In a nutshell: In the past year alone, Amazon’s American delivery capacity has more than doubled. They’ve gone from fulfilling 20% of their orders to about 50%, despite an uptick in sales and the introduction of one-day Prime shipping – FedEx and UPS better watch out.
CNBC reports that Morgan Stanley analysts are predicting a 68% compound annual growth for deliveries between 2018 and 2022, bringing them up from 2.5 billion packages delivered this year to 6.5 billion in 2022. Compare that with current market leaders UPS and FedEx, who are only expected to go from 4.7 billion to 5.0 billion and 3.0 billion to 3.4 billion, respectively, and things are certainly looking good for the retail giant.
Amazon’s capacity looks even wilder when you consider their fleet is about one-fifth the size of their competitors’. Thus far their efficiency has been a product of intense focus on dense regions, which require fewer miles per delivery. Amazon’s deliveries breakdown with 61% sent to suburban areas, 28% to urban areas, and only 11% delivered to rural areas. UPS and FedEx both ship about 20% of their packages to rural areas.
In the future, however, Amazon is planning on integrating new technologies and systems to deliver packages even faster. Amazon Air, its fleet of cargo aircraft, will operate at least 70 planes by 2021. Amazon’s drone army, meanwhile, entered service in December 2016 and has been slowly expanding around a series of ever-stranger patents. Amazon Flex, likened to an Uber-for-deliveries, on the other hand, has been less successful.
Amazon’s rapid delivery growth hasn’t come cheap. In October, they said that in a three-month span from June to September (the introduction of one-day shipping) they spent $9.6 billion on order fulfillment, 50% more than they had in the previous three months. That includes both their own deliveries and those they hired UPS and FedEx for.
However, they’re confident their investment has been worth it. “Customers love the transition of Prime from two days to one day — they’ve already ordered billions of items with free one-day delivery this year. It’s a big investment, and it’s the right long-term decision for customers,” CEO Jeff Bezos said at a recent earnings call.