For the last several years, Amazon has been making slight inroads into the shipping industry. There’s Seller Flex, the fulfillment program for third-party sellers. The company had rolled out lockers for package storage and piloted drone delivery. In the spring, Amazon’s plans for a shipping service for its sellers were widely reported — and shippers started talking about switching.

In June, the e-commerce giant announced its next innovation: Hub by Amazon.

Hubs themselves are locker systems with varying sizes for different packages. The service is generally for apartment dwellers, especially in the metropolitan area, and the lockers are located in the lobbies, and at least for now. When a resident has a package delivered, the courier can simply leave it in the Hub and the customer gets an email or text with a code that allows them to open the locker and retrieve the package.

Initially, it sounds a lot like the Amazon Locker. But any carrier can drop any package in a Hub, including FedEx and UPS, whether or not that package was purchased on Amazon.com. The company says half a million people are already receiving packages this way.

“We’re always striving to make things easier for our customers. Building on Amazon’s expertise in locker solutions, the Hub addresses frustrations from property owners, carriers and residents concerning package delivery,” said Patrick Supanc, director of Amazon Worldwide Lockers and Pickup, in the company’s June 19 announcement.

“Now half a million residents in some of the premier properties in the country have access to the Hub, Amazon’s latest delivery solution. The Hub simplifies delivery for residents, offering quick and secure access to packages, day or night. For delivery providers, it offers a single, convenient location for package drop-off and gives property managers time and resources back to focus on other priorities.”

Resource: The Future of Parcel Delivery (On-Demand Webinar)

What is Hub by Amazon?

Hub is a service that allows all carriers — UPS, FedEx, the U.S. Postal Service and any other carrier — to leave packages in secure lockers for customers to pick up later.

How does it work? Let’s say you live in an apartment with a Hub in the lobby. When you order a package online, from any source, you’ll receive the usual series of tracking notifications from the carrier.

But instead of waiting for a knock on your door or a notification from your building’s reception office that the package has arrived, Amazon will send you a text or email that contains a six-digit code. Next time you’re in the lobby, you enter that code in the Hub, a locker pops open and you can pick up your package. Users do not have to be Amazon Prime members.

Amazon is right to say that a secure drop and collection point solves a number of last-mile delivery problems. It allows carriers to deliver much more efficiently, since they don’t have to travel to each door or try to deliver packages multiple times. End-line customers don’t have to arrange their schedules to meet couriers or stop by their reception desk at a certain time.

To bring Hubs to market, Amazon has allied with large apartment management groups. Managers can offer a Hub as a perk for their residents — no need to stop by reception between 9 a.m. and 5 p.m. to collect your package! — while reducing their own workloads by lessening courier traffic and cutting package management duties.

This pitch has proved so attractive that J.P. Morgan is funding Amazon Hub’s expansion to 85 apartment buildings with more than 23,000 units. The company claims that Hubs have already served more than 500,000 people.

What does this mean for the shipping industry?

Although any carrier can use Hub by Amazon — and the service may even reduce inefficiencies and increase customer satisfaction for those carriers — this certainly represents another step in Amazon’s move to control its own logistics.

First, the Hub program will give Amazon last-mile control over its own shipments. Instead of outsourcing delivery to FedEx, UPS and others, Amazon will now have more power over this critical customer interaction.

Second, industry-watchers expect most if not all carriers to take advantage of Hubs. That will give Amazon a new kind of insight into its competitors and to their customers. What volume are residents ordering? How much are other carriers shipping? It’s not immediately clear how Amazon might use that data, but the more data the company has, the more power it has.

Additionally, Amazon recently announced a new package-delivery program that can help with the fast growth of U.S. retail. Amazon works with small- and mid-sized delivery companies, but needs more help. The program will offer new partnering delivery companies access to several discounts. These discounts include fuel rates and even vehicle insurance. The companies will also receive coaching from Amazon and an app to guide delivery people on which Amazon orders need to be dropped off and at what time. The launch includes Amazon-branded delivery vans that are available to lease and Amazon-branded uniforms for the drivers.

A few months ago, FedEx produced what a local TV station called a “cheeky video” in response to Amazon’s moves in shipping. A competitor? Not exactly — FedEx told Amazon it should “get a 40-year head start,” alluding to FedEx’s tenure in the industry. The new delivery program points at Amazon’s challenge of keeping up with capacity of its growing business without having to burden the costs of an in-house delivery team. 

But Amazon Hub has the feel of an important innovation in shipping. It’s an elegant solution to persistent problems. Plus, Amazon got there first — so they will get to charge FedEx, UPS and others for Hub use.

The company hasn’t released its pricing plans, but reportedly, Amazon plans to undercut competitors by charging its own businesses less than its competitors. That could make shipping with Amazon comparatively cheaper than competing services.

FedEx and UPS will have to adjust their prices to account for Hub use. But the efficiency afforded by Hub may also help them save.

Hubs aren’t likely to have an immediate impact on shipping-based companies, except for the greater convenience they offer to some customers. But executives should watch their contracts closely for sudden Hub-related changes — and keep an eye on the news for Amazon’s next moves.

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