Chris Middleton explains why the US government’s attacks on Amazon have revealed an uncomfortable truth for Jeff Bezos’ company: there simply aren’t enough people in the US to help it grow.
Amazon remained in the sights of the US government last night as the White House ordered the creation of a taskforce to study the finances of the US Postal Service (USPS), which has lost an estimated $65 billion since the 2008-09 recession.
“The USPS is on an unsustainable financial path and must be restructured to prevent a taxpayer-funded bailout,” according to the executive order signed by President Trump yesterday. The postal service reported a net loss of $2.7 billion last year alone.
The taskforce will examine all of the USPS’ operations and finances, including its business model, its role in competitive markets, the decline in mail volumes, and the USPS’ staffing, operations, costs, and pricing.
Last week at a press briefing, the President suggested that the USPS was losing billions of dollars because Amazon was paying too little for last-mile deliveries. Meanwhile, Wall Street analysts have estimated that Amazon pays the USPS roughly half what it would to UPS or FedEx to deliver its billions of packages.
Last year, Amazon reportedly shipped five billion packages via its Prime service alone. However, the figures may be dwarfed by China’s Alibaba group, which last year was reported to have shipping volumes that were four times larger.
However, the White House’s criticisms of Amazon are an oversimplification. USPS’ revenue breakdown reveals that shipping and packages were one of the few categories where it has made more money year on year. More, it reveals that the service began losing money shortly after the millennium.
Blaming Amazon – and ecommerce in general – for the USPS’ woes isn’t supported by the facts, although Amazon could certainly pay the postal service more per package. In the short to medium term, it may have no alternative but to do that.
Amazon has responded that White House attacks are damaging its business.
The DIY approach
Analysts have suggested that, rather than be forced to pay the USPS more for last-mile deliveries, Amazon may simply switch to making greater use of FedEx, UPS, and other courier/delivery services in order to maintain control of its own costs.
But this ignores those companies’ own fulfilment challenges: neither company has the capacity to expand fast enough and wide enough to take on the full output of Amazon’s retail business, which Amazon has long pushed through the one organisation that can deliver, the USPS.
This is why Amazon may have little short-term alternative than to bite the bullet and pay more for deliveries, which would have a serious impact on its costs.
However, the long-term likelihood is that Amazon will simply choose to deliver packages itself, in order to create an end-to-end retail, fulfilment, and delivery service – not only for itself, but also for other customers.
In February, we reported that the connected business behemoth is gearing up to launch its own delivery operation. The service, reportedly to be known as Shipping with Amazon (SWA), will pitch the company directly against the likes of UPS and FedEx within the US, by not only delivering its own parcels, but also other people’s.
SWA will be trialled in the Los Angeles area, and initially be limited to companies that sell goods though Amazon’s platform. But the goal will inevitably be global.
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- The staffing crunch
The ambitious plan will not be without its own challenges, however. The biggest of these will be staffing the service in an economy that may be nearing full employment.
While Amazon may be automating faster than any other company, it is also hiring more and more human beings to fulfil orders as its retail business expands: one estimate has claimed that Amazon may add as many as 52,000 full-time employees and 35,000 seasonal employees in Q4 this year. Meanwhile, there is already a shortage of delivery drivers in the US.
This suggests that automated deliveries and driverless vehicles are the only realistic long-term solution for a company that is expanding faster than the local US economy can support. However, driverless trucks may be appropriate for long-distance haulage within the US, but they are not a viable solution within crowded cities.
Logically, therefore, the creation of a new breed of electric, driverless, short-haul, high-capacity urban delivery vehicles is where the real opportunity lies (short of filling the skies with thousands of drones). This may be the space that Waymo is focusing on with its new partnership with Honda.
- In related news, Amazon has completed its acquisition of smart doorbell maker, Ring.
Internet of Business says
The long-term ambitions of a company that has built an automated global retail, fulfilment, and distribution platform – and a supporting network – should now be getting clearer.
Amazon can no longer be described as a retailer; it has been building an entire ecosystem – in effect, a self-contained global economy – that pitches it against the likes of Google, Alibaba (and its Cainiao logistics network), and Apple as a data-fuelled hyper-company.
Meanwhile, its AWS platform is now part of a globally interconnected business that, via its smart home hubs, tablets, and other devices, sits in the living rooms, offices, and pockets of millions of people – and behind their smart TVs too.
In short, it is becoming clear that delivery is what Amazon is really about, whether it is by cardboard box or data packet, or via drone, truck, or cable.
But Amazon faces a problem that its rivals in China simply don’t have: people. There are too few human beings in the US to help Amazon expand. To keep growing at its current rate, Amazon may have to extend its footprint even further beyond the US in search of more and more people – at least until it can automate even more of its already robot-intensive processes.
Fast forward a decade or two and the vision of a vast global hyper-company staffed largely by robots presents itself, or an operation that has broken apart into thousands of small, smart, highly automated local units. But how far along that road will Amazon get before the regulators are forced to step in?
Perhaps it would simpler to buy the US Postal Service.
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