 Amazon accelerates logistics expansion ahead of holiday rush |
Source |
American Shipper |
Post Date |
11/10/2020 |
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Amazon is accelerating expansion of its fulfillment centers and transportation network, having invested $12 billion in the third quarter alone in advance of what it is calling an ¡°unprecedented holiday season.¡±
The infrastructure investment will support the growing number of third-party sellers using the Amazon platform. Those sellers accounted for 54 percent of Amazon¡¯s total sales in the third quarter by units sold ¡ª i.e., individual physical and digital items ¡ª up from 53 percent in Q3 2019 and 42 percent in Q3 2014, according to the e-commerce giant¡¯s most recent financial statements.
Most of Amazon¡¯s third-party sellers are small and medium-sized businesses, a segment highly sought after by many logistics providers due to the number and logistics requirements of such businesses. UPS, for example, noted on its Oct. 28 earnings call that small and medium-sized business volume increased 18.7 percent year over year, outpacing volume growth among its larger customers.
Year-to-date through September, Amazon¡¯s capital expitures totaled $30 billion, compared with $32 billion for all of 2019. As part of the expitures, Amazon is expanding the square footage of its fulfillment and logistics network by 50 percent, with the majority of the new buildings ing in late Q3 and into Q4. About half of the square footage growth will be on the transportation side in the form of sorting facilities and delivery stations, with the other half in new and expanded fulfillment centers.
Growing third-party seller segment
Representing 99 percent of total US businesses, according to the US Small Business Association, many small and medium-sized businesses lack the logistics tools to scale profitably. Online marketplaces including Amazon have attracted such businesses due to the logistics solutions and marketing capabilities they offer, including negotiated shipping rates, fulfillment solutions, and its own last-mile delivery service.
Amazon currently has over 500,000 small and medium-sized businesses selling on its platform with a goal to add 100,000 additional businesses by the of this year, the e-commerce giant has said previously.
¡°We were able to meet the heightened demand in Q3 because we ed up more network capacity, particularly in our transportation network,¡± Brian T. Olsavsky, Amazon¡¯s senior vice president and CFO, told investors during the company¡¯s Oct. 29 earnings call.
Amazon¡¯s total net sales increased 37 percent to $96.1 billion in the third quarter while operating income increased 93.7 percent to $6.3 billion. Third-party seller services, which includes fulfillment and shipping fees, jumped 53 percent for a second consecutive quarter to $20.4 billion.
The right amount of capacity?
The fourth quarter started strong for the e-commerce giant as third-party sellers generated $3.5 billion in sales during Amazon¡¯s Prime Days on Oct. 13-14, a 60 percent year-over-year increase, growing more than Amazon¡¯s retail business.
But whether or not there will be enough capacity during the rest of the holiday season remains to be seen. Amazon made the decision to err on the side of too much capacity in order to prevent delivery or inventory disruption, Olsavsky said during Amazon¡¯s earnings call.
However, UPS, who also reported third-quarter earnings this week, viewed the market constraints differently. ¡°When you have tight capacity, it also means that prices tighten,¡± CEO Carol Tome said on the company¡¯s earnings call Oct. 28. ¡°And as prices tighten, there is a shift in certain customers who are more price-sensitive than others. Were okay with that if were losing non-nutritive sales.¡±
Amazon acknowledged on its Thursday earnings call that along with its third-party delivery partners such as UPS and USPS, capacity will likely be tight as consumers turn away from in-store purchases in favor of e-commerce. But due to what it described as ¡°a good dry run from Prime Days,¡± it believes it is prepared fo
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