Amazon and logistics integration

There are strong indications that Amazon could finally be embarking on a process of logistics integration through a program to create a distribution force with partners: small companies that Amazon would help create and that would work exclusively to deliver the company’s products. The thinking behind the initiative is clear: the vast majority of complaints the company receives are due to problems with outsourced courier companies.

For large logistics operators, Amazon is a tough customer: it offers incomparably high volumes, but it is also extremely aggressive in terms of price and service, and at times is hugely demanding, often putting courier companies under pressure as they attempt to meet Amazon’s deadlines without losing money. This type of pressure can be handled in short bursts, but is unsustainable day after day, with late deliveries or customers forced to stay at home for hours waiting for their goods. Hence the constant complaints to Amazon, not to its logistics partners, which the company tries to deal with, in many cases offering compensation or additional shipments, which over time can bite into tight profit margins.

Amazon’s problems with its logistics partners were further complicated last May in the United States, when Donald Trump, attacked Amazon in a series of tweets, blaming it for the losses of the US Mail (when the reality is exactly the opposite), and then telling it to charge Amazon more.

Can Amazon create a logistics service based on small startups fostered by the company, able to compete with UPS, DHL, Fedex, and USPS? Amazon is looking to work with small companies created practically ad hoc, able to take charge of final stage of delivery, from local depots to users’ homes, providing them with sufficient volume to make it viable for Amazon to be their only customer. Is this realistic? The company hopes to attract hundreds of people over the next year and a half in some twenty-four states coast-to-coast. The proposal includes special benefits such as aid and refunds for investment in vehicles decked out in Amazon’s logo, as well as discounts for insurance and fuel. One proposals would see army veterans reimbursed by up to $10,000 to set up a company with Amazon. The idea is to get reasonable local coverage by limiting the number of companies serving a certain area.

Amazon will continue to use Amazon Flex, a kind of uberization of logistics that allows people with their own vehicle to use an app to coordinate with company warehouses and plan delivery routes. It’s a nice idea, but it remains to be seen whether it attracts people simply looking to earn a bit of extra cash for a few hours work each day, or ends up being a full-time job with no social security, vacations or free time in order to meet delivery schedules, and requiring the purchase of one’s own vehicle to boot.

The advantage for Amazon is not having to depend on a few big courier firms and instead have greater bargaining power over a large group of small companies supported by the company and that depend entirely on it. In addition, it offers a way out of the negative dynamic whereby the number of complaints relating to the poor service of these large couriers increases as the volume of goods that consumers acquire in Amazon grows, a problem that clearly affects to the perception of the service in general. If Amazon manages its relationships with its new network of micro-firms properly, it could be a masterful move. If he does not, it could end up being another Taylorist nightmare.

(En espa?ol, aquí)