Volume surges strain capacity at Amazon, put one-day shipping on back burner

Amazon.com Inc.’s (NASDAQ:AMZN) second-quarter results blew past Wall Street’s estimates and the company’s own guidance, leading its CFO late Thursday to caution that the company is running out of fulfillment and delivery capacity to handle continued volume surges and prepare for the second half of the year when volumes are strongest.

In a call with analysts following the results, Brian Olsavsky said Amazon is making some progress toward restoring the one-day shipping guarantee for shipments ordered under the company’s Prime service. However, Olsavsky said it will take some time before the one-day commitment returns to levels that were in place before the novel coronavirus hit the U.S. in February and triggered a massive surge in e-commerce demand that overwhelmed the company’s infrastructure and led to delivery delays. To handle the overflow, Amazon began utilizing larger, boxy package cars to take some of the pressure off of its smaller vans.

Restoring the one-day guarantee is third on Amazon’s priority list behind maintaining the health and safety of its workforce and expanding its network capacity, Olsavsky said. Capacity concerns have crept up after second-quarter volumes soared well beyond anything Amazon has ever experienced on a seasonal basis. As evidence, worldwide shipping costs in the quarter surpassed $13 billion, exceeding shipping costs in the 2019 quarter by a whopping 68%. Shipping costs in the second quarter exceeded fourth-quarter 2019 levels by about $800 million, according to company data.

Expecting “historic” volume increases during the second half of 2020 as the peak holiday shipping season merges with increased online ordering from consumers still reluctant to return to stores, Amazon plans to boost capacity by 50% starting late in the third quarter, Olsavsky said. “We’ve run out of space” to meet current and future demand, he said.