Amazon’s operating profits soared to $1.1bn in the first quarter of 2016, compared to $255m in the first quarter of 2015, while it reported a net profit of $513m compared with a net loss of $57m one year ago. Worldwide revenues increased by 28% to $29.1bn in Q1 2016, with North America revenues up 27% to $17bn and International revenues 24% higher at $9.6bn.
However, Amazon’s worldwide fulfilment costs also soared by 34% to €3.69bn during the quarter. As a result, the e-Commerce company decided to speed up its developments of delivery capabilities. Although originally Amazon said it was not planning to replace delivery partners but merely supplement the capacity provided by them during peak periods for shipments, it seems likely that Amazon Logistics want a bigger piece of the delivery pie.
In Europe, Amazon Logistics is planning to set up a Germany-wide network of local delivery centres and create its own operation for services such as same-day deliveries in major cities. This is similar to what the company already offers in the UK and could be rolled out in other major European markets if it proves successful. Despite these developments, in March 2016, Deutsche Post DHL’s CEO Frank Appel said they did not consider Amazon a direct threat in the delivery business.
In the US, Amazon Logistics is currently operating in 12 urban locations and has plans to expand the program to more cities in the future. Through its website, Amazon Logistics is currently looking for delivery partners who can provide delivery vehicles, driver and safety training programs, and insurance coverage. There is flexibility in choosing when the couriers want to deliver. The hours vary by location but Amazon operates seven days a week, almost every day of the year. Delivery opportunities occur throughout the day, including both early in the morning and late in the evening.
In the UK, Amazon Logistics is currently operating in 7 urban locations. It is difficult to say what percentage of Amazon orders is delivered by Amazon, however one article suggests that it may be up to 70% with some sellers.
Amazon Logistics currently operates in the following locations.
- United Kingdom: Birmingham, Bristol, Cardiff, Leeds, London, Manchester, and Nottingham
- United States: Los Angeles, San Diego, San Francisco, San Jose, Oakland, Seattle, Chicago, Dallas, Austin, Phoenix, Philadelphia, and New York metro areas
- Japan: Tokyo, Osaka City
- Germany: Munich area
- Italy: Milan
TWO-HOUR DELIVERY SERVICE IN GERMANY
Amazon has started its express delivery service “Prime Now” in Berlin, Germany, offering Prime members delivery of Amazon products within one or two hours after ordering.
The service is currently available only for Prime members in Berlin but will be extended to other areas in the future. Via the Prime Now service, Berlin-based Prime members who pay €49 per year can choose from thousands of different Amazon products, including packaged fresh and frozen foods, beverages, electronics, books and clothes.
Prime members can choose a two-hour delivery time slot between 8 am and midnight and get their goods for free or pay €6.99 to get them delivered within an hour. The service is available from Monday to Saturday and the minimal order value is €20.
To use the super-fast delivery service, customers need to download the Prime Now app available for Android and iOS devices free of charge. They can check if the service is available for their delivery address, choose from thousands of products in the Prime Now range and then track the delivery process in real time. Should the customer not be at home at the moment of delivery, he/she can choose an alternative delivery address via the app.
In addition to delivery vans, Amazon’s distribution partners in Berlin also deploy electrically driven cargo bikes for deliveries to end-customers. For packaging, either paper bags or isolated plastic bags for cooled and frozen products are used. After the delivery has been made, the driver takes back the bags so they can be used again. Many large and heavy items such as beverages are delivered to the customer without additional packaging.
BUILDING A US FREIGHTER FLEET
In the US, Amazon is investing in a dedicated fleet of 40 freighters flying the goods ordered online across the country to speed up deliveries. Within the next two years, the e-Commerce company will have 20 freighters operated by cargo airline Atlas Air along with 20 operated by US cargo carrier ATSG, giving it substantial in-house air capacity and further potential to switch volumes away from other air cargo operators.
ATSG, the DHL Express partner for domestic US flights, is already operating five freighter for Amazon under five-year leases and will gradually expand these operations so that all 20 planes are in operation by 2017.
In May 2016, Atlas Air parent company Atlas Air Worldwide Holdings (AAWH) announced long-term commercial agreements with Amazon, including the operation of 20 converted freighters for Amazon on a CMI (crew, maintenance and insurance) basis by Atlas Air, as well as dry leasing by its Titan Aviation leasing unit. The dry leases will have a term of 10 years, while the CMI operations will be for seven years (with extension provisions for a total term of 10 years). Operations under the agreements are expected to begin in the second half of 2016 and transition to full service through 2018. This means that both ATSG and Atlas will be flying for Amazon ready for the 2016 peak season, including the Black Friday/Cyber Monday period and the Christmas season.