Amazon orders 20,000 Mercedes-Benz vans for parcel delivery program

E-commerce giant Amazon.com Inc. has ordered 20,000 delivery vans from Merecedes-Benz Vans, the automaker said today, in an announcement that puts meat on the bones of Amazon's plan to recruit small business owners in launching parcel delivery fleets around the country to help handle its rising flood of online shopping shipments.

Mercedes has already delivered the first vehicle of that order to Amazon, and is quickly increasing production at a 222-acre plant in North Charleston, S.C., that it recently upgraded in a two-year, $500 million expansion, the German company said. That plant now employs 900 workers and Mercedes plans to ramp that up to 1,300 workers by the end of 2020 as it increases U.S. production of its third-generation Sprinter van, the company said.

Seattle-based Amazon made the large order with its typical bravado, instantly becoming the world's largest customer for Mercedes' Sprinter van, which the carmaker will deliver in an Amazon-branded version for the e-commerce firm's "delivery service partner" program, Mercedes said. While the order is large, it is in line with Amazon's description of that program, which the company said could ultimately allow "hundreds of new, small business owners to hire tens of thousands of delivery drivers."

Amazon did not reply to a request for comment.

Amazon unveiled its "delivery service partner" program in June, saying it would recruit entrepreneurs to create fleets of parcel-delivery vehicles by offering them training and discounts on vehicle leases and insurance. The company also said it would provide predictable volumes of shipping business to those fleets, guaranteeing them a demand for the new service while helping Amazon itself handle its exploding volume of e-commerce fulfillment business.

Amazon currently relies on a combination of service providers to deliver the boxes and pouches it sends to shoppers' homes every day, using major logistics and transportation providers such as FedEx Corp., UPS Inc., and the U.S. Postal Service, as well as local courier fleets and part-time citizen drivers working through the company's "Flex" service.

By moving some of its last-mile delivery business to internal channels, Amazon may shift some business away from its traditional delivery partners, but that change has been expected, said Philip Evers, logistics professor at the University of Maryland's Robert H. Smith School of Business. "I'm sure [UPS and FedEx] are both continually watching Amazon, but this isn't coming out of nowhere," Evers said. "E-commerce is booming in general, and Amazon's not the only [retail] company out there. So even as Amazon does more business, FedEx and UPS will do more. A rising tide lifts all ships."

Contacted for reaction to Amazon's large purchase of vehicles, UPS likewise said that the market is growing fast enough to sustain its own business growth, which includes a variety of services that go beyond final-mile delivery, such as warehousing and fulfillment, parcel tracking, delivery status updates, custom delivery options, and simplified merchandise returns, Matthew O'Connor, UPS' senior manager for public relations, said in an email.

"UPS is confident in its strategies and believes there is tremendous opportunity in the B2C and B2B market," the company said in a statement. "Industry forecasts indicate there is near 50 percent package volume growth coming in the U.S. between 2018 and 2022, due to strong demand for residential and business online commerce deliveries."

As for the vehicle itself, choosing Mercedes to provide the large order of vans is a safe choice for Amazon because the Sprinter has long been a favorite vehicle in the segment of large, square vans intended for the delivery and construction sectors, alongside options like the Ford Transit or the Ram Promaster, Evers said.

Mercedes says its investment in the South Carolina plant will now continue to improve that model, adding features like a new multimedia system, upgraded cockpit control and display, and driver assistance systems borrowed from Mercedes' line of luxury passenger cars.

The more surprising aspect of Amazon's order is that it chose a single supplier for the entire order of vehicles, instead of spreading its order around a variety of automakers, said Evers.

However, like many other moves Amazon has made, the decision may pay off through value created by the sheer scale of the purchase. And by making that capital investment in its "delivery service partner" program, the company will be able to continue to grow without adding internal labor costs, Evers said. That could be a canny move at a time when low unemployment rates and truck driver shortages make it hard for many logistics and transportation providers to hire employees.

"[Amazon] has telegraphed this for a while now, and it's a logical step," Evers said. "If you think of the universe of logistics, they're filling in the holes. They already have planes and they have a large-truck fleet, and now they're filling in the gaps."