Forget Drones — For Amazon Delivery Domination, Think Vans

Amazon’s delivery efforts provided minor Facebook entertainment over this past weekend for more than a few people in New Orleans (home of the PYMNTS warm winter and Mardi Gras bureau).

A picture of one of Amazon’s newer delivery vans doing its business in the city popped up on the social network as though it were a rare sighting of a whale. Other consumers soon chimed in, reporting Amazon delivery van appearances in this neighborhood or that. Some people complained about the vans blocking other vehicles on narrow streets (driving in New Orleans, a 300-year-old city, often involves an obstacle course of potholes and traffic cones), with others anticipating ordering more goods from Amazon — and its Whole Foods unit — because of its increasing, and increasingly speedy, fulfillment powers.

Amazon keeps upping its delivery game.

Recently, the eCommerce operator ordered 20,000 Mercedes Benz vans to expand its delivery fleet. The vans will also be used for small businesses to carry an excess supply of packages (at least one company in New Orleans is looking for drivers to deliver packages for Amazon in shifts meant to last 10 hours). Judging by the orders for the vans, the company expects 500 or more delivery companies to join its program.

But how far can Amazon go with delivery? And will it really decide to take on those giants of delivery, UPS and FedEx, who now function more as Amazon allies than foes? Those are constant questions when it comes to Amazon – but recent news, developments and analysis provide fresh clarity as 2019 approaches.

Drone Failure?

Let’s start with drones.

In terms of delivery, Amazon drones can arguably be described as a failure, at least going by the standard set by CEO Jeff Bezos, when he predicted that, in the words of one report on Monday (Dec. 3), “drones would be carrying Amazon packages to people’s doorsteps by now.” Not really. “Amazon customers are still waiting. And it’s unclear when, if ever, this particular order by the company’s founder and CEO will arrive.”

Even consumers in New Orleans — where the general mindset, not exactly luddite, can still seem stuck a generation or two behind the rest of the country when it comes to payments and commerce — sometimes dream of having drones drop off products — including groceries and even medicine, given Amazon’s recent acquisition of PillPack — on their porches and stoops just hours after being ordered.

For starters, drones are better suited for rural environments, and that seems likely to hold for the immediate future. Cities and suburbs are clogged with power lines and other flying machines. (Helicopters are a constant sight and sound in New Orleans, for instance, given the city’s role in the offshore oil industry, and the area’s Coast Guard and other military presences. Larger cities often have even more air traffic.)

Battery life for drones is also not long enough for sustained service — something companies not named Amazon also are learning. “If you have to recharge them every other hour, then you need so many drones and you have to orchestrate that. So good luck with that,” Frank Appel, CEO of DHL parent company Deutsche Post AG, told The Associated Press. “Over the next couple of years,” drones will remain a niche vehicle and not widely used, he added.

For its part, Amazon remains officially optimistic about drones, but doesn’t seem eager to give new timelines about their use for general retail deliveries. “We are committed to making our goal of delivering packages by drones in 30 minutes or less a reality,” Amazon spokeswoman Kristen Kish told reporters, adding that the company operates drone development centers in the United States, Austria, France, Israel and the United Kingdom.

Prime Growth

But delivery is about more — much more — than drones. And delivery keeps getting faster, training a generation of consumers that shipments of products should arrive, more or less, right after a shopper merely thinks about buying it (excuse the hyperbole, but with algorithms getting better at anticipating consumer needs and demands, and Amazon continuing to expand its network of fulfillment centers, that’s perhaps not the biggest exaggeration ever).

Consider this: In a statement issued Monday (Dec. 3), Amazon said its Prime members in 2018 ordered more than two billion products with one-day delivery or faster shipment times — another indication of where fulfillment is headed, and what consumers expect not only from Amazon, but from logistically sophisticated Walmart and other (big and small) rivals.

Amazon’s acquisition of Whole Foods and the resulting grocery deliveries have boosted growth in Prime memberships and Prime Now deliveries, the eCommerce giant also said. The number of consumers who signed up for Prime in 2018 exceeds the number of members who signed up in previous years, the company added. Prime has more than 100 million members, though Amazon did not reveal how many deliveries were made via the Prime program.

Delivery Control

All that growth will fuel Amazon’s (alleged but widely suspected) motivation to take on UPS and FedEx in delivery services. For all Amazon is doing now to control more fulfillment — it keeps offering more logistical services to third-party sellers on its marketplace, for instance, and just bought all those vans — it cannot yet afford to alienate (nor can it fully take on) those two delivery giants. But the reasons for doing so in the future are pretty appealing, according to many analysts.

One such view was recently offered by Itamar Zur, co-founder of Veho, a logistics and supply chain company. While Amazon may never fully “turn against” those two companies, at least not anytime soon, Zur wrote in Medium that “Amazon will continue to play its usual strategic game: building more capacity, innocently claiming that it is only ‘supplementing’ the capacity of its delivery partners and gradually taking over the more profitable parts of the delivery business.”

Taking over more of the fulfillment process, including last-mile tasks, would, in the long run, save Amazon money – money that now goes to UPS and FedEx, Zur argued. Those savings could hit $1 billion annually, he wrote. Even when accounting for all revenues collected from customers for shipping, including Prime membership fees, Amazon still spends an astronomic amount on getting packages to its customers’ doors.

That forms some of the prime reasoning behind Amazon Flex — in which drivers used their own vehicles to deliver products ordered via Amazon — and all those vans. Amazon has also leased planes and has registered Amazon China as an ocean freight forwarder, which is another way to control shipping and reduce fulfillment spending, and which could potentially help Amazon move product for other industries. Amazon also has invested in a Kentucky air cargo hub.

The potential idea — the end point of all this? A seamless fulfillment process that offers a one-click platform for global logistics.

Christmas Stumble

Zur traced Amazon’s motivation to have its own “end-to-end-delivery network” to the 2013 holiday shopping season, when problems at UPS led to cancelled and late delivery of products ordered via Amazon. He also noted that in its 2016 10-K, Amazon for the first time inserted this language: “Our current and potential competitors include … companies that provide fulfillment and logistics services for themselves or for third parties.”

Amazon, of course, still has a long way to go to reach such a level, though progress continues quickly, and the company certainly has the money to keep on going. The 2018 holiday shopping season will bring fresh insight and data about eCommerce fulfillment, and will help determine the next delivery moves for Amazon and its rivals.

Just don’t spend too much time looking for those drones – at least not yet.