How Amazon Delivers On One-Day Shipping

Before the launch of Prime in 2005, one-day

shipping

was an exorbitant luxury. It's now the standard

shipping

speed for Amazon's 100 million Prime members. Earlier this year, Amazon doubled Prime shipping speed from two days to one. And the fastest speed is now available on more than 10 million products. Prime one day is basically going to A) keep up with the traditional guys and B) improve Prime. Amazon has changed the game completely. So what they excel at is getting an object from a creator to a consumer in the most perfect and quickest way possible. So Amazon is changing people's expectations and constantly improving them.

But behind each Amazon box there are many people working and spending a lot of money to deliver it to you in a single day. This is what happens when you purchase a Prime-eligible item on Amazon.com. Amazon spends tens of billions on shipping each year. In the last quarter of 2018 alone, Amazon's shipping costs increased by 23%, reaching a record $9 billion. So why is it worth it? Well, customers expect fast and consistent delivery of anything in the world from Amazon. And our job is to continue to make that happen. And Amazon set aside $800 million in just the second quarter of 2019 to start making one-day shipping the norm.

Most of that investment goes toward infrastructure and transportation costs associated with accelerating delivery to the millions of Prime customers who are about to begin experiencing the day as the new normal. The difference with e-commerce is that the costs never end. Picking, packing and shipping are done each time a unit is shipped. To better control this process and its high cost, Amazon is reducing its dependence on UPS and the United States Postal Service and is investing heavily in its own logistics network. It now manages the shipping of 26% of online orders. Amazon now has at least 50 planes, 300 semi-trailers, 20,000 delivery vans and operates ocean shipping services between the United States and China.

Amazon seeks to do it all. That shouldn't be a big surprise. All Amazon cares about is making sure the customer is satisfied and pays for Prime every year or every month. What that means is that sometimes you can trust your partners, but you need to make sure you have it in your pocket if that's not the case. Other big retailers are also spending big to keep up with the fast shipping expectations that Amazon has created. Walmart is rolling out free next-day shipping on orders of $35 or more starting today. And Target offers free two-day shipping on orders over $35.

And during Amazon's big Prime Day sales event on July 15 and 16, eBay plans to hold a flash sale that will offer 80% off big-ticket items. Amazon turns 25 years old. The reality is that it is a very short time to be here and have become the number one player. So can anyone compete? Surely people can compete. Will they be able to compete sustainably? It is the most difficult question. I don't think we've seen it yet. The journey a package takes to your door begins before you even place your order. Most items on Amazon are sold directly by a third party.

In Jeff Bezos' April 2019 shareholder letter, he said third-party sales have increased from 3% of total merchandise sales in 1999 to 58% in 2018. Amazon charges those sellers a fee to list items on Amazon.com starting at about 15% of the item's sale price. Amazon also sells things directly. In some cases, Amazon purchases inventory from a third party and then sells it to consumers. Other items include Amazon's own brands such as Amazon Basics, Amazon Essentials, fashion lines such as Lark & ​​Ro, and Alexa devices such as Echo. All items sold directly by Amazon are already in an Amazon warehouse waiting to be ordered and shipped.

Most third-party items fulfilled by Amazon are also already waiting in an Amazon warehouse, while others are shipped directly from the seller or to an Amazon warehouse once you hit the place order button. Amazon does not reveal the details of its inventory strategy. Figuring out where a product is located before you buy it is a phenomenal mystery. It's something every reseller would love to know. And discovering the Amazon code has been part of that difficult process. After an item is ordered and ready at one of Amazon's 175 fulfillment centers around the world, some of its 250,000 warehouse workers pick it up, pack it and ship it, often with the help of one of its 100,000 robots.

It is essentially an amusement park for a box. There are conveyor belts that go around, there are slides. Looks like lots of fun. But the question is: how much is automated versus how much is manual work? And that suite, combining that, figuring out how to have the fewest human touchpoints while ensuring the best quality control is that perpetual conversation. We visited a fulfillment center outside Seattle where 2,000 workers prepare packages in a space of a couple million square feet. The workers here showed us the process of taking an item from the shelves to a box. We scan the item and make sure that item matches what we have in our hand and what's on the screen and then we put it in a container.

And then there are cameras that take pictures of where our hands go and where we place the object. I'm a picker, so I select products that will end up going to the packaging department and then they will package them and ship them to our customers. I need to put it in a box. In fact it tells me what type of box it is. Tape. Put the item there. Scan it. Leave it on the line. Amazon says its 100,000 robots inside fulfillment centers help make this entire process more efficient. In 2012, Amazon bought robotics company Kiva for $775 million and began using robots in its fulfillment centers a couple of years later.

There are now driving robots that move inventory, robotic arms that lift boxes and pallets, and even a new robot that can pack items into custom-sized boxes. If it wasn't for them then I would have to walk and I would rather be up here in my little world picking up than walking up and down. That's why I love robots. As technology continues to change how fulfillment centers work, Amazon just announced that it will spend $700 million to retrain a third of its U.S. workforce by 2025 and move them into more advanced jobs. After an order leaves the fulfillment center, it has to cross the country or the world to another warehouse in your region.

Some boxes are shipped through one of the shipping giants, but Amazon is cutting costs by shipping packages on at least 300 of its own semi-trailers and now dozens of its own planes. We have been building an aerial network for several years. That, along with our partner networks, we are in a place where we have a lot of incremental capacity to be able to advance packages to customers much faster than we did two or three years ago. Amazon broke ground on a new $1.5 billion air hub in Northern Kentucky in May. It has capacity for 100 aircraft. One of the best things about customers around the world: they are incredibly unhappy.

You give them the best service you can. They love. But they always want a little more. We're moving Prime from two days to one day and this center is a big part of that. After an item arrives near your city, wait at another warehouse like this one for a delivery person to pick it up and take it the last mile to your door. We've been building for over 20 years to support this network that eventually gets faster and faster and we knew we would start migrating to a one-day service. The big difference for us is how we get the product from our fulfillment center to the last mile location.

The last mile is the most expensive part of the delivery process. Until an item reaches a warehouse near your home, it can be shipped in bulk. But then each package must be personally delivered to a different address, which requires a lot of people and a lot of time. Amazon pays to outsource much of its last-mile delivery to carriers like UPS and USPS, which charge a fee, and those fees simply increased. In January, the post office increased its last-mile shipping rate by nine to 12%, depending on the size of the package. The more Amazon can keep last-mile delivery in-house, the more it can control these costs.

To do this, Amazon uses small partner companies, some of which deliver 20,000 Amazon vans. And in 2015 it launched Amazon Flex. I've been driving for Amazon Flex since about 2016 on and off, I'd say at least two full years. Amazon Flex is available in about 50 U.S. cities. Anyone over 21 with a driver's license, car insurance, and at least a midsize sedan can sign up. After passing a basic background check, drivers in areas with open spaces can begin picking up and delivering packages. Drivers use the Flex app to log into a lockout, which ranges from three to six hours. They then head to a warehouse where they find out how many boxes they have been assigned to deliver in that time period.

Amazon advertises that drivers earn between $18 and $25 an hour and are responsible for their own vehicle costs, such as gas, tolls and maintenance. Amazon did not disclose how many drivers have signed up or what percentage of its last-mile deliveries are made by Flex drivers compared to its shipping partners. But it did tell us that its last-mile delivery programs are expanding. We've developed these small businesses, the delivery service providers, and we have Flex, which is our on-demand collaborative delivery piece. So we need all of that to satisfy the various types of delivery that we do in each of our geographies and I think we'll see expansion on all fronts there.

Amazon has an unusual approach to increasing the number of small business partners helping in the last mile. Amazon says it will contribute up to $10,000 if full-time employees want to leave the company and start their own package delivery services. Early response is excellent. It allows us to complement the capacity we have with our large transport partners. It's great for some of our employees who don't want to do the same thing they've been doing in the warehouse for five or ten years. They want to learn new skills and more than 16,000 employees have already accepted us. Amazon is also exploring several high-tech solutions to streamline last-mile delivery.

In June, Amazon announced that its new autonomous delivery drone will be operational within months and that it has a one-year FAA permit to test it. We're building all-electric drones that can fly up to 15 miles and deliver packages weighing less than five pounds to customers in less than 30 minutes. Amazon also has patents for a giant flying warehouse and drones that can react to hand movements and shouts. And it's even testing a curbside robot called Scout to bring packages right to your door. All of these steps are incredibly challenging to accomplish. In recent years, Amazon has faced an avalanche of negative press about working conditions at every step of the process.

We spoke to several workers about their concerns. The working conditions at Amazon are dangerous and that is systemic. I've worked in five different buildings in three different states, from coast to coast, and it's the same everywhere. It may not be outright exploitation, but it's almost like a disposable workforce. It has been so widespread that many of our airline pilots, in fact most of our airline pilots, are actively seeking employment elsewhere. Last year, Amazon raised the minimum wage to $15 for its 350,000 U.S. employees, more than double the federal minimum wage of $7.25. In his annual letter to shareholders, owner Jeff Bezos challenged other major retail companies to match this.

And Amazon offers generous benefits. I needed my health insurance. That's essentially what kept me on Amazon. But some workers, most of whom asked to remain anonymous, told us that Amazon expects them to maintain a fast, often unreasonable pace. They say they care about their employees and quality. But no, it's really just about numbers. Not only do you have to make a certain rate, but you cannot accumulate more than 30 minutes of free time per day, otherwise you will receive a fine. Typically, most buildings are at least one million square feet. You could walk three to five minutes each way to go to the bathroom.

So if you went to the bathroom twice, you could easily use those 30 minutes. That's why many people don't go to the bathroom. CNBC was connected to Fuller through the Retail, Wholesale and Department Store Union. Although he is not a member of the union. HeWe asked Amazon about working conditions in fulfillment centers. We have world-class facilities, we have bathrooms all over this place. We have break rooms. We have televisions. Anyone watching, don't take my word for it. Please come take a tour and see for yourself. Any day I'll take on anyone. Do you think the pace at which workers are asked to work is reasonable?

Well, the way we look at productivity rates, like anyone, we have expectations. In every job, my job has expectations, your job has expectations. The way we set rates and processes is based on actual performance and the vast majority of employees are able to meet those expectations. Warehouse workers told us their productivity is closely monitored based on how often they scan a package. Workers told us they can be fined if they don't meet certain metrics. Amazon also has patents for a GPS bracelet that could track workers' movements and breaks. I think too often people look at that technology and debate: Is this Big Brother tracking an employee or something?

And you know almost all the time you look at these wearable devices or other types of things like that, they're usually some type of security device. Workers can lose their jobs if they don't work fast enough. At a warehouse in Baltimore, The Verge reported that Amazon laid off 300 full-time associates in a one-year period between 2017 and 2018 for inefficiency. Amazon said in a statement that "the number of employee layoffs has decreased over the past two years at our Baltimore facilities, as well as across North America." Amazon workers are under attack. What do we do? Get up, counterattack. There have been several protests in recent years around the world where Amazon workers have demanded better working conditions.

At orientation they talked about safety. That was number one. Security. And you get there and that's forgotten. In the United Kingdom, ambulances were called to Amazon warehouses 600 times between 2015 and 2018. In April, the National Council for Occupational Safety and Health identified Amazon as one of the "dirty dozen" companies, citing six deaths in seven months and 13 deaths since 2013. But Amazon says that last year alone it spent $55 million on safety improvements at fulfillment centers and its employees received one million hours of safety training. shipping speed, can they also increase the conditions to be more fair, equitable and sustainable when it comes to security?

Well, I'm incredibly proud of our sites' safety record and our leadership team's focus on safety. Any one incident is one too many and every time something happens, our teams get together and figure out what happened, get to the root cause and try to eliminate anything so it doesn't happen again in the future. Amazon Air is another area where the program's growth has created challenges. The Amazon-branded planes are flown by contract pilots from Atlas Air, ABX and Southern Air. These airlines negotiate contracts with pilots. And five of these pilots told us that working conditions have deteriorated since their airlines began flying for Amazon.

As a result of Amazon being such a large company, it has the ability to put very strong pressure on our companies and cause them to reduce our salaries and working conditions as pilots. Dan Wells heads the union that represents these pilots. They protested outside Amazon's annual shareholder meeting in May. They also spoke out in April against poor working conditions and low wages near Amazon's new air hub. We find it difficult to maintain enough qualified pilots. There is a tremendous amount of turnover on these airlines, which ultimately detracts from the experience and creates a lot of stress, a lot of frustration, which certainly distracts people from their duties as pilots.

In February, an Amazon Air plane operated by Atlas Air crashed near Houston, killing all three pilots on board. The cause of the crash is under investigation and initial findings from the National Transportation Safety Board show that the pilots may have lost control of the plane. In interviews with Business Insider weeks earlier, several Amazon Air pilots said they thought a crash was inevitable. They cited low salaries that made it difficult to attract experienced pilots, training they considered poor quality, fatigue and low morale. Pilots working for Amazon contractors are overloaded with schedules, scheduling changes, and constant training. All of those things have greatly increased the risk in the cargo system in which we fly.

In a statement, Amazon said: "All of our air delivery providers must comply with the Amazon Supplier Code of Conduct and Federal Aviation Administration regulations. We take seriously any allegations that a delivery provider does not comply with those. requirements and expectations and review it accordingly. Workers carrying packages the last mile to your door also told us that safety is a concern. One reason: Amazon doesn't provide Flex drivers with any branded clothing to identify them. I pull up to this house, I get to the front door and you know this guy runs out and says, "Hey, what are you doing?" And he talks so fast and I was thinking, you know I'm in Connecticut.

You know I'm a Puerto Rican in a white man's yard and, you know, what if he just comes out and shoots me in the face without asking questions? You know that was my fear. After another delivery in which he says a customer let his German shepherd charge him, Jonathan paid $45 out of his own pocket for a custom sweater on Etsy. I think the least Amazon could do is give us something that would make it a little safer and make us more visible when we deliver. I've gotten a lot of mean looks from people because they're like, "Who is this guy?

He's right in front of my driveway or he's parked in front of my house. He's just wearing a yellow vest." You don't even have to wear that vest. It's just that I do it because at least I look less suspicious. In a statement, Amazon said: "They can wear the safety vests we have available to them at delivery stations while on their route, which can help customers identify Flex participants." And some drivers told us that the way the Flex app works encourages distracted driving because it requires drivers to manually hit refresh to secure their next task. If you want to get blocks, you have to press the refresh button in the app almost constantly.

But how do you do that while delivering? That's why he encourages people to do it while driving. In a statement, Amazon says: "Safety is our top priority and we are proud of our record of safe driving. We regularly communicate to drivers on a variety of safety topics, including charging and driving practices. Amazon Flex participants also can sign up for delivery blocks up to a week in advance through the Amazon Flex app." Amazon is working to ease the burden on its delivery drivers and save money with high-tech solutions like those Scout drones and sidewalk robots, and its fulfillment centers are also becoming more automated.

Our focus on automation has really been to start automation in the places that can be most beneficial to the workforce. Eliminate the most tedious task, eliminate the heaviest lifting task, whether it's lifting large containers or carrying inventory to the associate so you don't have to scour the largest selection on Earth to find what you're looking for. But for now, Amazon still depends on people to bring us our packages in just one day. And as expectations for fast delivery continue to grow, Amazon will have to continue to innovate to make shipping even faster. We will see that the shipping speed increases every day.

The announcement that Amazon is going to do it in one day is ironic because in certain regions we already have it in an hour. That's not going to stop. And what's absolutely critical is any company that sticks its head in the sand, even if it's Amazon. We'll see how the competition overlooks them. That's the only guarantee we have in retail.