Amazon has near perfect information between the order placement allocation to warehouses
Amazon grew its fulfillment and logistics network by 50% in 2020
Amazon's capital expenditures increased 80% in the trailing 12 months, compared to the previous 12-month period, as it builds out fulfillment, middle- and last-mile infrastructure for e-commerce delivery, CFO Brian Olsavsky said on the company's Q1 earnings call Thursday.
The build-out of the delivery assets has resulted in more data and information that the company can use to better understand its network and provide more accurate delivery estimates, Olsavsky said.
"We also see that there's a lot of cutoff times that we can extend, again, because we pretty much have perfect information between the order placement allocation to warehouses, where we're going to pick and box up the product and send it on its way," he said in response to an analyst's question on last-mile spending.
Amazon's infrastructure build-out is years in the making, and onlookers believe the company still has years to go before finalizing its network.
This week, a consulting firm that tracks Amazon's infrastructure said that Amazon's delivery-station model is expected to reach 506 locations in 2021 and could grow to 1,500 locations over the next three to five years.
When talking about future investments Thursday Olsavsky did mention delivery stations but also listed off numerous other asset types in the company's logistics network: fulfillment centers, sort centers, Amazon Air, line haul and trailers.
“The in-sourcing of logistics has Amazon moving from a “batch process” to a “continuous-flow process.”
Under batch processing, Amazon would hand off packages to a third-party-delivery provider once a day, but the continuous flow allows Amazon to send packages out of its facilities five or six times per day. This is what allows it to get better data on delivery time, according to Olsavsky.
“But despite this investment and transition, Amazon’s one-day delivery numbers are still struggling to reach their pre-pandemic levels”
The pandemic-driven surge in demand for e-commerce has hampered Amazon's one-day delivery. This has been good for the company's sales numbers, but it has also resulted in capacity fulfillment issues.
Amazon already grew its fulfillment and logistics network by 50% in 2020. The company hasn't given any figures for expansion plans in 2021. But executives have said on recent earnings calls that more investment will help its one-day service return to pre-pandemic levels.
“It gives us a little bit more, or much more, certainty on being able to get items from point A to point B.”
On Thursday, Olsavsky said that one-day delivery had successfully returned to pre-pandemic levels in Europe.
“We’re starting to see in Europe not only strong 1-day, but also more broad, same-day selection, so they tend to go hand-in-hand.”
But there is still work to do in the U.S.
"I would say the end delivery is really a function of everything before it, and how well we can handle and process in a timely manner all the orders in North America," he said, noting that the system has been hindered by the level of volume it's handling.
The growth in parcel volume continues to push up the cost of fulfillment and shipping at Amazon. Shipping costs grew 57% YoY to reach more than $17 billion, while fulfillment costs grew 43% to reach $16.5 billion.
