Before Prime launched in 2005 one-dayshipping was an exorbitant luxury.
Now it’s the standard shipping speedfor Amazon’s 100 million Prime members.
Earlier this year Amazon doubledthe speed of Prime shipping from two days to one.
And the faster speed is now availableon more than 10 million products.
Prime one-day is basically going to A)keep up with the brick and mortar guys and B) enhance Prime.
Amazon has changedthe game completely.
So what they excel at is getting anobject from a creator to a consumer as flawlessly as they can andas quickly as they can.
So Amazon is changing people’sexpectations and they’re perpetually improving those expectations.
But behind every Amazon box there are lotsof people hustling and a lot of money spent to get it toyou in just one day.
Here’s what happens when you buya Prime eligible item on Amazon.
Amazon spends tens of billionson shipping every year.
In just the last quarter of2018, Amazon’s shipping costs jumped 23%, reaching a record $9 billion.
So why is it worth it? Well customers come to expect consistentfast delivery of anything on earth from Amazon.
And our job is tocontinue to make that happen.
And Amazon set aside $800 million justin the second quarter of 2019 to start making one-dayshipping the norm.
Most of that investment isgoing towards the infrastructure and transportation costs associated with speedingup delivery to the millions of Prime customers who are about tobegin to experience one-day as the new normal.
The difference with e-commerce isthe costs never end.
The pick, pack and ship happens everytime a unit is sent out.
To better control this process and itslarge cost, Amazon is cutting down its reliance on UPS and the U.
Postal Service and is investing heavilyin its own logistics network.
It now handles the shippingfor 26% of online orders.
Amazon now has at least 50airplanes, 300 semi-trucks, 20, 000 delivery vans and it operates oceanfreight services between the U.
Amazon is looking to do it all.
That shouldn’t be much of a surprise.
The only thing that matters to Amazonis making sure the customer is happy and is paying for Primeevery year or every month.
What that means is sometimes you can relyon partners but you want to make sure that you have it in yourpocket if that’s not the case.
Other big retailers are also spending alot to keep up with the fast shipping expectations Amazonhas created.
Walmart is rolling out free next-day shippingwith orders of 35 dollars or more starting today.
And target offers free two-day shippingon orders over 35 dollars.
And during Amazon’s big Prime Day salesevent July 15th and 16th, eBay plans to hold a crash saleoffering 80% off big ticket items.
Amazon’s 25 years old.
The reality is that’s a really short timeto be around to have become the number one player.
So can anyone compete? Sure people can compete.
Can they sustainably competeis the harder question.
I don’t think we’ve seen it yet.
The journey a package takes to yourdoor starts before you even place the order.
Most items on Amazon are solddirectly to you by a third party.
In Jeff Bezos’ letter to shareholdersin April 2019, he said third-party sales have grown from 3% of totalmerchandise sales in 1999 to 58% in 2018.
Amazon charges those sellers afee to list items on Amazon.
com starting around 15% ofthe item’s selling price.
Amazon also sells things directly.
In some cases Amazon buys inventory froma third party and then sells it to consumers.
Other items are Amazon’s own brandssuch as Amazon Basics, Amazon Essentials, fashion lines like Lark & Roand Alexa devices like the Echo.
All items sold directly by Amazonare already sitting in an Amazon warehouse waiting to beordered and shipped.
Most third-party items fulfilled by Amazonare also already waiting at an Amazon warehouse, while others are sent directlyfrom the seller or to an Amazon warehouse once you hitthat place order button.
Amazon does not disclose thedetails of its inventory strategy.
Figuring out where a product sits beforeyou buy it is a phenomenal mystery.
It’s something that everyreseller would love to know.
And figuring out the code that isAmazon has been part of that hard process.
After an item is ordered and readyat one of Amazon’s 175 fulfillment centers around the globe, it’s picked, packagedand shipped by some of its 250, 000 warehouse workers often with helpfrom one of its 100, 000 robots.
It’s essentially an amusementpark for a box.
There’s conveyor belts that goaround, there are slides.
It looks like a lot of fun.
But the question is: how much isautomated versus how much his manual labor? And that suite, blending that, figuringout how to have the least human touch points while ensuring thebest quality control is that perpetual conversation.
We visited a fulfillment center outsideSeattle where 2, 000 workers prepare packages on a couple millionsquare feet of floor space.
Workers here showed us the process ofgetting an item from the shelves to a box.
We scan the item and make sure thatthat item is what matches what’s in our hand that’s on the screen and thenwe stow it into a bin.
And then there’s cameras here that takepictures of where our hands go of where we place the item.
I am a picker so I pick product thatwill end up going down to the packing department and then they pack it outand send it to our customers.
I need to put it into a box.
It actually tells me whattype of box it is.
Put the item in there.
Scan it through.
Dropit down the line.
Amazon says it’s 100, 000 robots insidethe fulfillment centers help make this whole process more efficient.
In 2012 Amazon bought robotics companyKiva for $775 million and started using robots in its fulfillmentcenters a couple years later.
Now there’s driving robots that moveinventory around, robotic arms that lift boxes and pallets and even anew robot that can package items in custom-sized boxes.
If it wasn’t for them then I’d have towalk and I’d much rather be up here in my own little world pickingthen walking up and down.
So I love the robots.
As technology continues to changehow fulfillment centers function, Amazon just announced it will spend $700 millionto retrain a third of its U.
workforce by 2025 to movethem to more advanced jobs.
After an order leaves the fulfillment centerit has to get across the country or world to anotherwarehouse in your region.
Some boxes are sent via one ofthe shipping giants, but Amazon is cutting costs by sending packages in at least300 of its own semi-trucks and now dozens of its own planes.
We’ve been building out an air networkfor a number of years now.
That coupled with our partners networks, we’re ina place we have a lot of incremental capacity to be able toadvance packages for customers much faster than we were twoor three years ago.
Amazon broke ground on a new 1.
5 billion dollar air hub inNorthern Kentucky in May.
It has capacity for 100 planes.
One of the great things about customersall over the world: they are divinely discontent.
You give them thebest service you can.
They love it.
But they always wanta little bit more.
We’re going to move Prime from two-day toone-day and this hub is a big part of that.
After an item arrives near your cityit waits in another warehouse like this one for a delivery person to pick itup and take it that last mile to your door.
We’ve been building for over 20years to support this network that’s eventually just constantly getting faster andwe knew would begin to migrate to a one-day service.
The big difference for us is allabout how we get product from our fulfillment center tothat last-mile location.
Last-mile is the most expensivepart of the delivery process.
Until an item arrives at a warehouse nearyour home, it can be shipped in bulk.
But then each package needs tobe hand delivered to a different address, which takes a lot ofpeople and a lot of time.
Amazon pays to outsource much oflast-mile delivery to carriers like UPS and USPS, which charge a fee, and those fees just went up.
In January the post office increasedits last-mile shipping rate by nine to 12% depending on package size.
The more Amazon can keep last-miledelivery in-house, the more it can control these costs.
To do that Amazon uses smallbusiness partners, some delivering out of 20, 000 Amazon vans.
And in 2015 it launched Amazon Flex.
I’ve been driving for Amazon Flex roughly since2016 on and off, I’d say at least two solid years.
Amazon Flex is availablein about 50 U.
Anyone over 21 with adriver’s license, auto insurance and at least a mid-size sedan can sign up.
After clearing a basic background check, drivers in areas with open spots can start picking upand delivering packages.
Drivers use the Flex app to sign upfor a block, which ranges from three to six hours.
Then they head to a warehouse wherethey find out how many boxes they’ve been assigned to deliverin that timeframe.
Amazon advertises that drivers make $18to $25 an hour and they’re responsible for their own vehicle costslike gas, tolls and maintenance.
Amazon wouldn’t disclose how many drivershave signed up or what percentage of its last-mile deliveries aremade by Flex drivers compared to its shipping partners.
But it did tell us theirlast mile delivery programs are expanding.
We’ve built out these small businesses, the delivery service providers, and we have Flex which isour on-demand crowdsourced delivery piece.
So we need all of that to meet thevarious types of delivery we do in each of our geographies and I think you’regoing to see expansion on all fronts there.
Amazon has one unusual approach toincrease its number of small business partners helping with last-mile.
Amazon says it will contribute asmuch as 10, 000 thousand dollars if full-time employees want to leave thecompany and start their own package delivery services.
Early response is great.
It allows us to complement the capacitythat we have with our great carrier partners.
It’s great for some of our employees whodon’t want to do the same thing that they’ve been doing in the warehousefor five or 10 years.
They want to learn some new skillsand over 16, 000 employees have already taking us up on this.
Amazon is also looking at severalhigh-tech solutions to streamline last mile delivery.
In June, Amazon announced its newautonomous delivery drone will be operating within months and it has aone year FAA permit to test them.
We’re building fully electric drones that canfly up to 15 miles and deliver packages under five pounds tocustomers in under 30 minutes.
Amazon also has patents out for agiant flying warehouse and drones that can react to flailinghands and screaming voices.
And it’s even testing a sidewalkrobot called Scout to bring packages right to your door.
All these steps are an incrediblechallenge to pull off.
In recent years, Amazon has faced anonslaught of negative press about working conditions at everystep of the process.
We spoke to severalworkers about their concerns.
The working conditions at Amazonare dangerous and that’s systemic.
I’ve worked in five different buildingsin three different states from coast to coast andit’s the same everywhere.
It might not be outright exploitation butit is almost like a disposable workforce.
It’s been so pervasive that many of thepilots, in fact most of the pilots at our airlines areactively seeking employment elsewhere.
Last year Amazon raised the minimum wageto fifteen dollars for all its 350, 000 U.
employees, more than double thefederal minimum wage of $7.
In his annual letter to shareholders, owner Jeff Bezos challenged other top retail companies to match this.
And Amazon offers generous benefits.
I needed my medical insurance.
That’s what’s essentially keptme at Amazon.
But some workers, most who askedto remain anonymous, told us Amazon expects them to keep upa fast, often unreasonable pace.
They say that they careabout their employees and quality.
But no, it’s reallyjust about numbers.
You have to make not only a certainrate but you can’t accrue more than 30 minutes of time-off-task per dayotherwise you get written up.
Usually most buildings are atleast a million square feet.
You could be walking three to fiveminutes each way to go to bathroom.
So if you went to the bathroom twiceyou could easily use up that 30 minutes.
So a lot of peopledon’t go to the bathroom.
CNBC was connected to Fuller throughthe Retail, Wholesale and Department Store Union.
Although he’s not a union member.
We asked Amazon about theworking conditions in fulfillment centers.
We have world class facilities, wehave restrooms all over this place.
We have break rooms.
We have TVs.
Anybody who is watching, don’ttake my word for it.
Please come take a tourand see for yourself.
I’ll put us upagainst anybody any day.
Do you feel like the pace that workersare asked to work out is reasonable? Well our, the way we look atproductivity rates, just like anyone, we have expectations.
In every job, my jobhas expectations, your job has the expectations.
The way we set the ratesand the processes are based on actual performance and the overwhelming majorityof employees are able to meet those expectations.
Warehouse workers told us their productivityis closely tracked based on how often they scan a package.
Workers told us they can get writtenup if they don’t meet certain metrics.
Amazon also has patents for aGPS-enabled wristband that could track workers’ movements and breaks.
I think too often people look atthat technology and sort of debate, is this Big Brother tracking an employeeor something to that effect? And you know really almost all thetime you look at these wearables or other types of things like that, they’re usually some form of safety device.
Workers can lose their jobs ifthey don’t work fast enough.
At one warehouse in Baltimore, TheVerge reported that Amazon terminated 300 full-time associates in a one-yearperiod between 2017 and 2018 for inefficiency.
Amazon said in a statementthat “the number of employee terminations have decreased over the lasttwo years at our Baltimore facility as well asacross North America.
” Amazon workers are under attack.
What dowe do? Stand up, fight back.
There have been several protests in thelast few years around the world where Amazon workers havedemanded better working conditions.
In orientation theytalked about safety.
That was the number one thing.
And you getthere and that’s forgotten.
In the UK, ambulances were called toAmazon warehouses 600 times from 2015 to 2018.
In April, the National Councilfor Occupational Safety and Health identified Amazon as one of a”dirty dozen” companies, citing six deaths in seven months and13 deaths since 2013.
But Amazon says that last year aloneit spent $55 million in safety improvements at fulfillment centers and itsemployees got a million hours of safety training.
As Amazon increases the shipping speed, can they also increase conditions to be more fair, equitable andsustainable as far as safety goes? Well I’m incredibly proud of the safetyrecord of our sites and the focus of our leadership team on safety.
Any incident is one too many andanytime something happens, our teams come together and figure out what happened and getto the root cause and try to eliminate anything from occurringagain in the future.
Amazon Air is another area where growthin the program has led to challenges.
Amazon-branded planes are flownby contract pilots from Atlas Air, ABX and Southern Air.
These airlines negotiate contractswith the pilots.
And five of these pilots toldus working conditions have deteriorated since their airlines startedflying for Amazon.
As a result of Amazon being such alarge company, they have the ability to put a very strong pressure on ourcompanies and have them drive down our pay and working conditions as pilots.
Dan Wells heads up theunion that represents these pilots.
They protested outside Amazon’s annualshareholder meeting in May.
They also spoke out in April againstpoor working conditions and low pay near the new Amazon air hub.
We have a hard timemaintaining enough qualified pilots.
There’s a tremendous amount of turnoverat these carriers which in net reduces experience and creates a lot ofstress on things, a lot of frustration, which certainly distracts peoplefrom their duties as pilots.
In February, an Amazon Air planeoperated by Atlas Air crashed near Houston, killing allthree pilots aboard.
The cause of the crash isunder investigation with initial National Transportation Safety Board findings showingthe pilots may have lost control of the plane.
In interviews with Business Insiderweeks before, several Amazon Air pilots said they thoughtan accident was inevitable.
They cited low wages that madeit difficult to attract experienced pilots, training they considered shoddy, fatigue and poor morale.
Pilots that are working forAmazon’s contractors are overwrought with schedules and scheduling changesand constant training.
All of those things have added togreatly increasing the risk in the cargo system that we fly in.
In a statement Amazon said, “Allof our airline delivery providers must comply with the Amazon Supplier Codeof Conduct and Federal Aviation Administration regulations.
We take seriously any allegation thata delivery provider is not meeting those requirements and expectationsand review accordingly.
” Workers bringing packages that last mile toyour door also told us safety is a concern.
One reason: Amazon doesn’t provide Flexdrivers with any branded clothing to identify them.
I’m pulling up to this house and I getto the front door and you know this guy just comes running out like, “Hey what are you doing?” and he’s talking so fast and Iwas thinking you know I’m in Connecticut.
You know I’m a Puerto Rican guy ina white guy’s yard and like, you know, what if he just comes out andshoots me in the face without asking questions? You know that was my fear.
After another delivery where he saysa customer let his German Shepherd charge at him, Jonathan paid 45 dollars outof his own pocket for a custom sweater on Etsy.
I think Amazon the least they could dois give us something that would make it a little bit safer and makeus more visible when we’re out there delivering.
I’ve gotten a lot of mean glaresfrom people because they’re like, “Who is this guy? He’s just in front of my driveway or he’sparked in front of my house.
He’s just wearing a yellow vest.
” You don’t even have towear that vest.
It’s just, I do it because atleast I look less suspicious.