of products. As their sales grew exponentially, so did the shipping costs, reaching 27.7billionin2018for27.7 billion in 2018 for 233 billion worth of products.

To tackle the challenge of reducing shipping expenses, Amazon launched Amazon Prime Air on November 1, 2015. This delivery service, utilizing Amazon-branded aircraft, is operated by Air Transport International, ABX Air, Atlas Air, and Southern Air. These companies handle the day-to-day operations of the air fleet, including pilots, planes, schedules, and maintenance. Starting with 20 planes in 2015, Amazon's fleet has grown to 50 in 2019, with an additional 25 on order from Boeing.

Currently, Amazon processes, ships, and delivers 26% of its online sales without the assistance of third-party shipping companies. This number is expected to grow as the Prime Air fleet expands. By handling its own shipping, Amazon estimates savings of 2to2 to 4 per package at the destination, compared to approximately 9ifhandledbyFedEx,UPS,orUSPS.MorganStanleypredictsthatin2019,Amazonwillsavebetween9 if handled by FedEx, UPS, or USPS. Morgan Stanley predicts that in 2019, Amazon will save between 1 to $2 billion in shipping costs through its self-managed logistics.

In an effort to further enhance its logistics network, Amazon is building a $1.5 billion air hub at the Cincinnati Northern Kentucky International Airport, set to open in 2021. This hub will have the capacity for 100 planes, doubling the current fleet, and is expected to schedule 200 flight landings and departures each day.

One crucial aspect of Amazon's logistics strategy is its reliance on the United States Postal Service (USPS). The USPS has an expansive reach across the country, especially in remote areas where it would not be economically feasible for Amazon to establish its own infrastructure. However, Amazon aims to reduce its dependence on the USPS and take more control of its supply chain management. To achieve this, Amazon has ordered 20,000 vans and contracted drivers for the final step in the delivery process, bringing packages directly to customers' doorsteps. Additionally, the company has expanded its Delivery Service Partner program, encouraging current Amazon employees to start their own logistics companies and deliver Amazon packages.

Understanding the complete Amazon supply chain management is crucial to grasp how customers receive their packages. Prime-eligible items are stored in one of 185 fulfillment centers across the United States. After an order is placed, employees pack the items into Amazon shipping boxes and load them onto semi-trucks bound for the nearest primary hub. From there, the packages are flown to one of the 21 airports that Amazon Prime Air operates from. Upon landing, the packages are sorted by location and transferred to shipping partners such as FedEx, UPS, USPS, or Amazon's own partners for final delivery.

Amazon's ambitions to expedite delivery times have led to various innovative initiatives. In April 2019, they announced the slashing of delivery time in half for over 10 million products, with one-day shipping becoming available first in large cities and then expanding to smaller ones. This move puts tremendous pressure on the shipping industry, necessitating Amazon's growth and experimentation with advanced delivery methods. Some of these include testing Scout sidewalk robots in Los Angeles and London, as well as exploring shipping with Amazon, a program that offers shipping rates at half the price of UPS.

The most highly anticipated development is drone delivery. Since its announcement in 2015, Amazon has been working to perfect its drone program. The goal is to deliver packages weighing less than 5 pounds within an hour to customers living within 10 to 20 miles of an Amazon fulfillment center. Though the implementation has presented challenges, Amazon is confident that the technology will soon be operational.

Another significant initiative undertaken by Amazon is its commitment to carbon neutrality for its shipping operations. Through the Shipment Zero initiative, Amazon aims to lower its carbon footprint by 50% before 2030. While the company's facilities currently rely on renewable energy sources like solar and wind power, only a portion of its energy consumption is complemented by renewables. As Amazon moves ahead, they are exploring the use of electric semi-trucks and biofuels in airplanes to achieve their carbon-neutral goals.

As e-commerce continues to evolve and customer expectations become more demanding, Amazon is poised to revolutionize the logistics industry. While one-day shipping is already impressive, customers will soon expect even faster delivery times, potentially within hours or even minutes of placing an order. To meet these expectations, Amazon will continue to explore new methods of improving delivery times.

Keywords: Amazon, logistics, e-commerce, shipping, delivery, Prime Air, fulfillment centers, USPS, supply chain management, drones, carbon neutrality.

FAQ

  1. How does Amazon manage its logistics operations? Amazon manages its logistics operations by utilizing a combination of owned delivery services, such as Prime Air, and partnerships with third-party shipping companies like FedEx, UPS, and USPS. The company also relies on its extensive network of fulfillment centers across the United States.

  2. What is Amazon Prime Air? Amazon Prime Air is a delivery service owned by Amazon and operated by companies like Air Transport International, ABX Air, Atlas Air, and Southern Air. It utilizes Amazon-branded aircraft to transport packages to various airports, from where they are then delivered to customers' doorsteps.

  3. How does Amazon aim to reduce shipping costs? To cut down on shipping expenses, Amazon is constantly innovating its shipping operations. By handling its own shipping and expanding its fleet, the company expects to save billions of dollars in shipping costs. Additionally, Amazon has been investing in alternative delivery methods such as drones and sidewalk robots to improve efficiency and reduce expenses.

  4. Will Amazon replace the United States Postal Service (USPS)? While Amazon aims to reduce its reliance on USPS by building its own logistics network, it is unlikely to completely replace the USPS. The USPS plays a vital role in delivering packages to remote areas where it would not be cost-effective for Amazon to establish its own infrastructure.

  5. How is Amazon working towards carbon neutrality in its shipping operations? Amazon has launched the Shipment Zero initiative, which aims to lower its carbon footprint by 50% before 2030. The company utilizes renewable energy sources like solar and wind power in its facilities and is exploring the use of electric semi-trucks and biofuels in airplanes to achieve its carbon-neutral goals.