One-day shipping is really costly for Amazon. But it’s used to that.

Marielle Segarra Feb 3, 2020
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Sean Gallup/Getty Images

One-day shipping is really costly for Amazon. But it’s used to that.

Marielle Segarra Feb 3, 2020
Sean Gallup/Getty Images
HTML EMBED:
COPY

Amazon’s been offering free two-day shipping for a while. But things got a lot harder when it decided to offer to do it in one day.

“One of the big challenges with going from two-day shipping to one-day shipping is two-day shipping already used air freight,” said retail consultant Jason Goldberg. “You can’t actually make the planes fly faster to get products places more quickly.”

But you can move inventory closer to customers, said Beth Davis-Sramek, who teaches supply chain management at Auburn University. “The only way that they can do that is by adding more distribution centers,” she said.

Amazon has grown the square footage in its warehouse by 15% in the last year. One-day shipping has also meant changing the way the company delivers products. Goldberg said there are fewer chances to deliver in bulk.

“If you get to fill up an entire mail truck and send it to a sortation center, you get to maximize the amount of packages that are in that truck,” he said.

But if you’ve got to get a package to a person right away, you’re looking at more trips.

“When you’re driving stuff from individual vans at the fulfillment center to each customer, the cost per unit delivered is potentially higher,” Goldberg said.

But this is how Amazon operates. From the beginning it’s been willing to lose money in order to grow parts of its business or take over a market. It’s worked before.

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