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Amazon Testing its Own Delivery Service, Extends Sunday Deliveries

By Jack Keough

Amazon is now testing a new delivery service using its own contracted trucks and drivers, which would, in effect, allow the giant e-retailer to control the entire supply chain process from receiving orders to delivering the products at the doorstep of the consumer/customer. The new program would mean that Amazon is creating direct competition with UPS, FedEx and USPS.

In making this move, Amazon could eventually become a full-service logistics company as it test runs its own delivery network for the “last mile,” the final leg of a package’s journey to  a customer’s doorstep. Trucks loaded with Amazon packages and driven by Amazon-supervised contractors now leave for addresses around San Francisco while similar efforts are under way in Los Angeles and New York, the Wall Street Journal is reporting.

Through this new program, Amazon could deliver packages to customers and businesses on the same day they are ordered. It is possible that Amazon could provide deliveries eventually for other companies, even manufacturers and/or distributors. In a posting on its job web site, Amazon says it cannot rely on the solutions provided by traditional logistics providers.

The post said that “Amazon is growing at a faster speed than UPS and FedEx, who are responsible for shipping the majority of our packages. At this rate Amazon cannot continue to rely solely on the solutions provided through traditional logistics providers. To do so will limit our growth, increase costs and impede innovation in delivery capabilities. Last Mile is the solution to this. It is a program which is going to revolutionize how shipments are delivered to millions of customers.”

Wal-Mart and Google are also exploring their own delivery networks as well.

Amazon is currently using land adjacent to the now closed Candlestick Park in San Francisco as a staging area for their trucks to deliver product. The company is considering leasing land a short distance away to load and transport products at night and early morning when traffic is lighter.

In the United Kingdom, Amazon is already doing its own last-mile delivery as Amazon Chief Executive Officer Jeff Bezos said in a letter to shareholders. The company generally uses local couriers and packages products in its own, Amazon Logistics packaging. However, the Journal says the program has been heavily criticized because of missed, late or inaccurate deliveries.

Whatever Amazon’s intentions are, it has been rapidly adding warehouses and now has 96 in operation with more on the way. In addition, the company updated the software that runs the warehouses 280 times last year.

Meanwhile, Amazon is expanding its Sunday package delivery service to 15 more cities across the country. Amazon first rolled out the service as part of a new deal with the U.S. Postal Service in November to New York and Los Angeles. At the time, it said it planned to extend it to other cities this year. The cities that Sunday delivery is expanding to are: Indianapolis; Lexington and Louisville, Kentucky; New Orleans and Shreveport, Louisiana; Cincinnati and Columbus, Ohio; Oklahoma City; Philadelphia; Dallas, Houston, San Antonio, Austin, Waco and College Station, Texas.

In March, Amazon increased the price of its Prime membership from $79 to $99 because of rising fuel and transportation costs. Prime members get unlimited two-day delivery of products.

Amazon has also started a service that lets Twitter users add Amazon.com products to their carts without leaving the social media site. In April, it launched Prime Pantry, a grocery delivery service for Prime members.

Amazon is already on target to complete its Amazon Prime Air, a drone system of delivering small packages. The goal of the delivery system, Amazon says, is to get packages into customers’ hands in 30 minutes or less using unmanned aerial drone vehicles.

Once thought of as a futuristic, sci-fi form of shipping, Amazon says that eventually these aerial vehicles will be as common for delivery as mail trucks.

The FAA is working on regulations regarding drones and Amazon says it expects those rules to be in place in 2015. The company says it will be ready to begin drone operation at that time.

 CEO Bezos wrote in the shareholder letter: “The Prime Air team is already flight testing our 5th and 6th generation aerial vehicles, and we are in the design phase on generations 7 and 8.”

In the past few weeks, there has been a number of changes announced that will affect the shipping process for businesses. FedEx, for example, has announced pricing changes for FedEx Freight and FedEx Ground. FedEx Freight will increase its published fuel surcharge indices by 3 percentage points, effective June 2, 2014.

FedEx Freight updates its fuel surcharges for the U.S. and Canada every week based on published average diesel fuel prices.

And effective January 1, 2015, FedEx Ground will apply dimensional weight pricing to all shipments. Currently, FedEx Ground applies dimensional weight pricing only to packages measuring three cubic feet or greater. This change will align the FedEx Ground dimensional weight pricing with FedEx Express by applying it to all packages. Dimensional weight pricing sets the transportation price based on package volume—the amount of space a package occupies on a truck in relation to its actual weight.

That could mean a price increase on more than a third of its U.S. ground shipments.

UPS has not said publicly whether or not it will follow FedEx’s lead but many analysts think it will. The two often match price increases.

This decision could affect distributors and manufacturers by forcing them to buy and keep various size boxes in inventory. Many distributors and manufacturers use UPS or FedEx for transporting products and this could have an effect on their shipping costs. They could be forced to either pay increased shipping costs or buy customized boxes.

It is estimated that the decision could lead to hundreds of millions of dollars in extra shipping costs for online businesses.

Jack Keough was the editor of Industrial Distribution magazine for more than 26 years. He often speaks at many industry events and seminars. He can be reached at john.keough@comcast.net or keoughbiz@gmail.com

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