It’s hard to overstate the impact of Amazon Prime. After 13 years, about one in four Americans now has a Prime membership. And most importantly for shippers, Prime normalized free two-day shipping.
Nearly one in five Americans are now unwilling to wait any longer than two days for their packages. And the average American ordered 15 parcels online (though not necessarily through Prime) in 2016.
Retailers have been racing to keep up with Amazon for years. Some argue that Amazon, backed by shareholders and ample capital, has an unfair expedited shipping advantage. But every company still has to meet the consumer expectations that Amazon has radically changed — while minding their bottom line.
Understanding how Amazon has Changed Standard Shipping
Retail consultant Steven Dennis, writing in Forbes, described “the Amazon effect” — when the company moves into a retail sector and quickly comes to dominate it. Books came first, then e-commerce at large. The company captured about 43 percent of the online retail market in 2016 and was responsible for more than half of all growth in online shopping, suggesting its market share will continue to expand.
Logistics may be next. One analysis Dennis cited suggested that Amazon lost $7.2 billion on shipping costs in 2016, meaning the sprawling company uses profits from other sectors to subsidize their free two-day shipping.
He writes, “While this is clearly great for consumers, it puts many retailers in the untenable position of choosing between ceding market share to Amazon or lowering their prices to uneconomic and unsustainable levels.”
At Reveel, we’ve been watching Amazon’s strategic moves into the shipping space closely.
Online, Amazon offers a wide range of products and a personalized shopping experience to customers, allowing them to buy everything they need in a way that still feels custom. The company’s moves in shipping reflect the same values — for end-of-line customers, at least.
In some cities, Amazon is rolling out parcel lockers where delivery drivers can leave packages and customers can pick them up, increasing efficiency for drivers and convenience for customers. They’re piloting instant drone delivery in the United Kingdom, which could have orders on buyers’ doorsteps within 30 minutes.
Since 2006, Amazon has offered Fulfillment by Amazon, which ships products through its fulfillment centers for third-party sellers. In recent years, the company developed Seller Flex, which allows those sellers to have items picked up and delivered directly to customers without passing through company warehouses. The program is expected to expand nationwide this year.
Amazon says the Seller Flex expansion will be good for retailers, making more of their items eligible for Prime, and that it will continue to rely on UPS, FedEx, and USPS. But industry experts note that an Amazon-owned delivery service may not be far off.
How Can Retailers Stay Competitive?
First, there’s Amazon’s proposal to retailers: Sell on our platform, and we’ll handle shipping for you. This decision is a complicated one. Companies must ask themselves whether they are willing to give up some brand control and profits for a potentially larger market and easy logistics management.
No retailer ships the volume Amazon does, so they have less negotiating power with FedEx and UPS. That means smaller companies get saddled with surcharges for residential and holiday delivery, while Amazon can negotiate reductions.
A 2017 Forbes Insights report sponsored by transportation consulting firm Pitney Bowes makes a few suggestions to help retailers increase efficiencies while keeping up with demand for two-day shipping:
- 85 percent of shipping systems rely on a single carrier. Most use the proprietary tracking software of FedEx and UPS, which makes switching carriers or understanding the benefit of using multiple carriers much harder. Independent automated monitoring could help small and mid-sized companies save money.
- Integrating the U.S. Postal Service for long-distance deliveries is an easy first step toward a multi-carrier strategy.
- Since so much customer activity happens during the holidays, it’s almost impossible to avoid some holiday surcharges. Companies should take steps to reduce holiday spending, or pass some of these costs on to customers.
We agree that automation is an important part of a lower-cost shipping strategy. Companies that can automate data collection and invoice review reduce their own workload while gathering vast quantities of information about their shipping habits — which can reveal inefficiencies that corporate leaders may not have noticed otherwise.
For example, broadening data collection and analysis efforts may reveal clusters of customers in specific areas. In that case, ship-from-store programs could reduce shipping costs while maintaining two-day service.
Or, you may find that multiple carriers could better meet your company’s varying needs. For example, regional carriers may offer better rates for nearby customers and make more trips to those areas. Implementing a multi-carrier strategy requires careful analysis and forecasting, but with the help of a trusted partner, it’s worth considering.
Reveel helps clients all over the country navigate the changing shipping space, and cut costs by as much as 20 percent. Contact us today to see how our consultants can help you analyze data, understand your shipping spend and innovate — the way Amazon does.