Market Overview

Amazon Offering Big Shippers Customized Ground Delivery Services At Low Rates

Amazon Offering Big Shippers Customized Ground Delivery Services At Low Rates, Inc. (NASDAQ: AMZN) is offering customized ground parcel delivery services for its select high-volume shippers at rates as low as $3 per parcel for shipments weighing up to 50 pounds and traveling significant lengths of haul, according to a person familiar with the program.

The business-to-consumer (B2C) program is by invitation-only and according to Amazon – which confirmed the program's existence – is not new. It has been rolled out in New York, Chicago and Los Angeles and may be available elsewhere, the person said. Rates will vary depending on each shipper's profile. The person, who has seen invitations from Amazon to various shippers, said the $3 per-box price has applied to shipments ranging from 1- to 3-pound parcels moving over short distances to 50-pound parcels traversing longer stage lengths. Delivery days and times will depend on each customer's shipping profile and requirements. Pickup times can vary as well, the person said.

The maximum per package weight is set at 50 pounds. One customer agreement showed that parcels tendered can cube out at no more than 24 cubic inches, the person said.

Under the service, Amazon picks up parcels Monday through Friday and delivers them seven days a week. Amazon selects the delivery provider. Customer offerings have shown a $10 per pickup charge for pickups of less than 50 parcels, the person. Amazon disputes that, stating there is no pickup charge at all.

The program is also open to merchants who sell goods on other e-commerce platforms as well as on Amazon, the person indicated. In recent months, e-commerce companies like eBay Inc. (NASDAQ: EBAY) and Shopify (NYSE: SHOP) have launched fulfillment and delivery programs to persuade their customers who use Amazon for fulfillment to use their services instead. The program could be an effort by Amazon to strike back at these providers, according to the person.

Amazon rates its sellers based on a series of metrics; a good rating is extremely valuable, while a bad rating could be detrimental to merchants wanting to do business with the e-tailer. According to one agreement, any service problems associated with the ground delivery program will not harm a seller's rating should Amazon determine that it was at fault, the person stated.

The program appears to have three objectives – one is to provide a compelling value proposition to large customers by custom-designing delivery solutions at very low rates. Second is to bring more high-volume shippers who don't use Amazon into the fold. Third is to boost the density of parcels flowing through Amazon's expanding physical distribution network. Maximizing shipment density per stop is the goal of every carrier, regardless of mode. At Amazon, it is the holy grail. The company is coping with massive volume surges, is moving more of its delivery operations in house to gain better control of the shipping process, and is transitioning to guaranteed one-day shipping for millions of items available to its members enrolled in its "Prime" program. Addressing those intertwined challenges without breaking the bank makes it vital to lower the unit shipping cost of each parcel delivered.

It also takes substantial investment. The company reported on October 24 that it spent a record $9.6 billion on global shipping in the third quarter, about $600 million more than it spent in last year's fourth quarter, its busiest period of the year. Amazon expects to invest $1.5 billion during the fourth quarter of 2019 on the continued migration from two-day to one-day shipping for Prime customers, CFO Brian Olsavsky said on an analyst call following its disclosure of third-quarter results.

According to the person, the U.S. Postal Service, which remains Amazon's largest delivery partner but which handles fewer packages than ever for Amazon, will be hurt by this program if it expands in a meaningful way. So will regional parcel providers, according to the person. FedEx Corp. (NYSE: FDX) no longer handles domestic air and ground deliveries for Amazon. UPS Inc. (NYSE: UPS), which is still a key Amazon partner with about 20% of Amazon's traffic moving over its network, has so many other customers and such formidable resources that the most it will experience from this program is a blip on the radar, the person said.

Image by josemiguels from Pixabay

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