It often seems that Amazon’s obsession is with shipping and fulfilment. Whether it’s the development of a $1.5bn shipping hub in Kentucky, an airport in Germany as a European centre, the leasing of dozens of planes, developing drones or taking on a fleet of ships to take goods from China to the USA, there seems to be constant developments on the fulfilment aspect of Amazon’s business.
And it’s easy to understand why Amazon is so focussed on this aspect of its operations: it represents a huge and growing expense. By taking as much as possible in house, and applying Amazon’s rigour to efficiency and effectiveness, and relying less on third parties, they hope to cut the bill and increase profits.
So how much are they spending? If you take a close look at their 2016 results, over the course of the year, the company spent $7.2bn dollars on shipping items. A great deal of that was guaranteeing free 2-day shipping for Prime customers and others. That number is up 40% on 2015 when the equivalent spend was $5bn. Trimming expenditure on shipping will have a powerful impact on Amazon’s profitability. After all, in 2016 it posted $2.4 billion in profit up from $596 million in 2015. Shipping costs Amazon three times its overall profits.
It’s hardly surprising that increasingly Amazon is focussed on shipping and delivery because savings can go straight to the bottom line and dramatically improve the company prospects. And the challenge becomes ever more keen as more and more Amazon items are eligible for free 2 day shipping. Amazon CEO Jeff Bezos says that 50 million items sold on Amazon’s eligible. That’s an increase of 73% year on year.