Amazon’s Aim: “Fastest Online Shipper — Worldwide”
Not satisfied with providing guaranteed two-day shipping for many Prime members, Amazon is investing $800 million to cut the Prime delivery window to just one day.
In its Q1 2019 earnings report the company stated that it’s making one-day delivery the default for U.S. Prime members, who pay $119 a year for the service. This past March, Amazon dropped its $35 minimum for one-day deliveries and expanded the eligible geographical areas. During the earnings call, CFO Brian Olsavsky said, “We’ll be building most of this capacity through the year, in 2019. We expect to make steady progress quickly and through the year.”
At the point the announcement was made, Amazon was already capable of delivering within one day to 72% of the US population, so the move to extend one-day shipping to all U.S. Prime members is not as great a leap as it appears on the surface.
The company is experiencing slowing growth as it gets bigger, so this move can be seen as an attempt to reverse that trend.
The company believes that the move to 24-hour shipping will put it back ahead of its competitors, such as Walmart and Target, which had finally managed to match Amazon’s aggressive delivery commitments. Beyond persuading more consumers to stick with Prime, the broader aim is to increase per-customer spending. “By moving to one day [shipping], we increase the convenience and selection,” Olavsky said. “We really think it’s going to be groundbreaking for Prime customers, and we’re very excited to add this capability.”
Prime members should be aware that there is a catch in the fine print, however. “Selecting One-Day or Two-Day shipping will reduce the transit time to one or two business days after we’ve shipped your order, but it won’t impact how long it takes us to obtain the item or prepare it for shipment. The shipping method time starts when the item ships,” states Amazon’s policy (our emphasis).
This latest move is built on a four-year period of investment in the company’s delivery network. During that time, Amazon has nearly tripled its logistics infrastructure, according to RBC Capital Markets. The company also started the Delivery Service Partners program last year, which supports entrepreneurs who want to start delivery businesses to ship Amazon packages. Amazon plans to use this new service in addition to its own fleet and major carriers such as UPS, FedEx, and the USPS to do its shipping. The company will most likely also rely on the air cargo hub it built in Kentucky in 2017, which houses 40 Prime Air cargo planes and thousands of truck trailers.
The United States remains Amazon’s largest Prime market, but the company has been speeding up deliveries from the two-day standard in other countries as well. In the European Union, for example, most shipments are already one-day. The retailer has made it clear it has a serious plan to be the “fastest online shipper — worldwide.”
But the retail behemoth is now also competing with logistics behemoths. The next few years are going to be interesting.