Amazon is putting wheels on the ground in a bid to expand its third-party-based distribution network as shipping costs rise. The company Wednesday said it would buy up to 20,000 Amazon-branded delivery vans from Mercedes-Benz to provide to delivery partners.
The deal with Mercedes-Benz advances Amazon’s plan to build its own third-party last mile/last touch delivery network in the United States to handle increasing package volumes. The company in June said it wants to hire “entrepreneurs” to deliver goods moving through its network.
“Amazon will take an active role in helping interested entrepreneurs start, set up, and manage their own delivery business,” the company said in June, promising to offer those business owners discounts on everything from vehicles to equipment and uniforms.
The benefit for shippers
Shippers stand to benefit from Amazon’s plans, which are based on a laser-focused customer fulfillment strategy. First, Amazon needs more capacity to get shipments to customers. Second, experts believe the growth of an Amazon-branded delivery network could help control costs.
“No matter what you hear, there is no one person or entity that can handle the amount of [volume] that is out there,” David Bozeman, vice president of Amazon Transportation Services, said at an Eno Center for Transportation symposium last autumn.
Amazon’s fulfillment costs, which include transportation, increased 60 percent year over year in the first six months of 2018, rising $5.9 billion to $15.7 billion, the company said in its second-quarter earnings report. In the second quarter, fulfillments costs rose 54 percent.
Amazon’s worldwide shipping costs rose 38 percent in the first quarter and 31 percent in the second quarter, hitting $6 billion in the last financial period. Shipping costs hit their most recent peak in the fourth quarter of last year at $7.4 billion and have been growing by double digits for years. Last year, Amazon’s global shipping costs hit $21.7 billion.
An Amazon-branded delivery option could help “rationalize” pricing in the small parcel market, said John Haber, CEO of Spend Management Experts. “There’s not enough competition in the US small parcel market,” which is dominated by UPS, FedEx, and the US Postal Service, he said.
New South Carolina Mercedes-Benz van plant
The Mercedes-Benz deal comes as the German manufacturer opens a $500 million production plant in North Charleston, South Carolina, to build its new-generation Sprinter van in the United States. The company had been assembling vans at an older facility on the site.
Amazon increased its initial order to 20,000 vans following a “tremendous” response to its call for new delivery partners, Dave Clark, Amazon senior vice president of worldwide operations, said. “New small businesses will have access to a customized fleet to power deliveries.”
The e-commerce giant included vehicle leases among the suite of assets and services it would offer those small delivery operators. The network it hopes to create would resemble FedEx Ground’s network of independent service providers, contractors who employ their own drivers.