"After the first loss, Amazon began a series of "convergence" policies and looked for new profit points to balance. But does the slowdown in the pace of expansion mean that Amazon has stopped its logistics distribution network and air cargo network plans?"

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1. Is Amazon not expanding “crazy” anymore?

Amazon is slowing the expansion of its air logistics network, with growth in both its air cargo fleet and the number of daily flights slowing. Amazon Air operates about 194 flights a day in the U.S. and Europe, up from 187 in March, according to a report by DePaul University's Chadick Institute, which regularly analyzes Amazon's logistics network. From March to August, Amazon Air’s total flight volume growth was 3.8%, much lower than the 14.3% increase in daily flight volume in the six months before March and the 18.4% increase in flight volume for the whole of 2021.

Average daily flights on Amazon Air. Image credit: Chadick Institute, DePaul University

In addition to slowing down the expansion of its airline network, Amazon is also cutting some of the original planned expansion of the distribution network and massively reducing the scale of its logistics and distribution business. According to supply chain logistics consultancy MWPVL International, as of early September, Amazon had closed or canceled more than 40 warehouses in the U.S., delayed plans to open more than 20 sites that were due to open, and canceled some European projects, such as It was decided to cancel the construction of four distribution centers in Reus, Girona, Vitoria and Seville.

Earlier, Amazon also announced that it was starting to sublease warehouse space, planning to sublease at least 10 million square feet of warehouse capacity, and was considering options for terminating or renegotiating more leases. Of these, transactions for 6 warehouses have been completed.

These measures are in sharp contrast to previous years, and industry experts judged that this series of measures reflects the fact that Amazon's business growth is slowing down, and it also illustrates Amazon's pessimism about the future economic situation and consumer confidence. However, Amazon said the scaling back was a normal business adjustment to better meet expected customer demand.

2. What's the reason for not being "crazy" anymore?

During the epidemic, in the face of the surge in demand for online shopping, Amazon responded by doubling the size of its logistics network within two years, and its rapid expansion far exceeded that of Walmart, UPS, and FedEx. For a while, Amazon was opening a new warehouse somewhere in the U.S. roughly every 24 hours.

Today, Amazon is adopting a more cautious attitude in external expansion. The reason behind it may be closely related to factors such as the slowdown in the growth of global e-commerce business and the return of the growth rate to the level before the epidemic.

Inflation directly causes consumers to spend more on necessities, which makes them reluctant to spend. In the first quarter of this year, e-commerce grew just 6.7 percent, the slowest pace of growth since 2009, according to the U.S. Department of Commerce. Consumers' willingness to shop online has declined, e-commerce economic growth has slowed, and the logistics industry will also be affected. Growth in FBA package volumes has slowed to 13%, well below the 112% growth rate seen in 2020.

Image source: E-commerce News

The decline in the volume of e-commerce parcels has made Amazon's storage capacity excess, coupled with the continuous expansion of the scale, Amazon's logistics costs continue to rise. Between 2009 and 2021, Amazon's shipping and fulfillment costs increased nearly 40-fold. Among them, Amazon's shipping costs in 2021 alone will reach $76.7 billion; fulfillment costs add another $75.1 billion to the logistics bill. Although Amazon's revenue is also growing, it seems difficult to offset the high logistics costs.

Image credit: Statista

Under the huge logistics cost, in April, Amazon released its first quarter financial report for fiscal year 2022, in which the loss amounted to $3.8 billion, the first quarterly loss since 2015; in July, Amazon's second quarter financial report showed the amount of loss It fell to $2.028 billion, but net sales grew just 7.2% year over year, the slowest growth rate in nearly 20 years.

Data source: Amazon financial report drawing: Xiaosheng Research Institute

After the first loss, Amazon began a series of "convergence" policies and looked for new profit points to balance.

In addition to slowing down its air cargo network and warehouse expansion plans, Amazon also announced that it will cut the number of third-party logistics service partners. It is expected to add 451 partners this year, down 33% from last year, and it is not as good as the peak of 1,191 in 2022. half of the square.

At the same time, Amazon has also increased fulfillment fees and imposed surcharges. Previously, in order to allow self-operated logistics to compete with express delivery giants such as USPS, Amazon has long used "no surcharge" as one of its selling points. However, since 2020, Amazon has not only increased the fulfillment fee by more than 30%, but also announced that for the first time, the peak season logistics surcharge will be charged for the products delivered by FBA logistics in the US station and Canada, and the storage fee is also gradually rising.

Image source: Marketplace Pulse

3. Does slowing down mean stop there?

Despite the sluggish growth, the slowdown doesn't mean Amazon will stop there. Improving the logistics distribution network and air cargo network is still the top priority of Amazon's development strategy, and this has never changed.

From July to August, Amazon opened new distribution centers in Poland, Western New York, San Salvo, Italy, and Uttar Pradesh, India, and has three large warehouses under construction. This suggests that the previous "pause" was only for a specific type of warehouse, and that the broader network construction work is still in progress.

As Marc Wulfraat, founder of MWPVL International, put it, “This is not the year Amazon hits the brakes by any means.” Amazon’s actions are also adamant that projects will be delayed, but not stopped.

Although the expansion of the air cargo network has slowed down, the air capacity is still increasing. The expansion of the aviation hub at Cincinnati/Northern Kentucky International Airport (CVG) has greatly helped Amazon to achieve fast transfer from plane to plane, and pay logistics for next-day delivery. Currently, the annual growth rate of Amazon Air flight activity is around 20%-24%. Amazon Air Cargo is still growing, just not the same as during the pandemic.

Amazon Air's route structure at Cincinnati/Northern Kentucky Airport

Image credit: Chadick Institute, DePaul University

It is estimated that in the past two years, Amazon has invested as much as $80 billion in logistics, far exceeding the total of $58 billion in the previous five years. And such a huge investment is intended to build an integrated logistics network of sea, land and air. The logistics model adopted by Amazon today is similar to the Apple model in the e-commerce world. It establishes a super self-operated closed loop, gradually moves up from the back end and strengthens the control of logistics services, taking all the upstream and downstream of the supply chain.

4. Can the rising powers shake their position?

At the beginning, Amazon’s positioning was to serve sellers on its own platform. With the large-scale growth of its distribution network, Amazon began to build its logistics service into an independent express company to undertake the logistics business of different sellers. However, in the context of the rapid development of global e-commerce, the competition in the logistics market is far more intense than expected. In addition to the traditional three major express delivery giants, retail giants represented by Wal-Mart, and Chinese forces represented by SHEIN, Alibaba, and JD.com are all on the rise.

walmart

Walmart, also a retail giant, has also invested a lot of time and energy in the field of logistics and distribution in recent years.

In 2019, Walmart launched the home delivery service InHomedelivery; in 2020, it launched Walmart membership and its own warehousing service WFS, similar to Amazon's Prime membership and FBA service; in August 2021, it officially launched the Golocal delivery service, which is a local delivery service. And use it as a strategic category for last-mile delivery services to expand visibility. In early 2022, Walmart said it would further expand the InHome delivery service to 30 million U.S. households by the end of the year.

At present, the distribution network constructed by Wal-Mart has been able to provide delivery and fast delivery services for more than 160,000 items in more than 3,000 stores, and Wal-Mart's logistics attributes are becoming more and more obvious.

SHEIN

As a dark horse in the past two years, SHEIN mainly relies on China's supply chain advantages to reduce dimensionality in the global market. At present, its business covers more than 150 countries around the world, with 120 million registered users and over 30 million daily active users. In many overseas application rankings, SHEIN has surpassed Amazon to become the most downloaded shopping APP.

The operation mode of the SHEIN platform is mainly to build a logistics system by itself, and control the logistics and after-sales of the goods in its own hands to ensure the quality of the goods and improve the logistics efficiency. Warehousing and logistics are mainly based on domestic direct mail delivery, and overseas warehouses are built. SHEIN has more than 200 logistics and supply chain partners around the world, as well as 6 logistics centers in Foshan, Nansha, Belgium, East America, West America and India. However, SHEIN is currently only sold online, and customers need to wait 10 to 15 days to receive their orders, which is far from the average delivery time of companies such as Amazon.

Therefore, under the rapid growth, SHEIN is planning to deepen its foothold in the United States, build three large distribution centers, and ultimately shorten the transit time of its customers' orders to 3-4 days. In April, SHEIN opened its first U.S. distribution center in Indiana; by spring 2023, it will open a second distribution center in Southern California, followed by a third in the Northeastern United States, with an undetermined date. At the same time, SHEIN has set the U.S. market target to 5 days. In terms of the location of the transit warehouse, every 8 states will have 1 coverage, and 9 states will be able to form a closed loop.

JD Logistics

As a self-operated retailer, JD Logistics, which has customer groups and business flow data, mainly adopts the self-operated model of business flow + logistics, that is, the "store + warehouse" model, when laying out the global supply chain network, with the warehouse distribution network as the core , to build an integrated supply chain system including "warehousing", "logistics", and "express" three sectors, and improve logistics timeliness by placing goods in front and delivering them nearby, and realize "storage instead of transportation".

According to data from the official website of JD Logistics, as of June 30, 2022, JD Logistics operates more than 1,400 warehouses. Including the management area of ​​the cloud warehouse ecological platform, the total warehouse area of ​​JD Logistics is about 26 million square meters. At the same time, it operates nearly 90 bonded warehouses, direct mail warehouses and overseas warehouses around the world, with a total management area of ​​nearly 900,000 square meters.

The internationalization of JD Logistics has been deeply imprinted on the cross-border new retail supply chain from the beginning. Relying on China's strong supply chain capabilities, through the establishment of overseas warehouses, the opening of cross-border special lines, and intelligent multimodal transportation, JD.com hopes to replicate its omni-channel retail supply chain service model of integrated warehouse and distribution, which is an absolute leader in China, overseas.

In this model of heavy asset warehouse allocation, Jingdong Logistics is actually targeting Amazon, but the two are fundamentally different. Based on the layout of the above three companies in the global logistics network, more or less of them can see the shadow of the benchmark Amazon, but each has its own merits. Although the logistics and distribution scale of the three companies is not comparable to that of Amazon, the trend of late development cannot be underestimated.

In the eyes of the market, Amazon, like all big companies standing on the cusp of the technological revolution, has been at the forefront of the times and the industry for more than ten years. Standing at the current time node, whether in new regions or new businesses, Chinese forces represented by SHEIN, TIKTOK, etc. have become challengers that cannot be ignored, and with the opportunities of globalization of Chinese companies, Chinese companies have already taken Tickets to the peak showdown in the global e-commerce field. Can Amazon continue to stand on the cusp of a new wave? It is worth looking forward to.

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Official account: Bai Xiaosheng, cross-border e-commerce logistics