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Amazon has a new plan to lower its shipping costs



<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "In the last few years [] Amazon (NASDAQ: AMZN) has experimented with various solutions to deliver packages the "last mile" from its fulfillment centers to customers – it has long relied on partners such as UPS (NYSE: UPS) FedEx (NYSE: FDX) and the United States Postal Service to help in the ever-growing number of packages it has to meet. "Data-reactid =" 1
1 "> In recent years, Amazon (NASDAQ: AMZN) has experimented with various solutions to deliver the" last mile "of its fulfillment centers to customers. It has long been based on partners such as UPS (19459005), FedEx (NYSE: FDX) and the United States Postal Service to help around the world. the increasing number of packages it has to meet.

More recently, it has begun to enable independent contractors to use their own vehicles to deliver packages for Amazon, and is experimenting with a third-party delivery service on its Marketplace platform. The latter allows larger traders to ship directly from their own warehouses and consolidates the costs associated with selling on Amazon.

The latest move from Amazon is Delivery Service Partners. The program makes it easier for entrepreneurs to set up their own logistics companies by leveraging the integrated demand from Amazon customers. Do not worry about finding customers – Amazon says it has enough demand to support hundreds of small logistics companies.

Amazon will help create prospects with vans, uniforms and equipment from Amazon, as well as everything they need to get their business off the ground, including insurance. Delivery service partners agree to prioritize Amazon packages, and those using Amazon devices can only work with Amazon.

The move brings Amazon one step closer to independence in delivering packages.

A man in a van with the Amazon logo shows a woman something on a smartphone

Source: Amazon

<h2 class = "Canvas Atom Canvas Text Mb (1.0em) Mb 0) – sm Mt (0.8em) – sm "type =" text "content =" Shipping & Handling "data-reactid =" 28 ">

Amazon 's shipping rates are in the Increased in recent years More and more customers are joining Amazon Prime. Shipping costs from online sales, third-party services and subscriptions (primarily Prime) as a percentage of sales have increased dramatically over the past two years.

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Data source: Amazon quarterly reports. Chart by author. "Data-reactid =" 32 ">
Data Source: Amazon Quarterly Reports. Chart by Author

In the first quarter of 2016, Amazon spent $ 0.126 on every dollar spent on its online retail stores. In the last quarter, this number climbed to $ 0.154 per dollar.

The shipping costs have increased disproportionately in recent years for several reasons. As mentioned earlier, Amazon Prime is becoming increasingly popular. This means that more customer orders will require expedited shipping, which can be expensive.

In addition, the growth of Fulfillment by Amazon, a service that Amazon dealers provide to merchants and dealers, has become increasingly popular in recent years as well. This is higher revenue for third-party merchant services, but may incur additional shipping costs to manage inventory in dozens of department stores in the US.

Perhaps the most important factor in Amazon shipping costs is the delivery of Amazon fulfillment centers to customers. Houses. UPS and USPS usually handle these shipments for Amazon, and Amazon books billions of dollars in revenue for these companies. Amazon says it's not trying to replace those partnerships, but it's still developing new mailing programs for itself and its third party vendors.

<h2 class = "canvas-atom canvas-text Mb (1.0em) Mb (0) –sm Mt (0.8em) – sm" type = "text" content = " The future of Amazon "data-reactid =" 37 "> The Future of Amazon

Amazon Creating a dedicated mail service is a smart move given the current political environment. President Trump has challenged the viability of the USPS contract with Amazon and could lead to a significant rate hike, which will be reviewed this year. Such a hike would be devastating for Amazon, as analysts estimate it uses the USPS for about 40% of its shipping needs.

Amazon still has the option to use UPS or FedEx, should a USPS rate apply to walking going into effect, but hundreds of partnerships with small businesses where Amazon is setting the installments it ready to pay is a much more effective hedge. More importantly, as Amazon expands its network of fulfillment centers across the country, expands its fleet of freighters and vans, and brings more delivery service partners, it could begin using UPS and FedEx for business outside its own retail stores to compete effectively. Not only could the new program be a way for Amazon to cut costs, which would rise faster than sales, it could also be a way to eventually top off.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = " More About The Motley Fool "data-reactid =" 45 "> More from the Motley Fool

<p class =" canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm "type =" text "content =" John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of the board of directors of The Motley Fool, Adam Levy owns shares in Amazon, and shares in Motley Fool by and recommends Amazon The Motley Fool John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors Adam Levy owns shares in Amazon, and Motley Fool owns shares in and recommends Amazon The Motley Fool recommends FedEx The Theory Fool has a disclosure policy.


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