Jeff Bezos’ logistics legacy

There are many chapters that could fill the book of what has become a most remarkable American business story. Yet a chapter that some might skim over is the one describing how Jeff Bezos came to transportation and logistics — and may end up dominating it — from behind.

The trailblazers before him — Leland Stanford, whose money built the transcontinental railroad; Jim Casey, whose United Parcel Service created the package delivery business as we’ve come to know it; Malcom McLean, whose containerization model revolutionized international trade and transport; and Fred Smith, who took a traditional hub-and-spoke model, applied it to the urgent air shipping of high-value cargo and named it Federal Express — all put transportation front and center.

Not Bezos. He launched Amazon.com, Inc. (NASDAQ:AMZN) by selling books and music online. Obviously, the orders needed to be shipped. But that wasn’t his main concern; the stuff would get there when it got there. Only after 2005, when he rolled out his category-killing Prime subscription service which, among other things, promised unlimited two-day deliveries with money-back guarantees, did Bezos recognize the need to backfill his retail model with shipping. And not until the 2013 peak shipping season, when millions of holiday packages arrived late due to bad weather and operational snafus on multiple fronts, did Bezos realize he could no longer put all of his trust in the hands of others.

What emerged from the combination of vision, resources and execution was lightning in a bottle: the ability of a retailer to sell in-house and third-party goods from one website, and then fulfill and ship those orders, measured in the billions of packages, to consumers using its own transport and logistics network. In 2020, Amazon shipped 6 billion parcels, about 4 billion of them in its own network, according to data from The Colography Group Inc., a consultancy.

If Amazon’s shipping plans come to fruition — and there’s little to question its commitment given its $61 billion in shipping spend last year — the world’s largest e-commerce retailer will eventually become the world’s largest delivery company. It closed in on, if not exceeded, FedEx Corp.’s (NYSE:FDX) calendar year 2020 U.S. air and ground volumes. (Amazon reports on a calendar year, while FedEx reports on a fiscal year that runs from June 1 to the following May 31.) 

Just as astounding as the development of Amazon’s blueprint has been the traction to it from merchants and consumers alike. On Tuesday, when Bezos said he would step down as CEO during the third quarter to become executive chairman, Amazon reported fourth-quarter net sales of $125 billion. Amazon, which has been in business since 1994, generated $386 billion in 2020 revenue. It took Walmart Inc. (NYSE:WMT), the retail weapon of mass destruction of a prior era, 58 years to get to $524 billion. If there is a company that hits the holy grail of $1 trillion in annual revenue before anyone else, it will likely be Amazon.

Bezos departs around the time the first phase of the company’s 3 million-square-foot, $1.5 billion global air hub in Cincinnati opens for business. Amazon will have around 75 freighters in its air fleet by the end of the year and will be over 80 planes in 2022, according to current estimates, which are subject to change. It has an ever-growing armada of vans, tractor-trailers and box trucks with sizable space. It is constructing fulfillment, sortation and in particular, local delivery centers as fast as foundation can be poured, the idea being to neutralize FedEx’s and UPS Inc.’s (NYSE:UPS) dominance in ground delivery networks. Late last year, Amazon announced in one day the opening of eight logistics facilities in Arizona alone. 

Today, Amazon operates 815 U.S. facilities, with 262 additional planned, according to MWPVL International, a consultancy that follows Amazon’s distribution network strategy.

Bezos also steps away before the launch of what could be Amazon’s most ambitious and disruptive program ever: a stand-alone transport and distribution network to pursue shippers of all sizes that don’t sell on Amazon’s website. This puts Amazon directly into FedEx’s and UPS’ kitchens, not to mention the many companies in other modes with customers that don’t currently sell on Amazon. 

The tactic, at least to the extent that it has been reported, is to soak up off-peak shipping capacity. The long game is to take customers from UPS and FedEx, and co-opt them into the broad Amazon network. That has been happening for years. Merchants who sell on Amazon’s site use Amazon Logistics for distribution and deliveries. At one point, a good chunk of those merchants were FedEx or UPS shipping customers.

The program, which was in the pilot stage until it was tabled due to the COVID-19 pandemic, will likely be revived in full force once the virus fades from the scene. It has already put Amazon in the crosshairs of FedEx’s Smith, who at 76 is determined to blast Amazon out of the water and has assembled an anti-Amazon coalition from multiple slices of the supply chain to do it. 

“I think Fred believes that they can take down Amazon,” said Mark S. Schoeman, The Colography Group’s president. However, Amazon has the wherewithal to withstand the onslaught, Schoeman said. “Amazon isn’t worried about FedEx,” Schoeman added. “If it thinks it will be beneficial to build out its network, it will do it.”

UPS, meanwhile, has a tightrope to walk. Amazon is its largest customer, accounting for 13.3% of UPS’ $84 billion in 2020 annual revenue. UPS CEO Carol Tomé has served notice on large customers that the days of receiving low rates in exchange for high volumes are over. That could hasten what had been expected to be a gradual, multiyear dissolution of the relationship, as Amazon gets as good a deal as any UPS customer.

Multiple people interviewed for this and other stories about Amazon in recent years said the company will accomplish whatever it sets out to do, and that it has well-laid plans that will survive even the most historic personnel changes. Marc Wulfraat, who runs MWPVL International, said there’s no chance the shift at the top will alter the company’s well-entrenched delivery and distribution strategy. “That train has left the station,” he said.

The new CEO, Andrew R. Jassy, heads up Amazon Web Services, its hugely profitable, $40 billion-a-year cloud-based business. Dave Clark, who effectively built Amazon Logistics from scratch after the disastrous 2013 peak season, has been promoted to run the company’s Worldwide Consumer unit. However, Clark remains the “progenitor and champion of Amazon Logistics,” said David Glick, who worked with Clark for three years at Amazon and is now chief technology officer at Flexe, an on-demand warehousing firm. “With Clark going stronger than ever, Amazon Logistics will continue to grow and expand,” Glick said.

James Thomson, chief strategy officer at Buy Box Experts, a consultancy that helps clients do business with Amazon, said the company should run like clockwork in a post-Bezos era. Not that Bezos is leaving the scene of his $1.6 trillion company.

“Amazon is a long-term-focused firm, and the board is supposed to work on the long-term focus for the firm,” Thompson said. As the executive chair, Bezos will “still have his fingers very much on long-term strategy,” he said.

No living executive has altered the world like Jeff Bezos. Most know him as the creator of e-commerce and the transformer of retail. But his supply chain footprint is equally immense. The delivery, warehousing and distribution, real estate and labor markets have been changed forever by Bezos and his company. Nary a logistics conference–in person or virtual–goes by where the phrase “The Amazon Effect” isn’t referenced over and over again. Much of the universe of business and commerce marches to his tune. That may be the sincerest form of flattery.