By Paul Martyn / www.forbes.com / June 23rd, 2015
It was less than a month ago when Amazon
made its “free shipping” announcement. In short, the resulting chatter from the analyst community suggested that there was no way Amazon could make this work, without requiring a minimum order. I was more bullish on the move. Not only do I see it as a logical way for Amazon to build order values, but also, I pointed out how the move would surely put Amazon’s already vaunted customer analytics and recommendation engine into a new orbit.
So Amazon’s latest announcement to beta test same day delivery using services like Flywheel and Uber, while novel, can hardly be seen as coming from out of the blue. It makes sense, and I don’t think there’s any posturing going on here. That said, the naysayers are already putting their spin on the shared experiences of drivers who have been tested:
“…A guy called me and told me what the deal was: pick up several packages and drop them off in the SJ area. When I got there they put the packages in my trunk in drop off order and handed me an optimized list of addresses. Completed the task in 2 hours and made $50. Not really worth the time or effort, turns out.”
Not so fast. Not really worth it to whom? Firstly, lets get our ducks in a row. Amazon is not just grappling with a simple cost issue. It’s hedging against a growing capacity issue that free shipping –at its scale– will exacerbate. And if I’m Amazon and foreshadowing explosive shipping growth, I don’t want my carriers licking their chops. Rather, at the very least, I want them stabbing each other with the sharp ends of their negotiating pencils. Or even better, I want them figuring this out for me.
“Capacity issues are on the horizon and I urge everyone to begin making contingency plans for the day when you cannot get a truck,” said Rosalyn Wilson, senior business analyst with Declan Inc. and the primary author of the annual State of Logistics report published by the Council of Supply Chain Management Professionals (CSCMP).
“The bottom line is that by every measurement, the trucking industry is compressing,” warned Wilson. “There are less trucks, less drivers, and fewer [trucking] companies. Carriers have ‘leaned’ their fleets and will continue to do so. As a result, paying higher [trucking] rates going forward won’t be as much of a worry for shippers as not being able to find a truck to move their freight.”
Am I simply suggesting that all the talk of free delivery and now, taxi-based delivery service, is Amazon’s way of putting the major carriers on notice? Let’s put it this way: I don’t think that skyrocketing delivery costs (up 32 percent in recent years) and Amazon’s latest media blitz are coincidental. Amazon’s shipping costs, as a percent of sales, are up nearly 2% in the last 5 years and that’s not a sustainable trend.
We can count on Amazon to not lollygag this problem with its eyes wide-shut. There is a real and growing capacity issue that threatens to remove some of the shine from online commerce. Amazon is not going to allow itself to become its own worse enemy, meaning, it will not contribute to a situation that could re-invigorate brick and mortar-based cash and carry. Its experiments with new modes of shipping –to increase capacity—is a high stakes necessity.
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