The growing importance of Amazon's logistics costs

Published on: March 3, 2019 / Updated on: August 31, 2021 – Author: Konrad Wolfenstein

The growing importance of logistics costs at Amazon Logistics – Image: Marcos del Mazo|Shutterstock.com

Amazon Logistics last year . Until then, despite operating a sophisticated network of fulfillment, sorting, and delivery centers, Amazon had relinquished control of the "last mile" to traditional delivery companies.

As Amazon continues to grow, logistics costs have skyrocketed over the past decade. In 2018, the company's fulfillment and shipping costs totaled $34.0 billion and $27.7 billion, respectively, up from just over $1 billion each in 2007. Establishing its own shipping service not only allows Amazon to control shipping costs but also reduces the risk of relying on UPS and FedEx for last-minute deliveries. In its 10-K report, Amazon states: “We rely on a limited number of carriers to deliver inventory to us and fulfill orders to our customers. If we are unable to negotiate acceptable terms with these companies, or if they encounter performance issues or other difficulties, it could adversely affect our operating results and customer satisfaction.”

As the following chart shows, the importance of fulfillment and shipping costs for Amazon has increased over the past ten years. Last year, these two cost factors accounted for 26.5 percent of the company's net revenue, compared to 16.6 percent the previous year.

In addition to working together with companies such as UPS and FedEx, Amazon has started its own delivery service called Amazon Logistics last year. Until then, despite operating an elaborate network of fulfillment, sortation, and delivery centers, Amazon had ceded control over the “last mile” to traditional delivery companies.

As Amazon continues to grow, its logistics costs have skyrocketed over the past decade. In 2018, the company's fulfillment and shipping expenses amounted to $34.0 billion and $27.7 billion respectively, up from just over $1 billion each in 2007. Introducing its own shipping service does not only give Amazon the chance to keep shipping costs at bay, but it also reduces the risk associated with relying on UPS and FedEx for last-mile delivery. In its 10-K report , Amazon notes: "We rely on a limited number of shipping companies to deliver inventory to us and completed orders to our customers. If we are not able to negotiate acceptable terms with these companies or they experience performance problems or other difficulties, it could negatively impact our operating results and customer experience."

As the following chart shows, the relative weight of fulfillment and shipping costs on Amazon's bottom line has increased over the past decade. Last year, the two cost factors amounted to 26.5 percent of the company's net sales, up from 16.6 percent in 2007.

The growing importance of Amazon's logistics costs – Image: Statista