February 2, 2017

Amazon's shipping costs soared in fourth quarter, far exceeding revenue

"Fulfillment by Amazon" accounted for 55 percent of all third-party sales in fourth quarter.

By Mark B. Solomon

Amazon.com Inc. said late today that its fourth-quarter global shipping costs soared to $5.6 billion, as the Seattle-based e-tailing giant grappled with increases in fulfillment demand brought on by another peak-season quarter of double-digit sales growth.

At the same time, fourth-quarter global shipping revenue came in at slightly more than $3 billion, continuing Seattle-based Amazon's multi-year pattern of shipping costs exceeding revenue. For the year, Amazon spent about $16 billion on shipping services and took in about $9 billion in revenue.

Revenue in the quarter rose 22 percent year over year to $43.7 billion, which was about $1 billion below analysts' estimates. For the first quarter, Amazon expects revenue of between $33 and $35 billion.

"Fulfillment by Amazon" (FBA), which offers fulfillment and delivery services to sellers of all types, delivered more than two billion units worldwide in 2016, while the number of FBA users grew by more than 70 percent, Amazon said. In what may be a new measure of FBA's traction, the service accounted for more than 55 percent of all units sold in the fourth quarter by third-party merchants on Amazon's site, the company said.

Amazon has taken several steps in recent years to build out a transportation and logistics network to improve service to customers buying on its site, to gain better control of its supply chain costs, and to position itself as the logistics provider of choice to merchants that can use any number of transport and logistics vendors. The latest move came Tuesday when Amazon said it would break ground later this year on a $1.5 billion air hub at Cincinnati/Northern Kentucky airport to support a fleet of up to 40 freighter aircraft making two-day deliveries to "Amazon Prime" members.

Of the 40 planes to enter Amazon's fleet, 16 are in operation. The aircraft are operated under lease agreements with Wilmington, Ohio-based Air Transport Services Group Inc. and Purchase, N.Y.-based Atlas Air Worldwide Holdings Inc.

Under Amazon Prime, Amazon charges $99 a year, or alternatively $10 a month, for unlimited two-day deliveries. On Tuesday, Wal-Mart Stores Inc., the brick-and-mortar retail titan that is looking to catch up with Amazon in the digital world, said it would begin offering free two-day shipping on more than 2 million items with no need for a membership fee. Its annual fee has been $49.

Marc Lore, the new head of e-commerce for Wal-Mart.com, was quoted in reports as saying that free shipping, at least for two-day deliveries is here to stay. "In today's world of e-commerce, two-day free shipping is table stakes," Lore said. "It no longer makes sense to charge for it."

About the Author

Mark B. Solomon
Executive Editor - News
Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.

More articles by Mark B. Solomon

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