Shipping has always been a principal driver of Amazon’s strategic investments.
Arguably the most innovative Amazon business unit is currently Amazon logistics. The unit deals with much more than just the logistics by which it ships orders to its customers. Amazon is edging closer to operating a full end-to-end retail model as it beefs up its logistics operations with the ultimate aim of reducing its reliance on thirdparty delivery companies.
And building out a huge logistics network is classic marketplace thinking: better and faster logistics attracts more shoppers and this in turn attracts more 3P sellers, so the flywheel effect will start to kick in again.
In future Amazon could expand Amazon Logistics to become the de facto carrier for all Amazon sales. (This would point to classic ecosystem thinking). The new logistics business will open cross-border commerce to smaller merchants who otherwise wouldn’t bother with it. That in turn would make many more products available to Amazon shoppers around the world.
In future working with Amazon logistics means partnering suppliers will need to optimise and speed up their processes too. Amazon will steer these processes among various suppliers, as it is the only player in this system who can do so and coordinate. Once again more flexibility as a result of picking up from suppliers is also a key concern for Amazon.
In short, Amazon wants to control every link in the supply chain, from sourcing the product to warehousing and now delivery to the doorstep. In certain categories, such as book publishing, it is also manufacturing the product. Owning its own trucking network and drones are part of the last-mile strategy. Such dominance helps iron out inefficiencies in the system, yielding margins. It also enables the company to offer a radically innovative and much better logistics solution (from Prime Now to drones) than currently available on the market.
Moreover in terms of the last mile, Amazon is building out a proprietary infrastructure and network without investing that much into new employees, logistics fleets or by founding a standalone company. For Amazon delivering parcels does not mean running their own service. All it needs is a DC in or close to the city and instead of cooperating with the established logistics providers the online retailer can hire citizen couriers akin to Uber drivers for the last mile. By doing so, much of the risk is outsourced as well.
Amazon is betting that there is soon to be a disruption in distribution processes and costs, both in terms of driverless cars and trucks and fuel (EV, etc). Amazon think that being in that space as those changes begin can be valuable as disruptions mean that market leaders are no longer automatically leaders. And when things change one can really grow.