Last month, Amazon announced it will be suspending their pilot program, Amazon Shipping, indefinitely. Starting in June, third-party sellers in the pilot program area will no longer be able to use Amazon drivers to deliver their packages directly to shoppers. This will allow the retailer to focus on their core operations, like meeting the promised 1–2 day delivery, which has been a problem since the coronavirus pandemic began.
Did the Amazon shipping test fail?
What is Amazon Shipping?
Amazon launched the Amazon Shipping pilot program in 2018 in select cities. The program leveraged Amazon’s robust shipping network to send packages from third-party businesses directly to their customers, bypassing the Amazon fulfillment centers.
The pilot program offered competitive pricing for ground delivery, no residential delivery fees, and they delivered on Saturdays and Sundays at no extra charge. Alternatively, businesses had the option of shipping their goods to Amazon fulfillment centers using FedEx, UPS, or USPS.
While Amazon Shipping, as an external service, has been discontinued, Amazon still ships 50% of their own products. In fact, they delivered 2.3 billion packages in the U.S. in 2019. In comparison, FedEx delivers 3.1 billion total packages a year, UPS 4.7 billion, and the U.S. Postal Service 6.2 billion.
Amazon has 22% of the 10.6 billion package market for business-to-consumer deliveries in the US, making them the 4th largest delivery business.
What Does This Mean for Amazon?
While others may see this as a failure for Amazon, there’s plenty of evidence that suggests this is just a bump in the road to their ultimate goal. Since the coronavirus pandemic shut most retailers down in March, Amazon has had a hard time keeping up with demand. They’ve made several temporary moves over the last few months to help them slow the volume of orders.
In an effort to keep customers from buying anything other than essential items, Amazon removed the following features from their website:
- Deals and coupons page
- “Customers also bought” widget
- Prime Pantry
Third-party businesses were also limited in the quantity and types of products (only essential items) they could ship to Amazon’s warehouses for their fulfillment service. However, most of these restrictions were temporary and have since been lifted.
Amazon has continued to invest money in warehouse labor and delivery drivers to manage the surge. They’re planning to hire 175,000 employees (as much as their typical holiday surge hiring) to account for the increase in orders. The removal of these restrictions also signals that Amazon weathered the storm successfully, and business is returning to normal.
Amazon’s Shipping Investments Signal Continued Growth
Although the pandemic has likely shifted Amazon’s strategy, they’ve made significant investments in the shipping and logistics industry for several years, going as far as severing ground delivery contracts with competitors.
Bank of America Global Research Analyst Justin Post points out that Amazon’s $10 billion in retail delivery spending in 2019 signals that Amazon is in it for the long haul.
Amazon already has 500 logistics facilities in the U.S. and 1,100 globally. These numbers continue to grow with ambitious targets for the next five years, and Amazon is still slated to build their $1.5 billion shipping hub in Kentucky.
With their current rate of investment in the shipping industry, analysts estimate that the company’s delivery capabilities will double and could be worth $100 billion to $230 billion by 2025.
“With 800+ third-party delivery service partners and 20,000 delivery vans (and an additional 100,000 vans by 2030), thousands of contractors, 40 aircraft (increasing to 70 by 2023), and 200,000 sortation robots, Amazon is approaching a truly vertically integrated logistics network on par with the largest delivery companies in the world,” said Post.
With an investment that large in delivery services as a whole, it’s likely that Amazon is pausing their Amazon Shipping program to restructure and reassess before expanding it to the wider United States.
Amazon’s Future Performance: In Shipping and Beyond
The next test for the retail behemoth will be the continued shift to e-commerce and the economic outlook. While e-retailers like Amazon are likely to drive most of the economic growth, whether they can continue to deliver goods at the speed customers expect will be a large factor in their future success.
Only time will tell if and when Amazon makes another attempt to expand their shipping services.
If you’re concerned about how the discontinued shipping program will affect your business, reach out today for a consultation appointment with a Shipping Analyst.
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