This story requires our BI Prime membership. To read the full article,
simply click here to claim your deal and get access to all exclusive Business Insider PRIME content.
- Amazon quietly became a logistics giant in the 2010s.
- And its network of planes, trains, ships, vans, and trucks aren’t just for moving your Prime packages.
- Increasingly, industry watchers say Amazon’s burgeoning logistics network will soon compete with FedEx and UPS.
- Leadership of FedEx and UPS, the two package delivery mainstays, had long rejected that Amazon is a threat. Now, they’re admitting that Amazon is indeed a competitor.
- Here’s a decade look back at how Amazon became a transportation giant this year.
- Click here for more BI Prime stories.
Amazon has fueled the world’s demand for free, fast shipping. But free shipping has ended up being pretty expensive for Amazon itself.
Amazon’s worldwide shipping costs grew fifteenfold from 2009 to 2018. Meanwhile, net sales have increased sevenfold.
That’s motivated the tech-retail-media-advertising-and-so-on giant to add another industry it’s vying to disrupt: logistics.
“Amazon has built a global end-to-end logistics network that comprises of their own internal last-mile network, their own trucks, their own trains, their own planes, their own truck brokerage, and their own air and ocean freight forwarding,” Morgan Stanley analyst Ravi Shanker told Business Insider in 2019.
Amazon leadership has told investors that its interest in logistics is to slash those costs and give customers a better experience. But industry watchers say Amazon’s goals lie elsewhere — in disrupting UPS and FedEx.
Amazon did not provide a comment for this article.
There’s serious money in moving packages. UPS grossed nearly $72 billion in 2018, while FedEx brought in more than $65 billion in revenue. And that doesn’t even total in the hundreds of billions that the trucking, rail, ocean freight, and air cargo industries are worth.
Meanwhile, the leaders in logistics are increasingly seeing the company as a competitor, not just a customer.
“UPS continues to provide innovative solutions to all of our customers to help them grow and succeed,” a UPS spokesperson told Business Insider. “Amazon is a good customer with whom we maintain a mutually beneficial relationship.
“There is more to e-commerce than Amazon,” he added. “UPS is creating innovative products and partnering with other companies to offer a suite of solutions to serve small, medium and large e-tailers around the world. Our customer base is diverse and we provide services to many of these customers across our entire portfolio.”
Meanwhile, FedEx severed its Amazon business in its US air and ground network this year — signalling an interest in capturing all non-Amazon e-ecommerce.
“FedEx is focused on serving the addressable $550 billion global transportation and logistics market,” a FedEx spokesperson told Business Insider. “Within that market, there is significant demand and opportunity for growth in e-commerce, which is expected to grow from 50 million to 100 million packages a day in the US by 2026.
“FedEx has already built out the network and capacity to serve thousands of retailers in the e-commerce space,” he added. “We are partnering with major retailers to support their growth through our best-in-class portfolio of innovative solutions, such as FedEx Extra Hours, the launch of seven-day deliveries via FedEx Ground and our FedEx retail convenience network.”
Amazon’s growth into a logistics company didn’t happen overnight, so Business Insider created a timeline tracking how and why Amazon has moved into the transportation industries. Here’s what happened:
March 2012: Amazon acquires robot maker Kiva Systems for $775 million
Before Amazon built its own network of planes, trains, and trucks, it began creating a fulfillment center network. The first Amazon fulfillment center opened in 1999.
By 2012, it had 40 fulfillment centers nationwide. And, as more and more customers demanded Amazon Prime’s speedy shipment, transportation costs were starting to track upward.
That’s the year Amazon started taking seriously the need to slash its transportation costs — a theme that pervaded the 2010s as its fulfillment costs began to boom.
For that purpose, Amazon acquired Kiva Systems for $775 million. Kiva’s autonomous warehouse technology would help associates “pick, pack, and stow” Amazon goods.
“Amazon has not had great margins,” Jason Helfstein, an analyst at Oppenheimer & Company, told The New York Times when the deal was announced. “One has to believe they looked at this and thought, ‘Why not just own it and take all the technology in house?'”
December 2013: Amazon customers don’t get their orders by Christmas, and it becomes clear that the US Postal Service, FedEx, and UPS won’t be able to deliver all of Amazon’s packages.
Amazon’s third-party delivery partners, namely UPS and FedEx, failed to deliver packages on time for Christmas Day.
Amazon had to issue $20 gift cards and apologies to customers.
Industry watchers took the holiday failure as a sign that Amazon would likely invest in its own internal logistics network.
April 2014: Amazon begins delivering groceries through its own courier service
The Wall Street Journal revealed that, months after Amazon’s Christmas fiasco, the e-commerce giant was experimenting with last-mile deliveries.
A fleet of green AmazonFresh trucks was spotted in San Francisco, with reports that Amazon would build out its same-day grocery delivery business in New York and Seattle next.
However, the service was spotty in early days. Consumers told The Journal in 2014 that their “Amazon Logistics”-shipped orders were late.
September 2015: Amazon launches Amazon Flex
Seen as a shot to Postmates, Amazon launches Amazon Flex to power its one-hour Prime Now offering. Prime Now was announced in December 2014.
Workers can earn $18 to $25 an hour through Amazon Flex and must use their own vehicles.
November 2015: Amazon partners with ATSG to launch Amazon Prime Air
A Motherboard investigation revealed that a client later confirmed to be Amazon was contracting four planes with Air Transport Services Group out of Wilmington, Ohio.
“It is the perfect setup,” Brandon Fried, executive director at the air freight forwarding advocacy group Airforwarders Association, told Motherboard at the time. “It’s ready to go, it’s turnkey: They have warehousing, and they have a very sophisticated landing system in place, so it wouldn’t be outlandish for them to bring the cargo in using a fleet of planes.”
December 2015: Amazon acquires thousands of branded trailers for big rigs
Amazon acquired “thousands” of truck trailers, according to a story from Recode. This would move Amazon goods between fulfillment centers, as well as from fulfillment center to sort centers (where the company sorts parcels by zip code to then be delivered by USPS).
The company emphasized to Recode it would still rely on other trucking partners to carry goods, but that this move would give it “additional capacity.”
March 2016: Amazon leases 20 Boeing 767 cargo jets from ATSG
Amazon expanded on its trial run with ATSG to lease 20 planes from the Ohio-based airline. That makes it the only American retailer with its own dedicated air cargo service.
Amazon also can expand its deal to up to 80 planes and can acquire $600 million of ATSG’s shares — just under a fifth of the company. The cargo operation is based 50 miles northeast of Cincinnati, in the spot of a former DHL hub.
On a January 28, 2016, earnings call, Amazon CFO Brian Olsavsky said:
In order to properly serve our customers at peak, we’ve needed to add more of our own logistics to supplement our existing partners … Those carriers are just no longer able to handle all of our capacity that we need at peak. They have been and continue to be great partners.t’s just we’ve had to add some resources on our own.”
May 2016: Amazon leases another 20 Boeing 767 planes and adds a new cargo partner — Atlas Air Worldwide
Six months after the world learned Amazon was piloting an air cargo service, the megaretailer signed on a new partner — and 20 more planes. That brought its total fleet to 40 cargo carriers.
Atlas Air Worldwide, a Purchase, New York-based company, said Amazon would also have the right to acquire up to 30% of the air cargo company.
“We are excited to welcome a great provider, Atlas Air, to support package delivery to the rapidly growing number of Prime members who love ultra-fast delivery, great prices and vast selection from Amazon,” said Dave Clark, Amazon’s senior vice president of worldwide operations, at the time.
March 2016: FedEx CEO Fred Smith calls the idea that Amazon threatens his company ‘fantastical’ for the first time
As Amazon’s logistics moves burgeoned, investors started to pressure UPS and FedEx on what they were doing to prevent the loss of a massive customer. Moreover, they started to wonder what the package giants would do if Amazon started to seriously disrupt package handling.
For the first time (and certainly not the last), FedEx founder and CEO Fred Smith rebuked that idea on a quarterly earnings call on March 16, 2016, calling the idea “fantastical.” He added that reporters and analysts who believe Amazon could disrupt FedEx and its peers are “devoid of in-depth knowledge of logistic systems and the markets which FedEx serves.”
Read more: Goldman Sachs says Amazon’s logistics network is hardly a threat to FedEx or UPS. It needs years of new construction and a whopping $122 billion just to catch up.
“While recent stories and reports of a new entity competing with the three major carriers in the United States grabs headlines, the reality is it would be a daunting task requiring tens of billions of dollars in capital and years to build sufficient scale and density to replicate existing networks like FedEx,” Mike Glenn, president of FedEx Services, added during the call.
Later that year, UPS CEO David Abney echoed Smith’s sentiment.
“We don’t believe that Amazon’s strategy is to do it themselves and the reason we believe that is we have this huge infrastructure, we’re investing in technology, we have a great mutual relationship with them,” Abney said in a CNBC interview in December 2016.
January 2017: Amazon acquires ocean freight forwarding license, and begins building a $1.5B air hub in Cincinnati/Northern Kentucky
Amazon kicked off 2017 with two big pieces of news.
One, the burgeoning transportation company had opened its own ocean freight forwarder — meaning it books space for containers on ocean vessels and on the trucks that move imports from port to warehouse.
From October 2016 to January 2017, Amazon moved 150 containers of goods from China, according to a report in The Wall Street Journal.
“This is just another cog in the supply chain that they’re putting under their control, as well as creating new revenue streams,” John Haber, chief executive of supply chain consultancy Spend Management Experts, told the Journal at the time.
Two, it announced plans to open a $1.5 billion air hub at the Cincinnati/Northern Kentucky International Airport. That’s the airport where Amazon began piloting Amazon Air just two years ago.
November 2017: Amazon launches an app that could help automate the process in which truck drivers are connected to loads
As truck brokerage startups like Uber Freight and Convoy began building up, Amazon made its first foray into the world of tech in trucking.
Amazon Relay, the new app, would allow truck drivers to check in to fulfillment centers with a QR code, CNBC reported. That eased one aspect of the paper-heavy truck delivery process — and hints that Amazon would make additional moves into the world of trucking technology.
February 2018: Amazon launches ‘Shipping with Amazon,’ which undercuts FedEx’s and UPS’ rates
Amazon’s intentions to edge out UPS and FedEx were becoming clearer than ever.
The Wall Street Journal reported that Amazon launched a service called “Shipping with Amazon.” Through that feature, Amazon would pick up packages from its third-party merchants and ship them to customers.
The service piloted in Los Angeles. And while it was aimed at Amazon’s third-party sellers, sources told The Journal that the company would someday carry non-Amazon parcels too.
By November, sellers started to confirm that Shipping with Amazon was undercutting UPS and FedEx rates. One LA-based seller told CNBC that the homegrown service was 50% cheaper than UPS and 30% cheaper than FedEx.
June 2018: Amazon launches Delivery Service Partners (DSPs) program
Amazon made waves when it said it would offer Americans $10,000 to open a delivery business.
That announcement kicked off a new program called Delivery Service Partners to move goods in the last mile. DSPs are small businesses that Amazon are able to indirectly control and quickly scale up and down — but they don’t have the same complications as hiring and managing delivery drivers directly.
“This program signals that Amazon would like to ramp up its last-mile logistics operation more quickly,” Colin Sebastian, an analyst at Baird, told CNN.
September 2018: Amazon announces it will acquire 20,000 last-mile vans
After announcing its DSP program, Amazon ordered some 5,000 Mercedes-Benz Sprinter vans.
Then, because there was so much public interest in the DSP program. the company acquired another 15,000.
“We’ve been really blown away by the number of people who approached us,” Dave Clark, Amazon senior vice president of worldwide operations, told CNNMoney. “We expected a lot of interest but the sheer volume — the tens of thousands of people who actually went all the way through the process to make themselves eligible for the program — has been really humbling.”
December 2018: Amazon adds 10 more planes, bringing the total to 50
Amazon announced days before Christmas that it would add another 10 cargo jets to its air cargo network.
It was the latest announcement from Amazon that signals just how keen the e-commerce juggernaut is on expanding its own air shipping capabilities, rather than relying on UPS, FedEx, USPS, and the like.
The previous week, Amazon announced it will expand its 72,000-square-foot cargo facility at Chicago Rockford International Airport to 200,000 square feet. It also announced that last week it would build a new regional hub at Fort Worth Alliance Airport, and a new sorting facility in Ohio’s Wilmington Air Park.
February 2019: Amazon declares itself a transportation company
In January 2019, UPS CEO David Abney told Business Insider that he “monitors” Amazon as a competitor. It was the first time the CEO said Amazon was a competitor, not just a good customer.
Read more: UPS CEO David Abney has finally admitted that he sees Amazon as a competitor
A week later, Amazon confirmed Abney’s strategy. The company added, for the first time, a line in its annual financial filing that it was a “transportation and logistics services” company.
At the time, Amazon had just expanded Amazon Shipping (previously “Shipping with Amazon”) to the New York area. The service, already in Los Angeles and London, nixed fuel surcharges and other fees that FedEx and UPS place on its goods.
June 2019: Amazon adds another 15 planes
Amazon said it would have 70 planes by 2021.
“These new aircraft create additional capacity for Amazon Air, building on the investment in our Prime Free One-Day program,” Dave Clark, Senior Vice President of Worldwide Operations at Amazon, said in a press release.
July 2019: Amazon adds another 2,000 delivery vans
Business Insider reported that the e-commerce giant bought 2,000 vans from Michigan-based specialty vehicle company Spartan.
These “step vans” are larger than its Mercedes-Benz Sprinter vans and can hold more cargo.
“It would logical for them to be providing step vans,” Satish Jindel, the president and principal consultant at SJ Consulting Group, told Business Insider. “As they are rapidly absorbing more and more packages that they ship, they know the cube of the Mercedes van will be a limitation.”
September 2019: Amazon announces it will acquire 100,000 delivery vans from Rivian
Amazon ordered 100,000 electric delivery vans from the electric-vehicle startup Rivian, which it also invested in. The first vans will be ready by 2021.
Last-mile vehicles are an easy way for Amazon to green its supply chain, and it provides a way for Amazon to avoid excessive repairs.
October 2019: Amazon rolls out branded tractors
Business Insider reported that Amazon was matching its branded trailers with branded tractors. Volvo and Kenworth manufactured the tractors.
The tractors are what are known as “day cabs,” rather than “sleeper cabs,” indicating that the drivers in the trucks won’t sleep there. So, the trucks will be used for distances 400 miles or shorter, SJ Consulting Group’s principal consultant Satish Jindel said.
“They’ve already got branded airplanes. They’ve got a last-mile delivery network that’s growing; they’ve got branded trailers — one of the only things left is tractors,” Cathy Morrow Roberson, the founder of the consulting firm Logistics Trends & Insights, told Business Insider. “This is just another piece of the puzzle.”
December 2019: Amazon says it will deliver 3.5 billion packages in 2019
Amazon ended its wild decade becoming a logistics company with an important milestone: it would deliver 3.5 billion packages in 2019.
It signified that Amazon was now its biggest deliverer — not UPS, US Postal Service, or FedEx.
And that was, perhaps, what Amazon was striving for all along.
“The fact is that Amazon has always been a logistics and supply-chain company,” Michael Zakkour, the vice president of global digital commerce and new retail at Tompkins International, previously told Business Insider. “The greatest trick that Jeff Bezos ever pulled is allowing people to believe that he wants to create the everything store. Bezos has concentrated his investments around logistics and technology.”