By Brian Livingston
The market dominance of Amazon in online retail is well known. But what’s less understood is the effect the corporate giant’s expansion into superfast delivery services will have on the US Postal Service and private parcel companies.
Marc Wulfraat has extensively studied Amazon’s plans in the United States and 22 other countries in his role as president of MWPVL International, a logistics consulting service based in Montréal, Québec.
In the past year, Amazon has built eight new “same-day fulfillment centers” in the US. It plans to develop at least one “in every major US city, so they are just getting started on this,” Wulfraat says.
Amazon’s existing same-day programs include Prime Now Hubs, Amazon Pantry/Amazon Fresh for food and perishables, and delivery services from the Whole Foods stores that Amazon purchased in 2017.
But the new same-day nodes will provide a higher level of speedy delivery. “No one has written about these facilities yet,” according to Wulfraat.Amazon pretty much has us surrounded already
To deliver its retail orders, Amazon maintains a variety of distribution facilities in the US and other countries.
Figure 1. Existing and planned Amazon delivery stations in the US. The light gray blobs are approximate areas that are not yet within easy trucking distance of a facility. Source: MWPVL International
Figure 1 shows where Amazon has built or is developing what it calls Small Package Delivery Stations and Heavy/Bulky Delivery Stations in the US. Based on MWPVL records, the following are a few examples of the retailer’s facilities:
- Small Package Delivery Stations, launched in 2013, range widely from 10,000 to 1 million sq. ft. (929 to 92,903 m²) and handle lightweight products that can fit into a shipping box with other small items.
- Heavy/Bulky Delivery Stations, initiated in 2017, provide last-mile delivery of products weighing 60 to 300 lbs. (27 to 136 kg) that cannot be packed with other items.
- Prime Now Hubs, not shown in Figure 1, began in late 2014. They are generally 12,000 to 60,000 sq. ft. (1,114 to 5,574 m²) and stock only about 15,000 products. As of February 2021, there are approximately 55 of these hubs in the US. They allow Amazon to offer Prime members free same-day delivery of eligible items over $35, but only to residential addresses within certain ZIP codes.
- Amazon Pantry, Amazon Fresh, and Whole Foods are grocery-related. The company currently operates approximately 21 Pantry/Fresh fulfillment centers and 12 Whole Foods distribution centers in the US. (These centers are separate from the 476 Whole Foods US stores.)
The problem with the existing system is that many items are handled multiple times. Packages may start at a fulfillment center, move to a regional sortation center to be divided into ZIP codes, and finally wind up at an Amazon delivery station or a specific post office to get to your door. This is called a “three-tier journey.”
These tiers will be eliminated in the new same-day nodes. Each facility is designed to hold an ample percentage of the retailer’s inventory. “The roll-out of these facilities has been very quietly done with no fanfare,” Wulfraat says, “but the idea is that you order by the morning and you get the delivery at your home before the end of the day.”
You can’t drop off a package at a post office and expect your parcel to arrive on the other side of a major city in just a few hours, of course. Will the development of Amazon’s “so fast your head will spin” services take away package-delivery business that USPS relies on for its revenue?Where are these same-day nodes — and where will they be?
The new same-day facilities are intended to occupy approximately 150,000 to 200,000 sq. ft. (13,935 to 18,580 m²). According to MWPVL data, they currently exist in or are being added to the following metro areas.
- ARIZONA: Phoenix
- FLORIDA: Orlando
- ILLINOIS: Woodbridge (west Chicago metro)
- MARYLAND: Elkridge (Baltimore metro)
- TENNESSEE: Nashville
- TEXAS: Carrollton (north Dallas–Ft. Worth metro)
- VIRGINIA: Springfield (Washington, DC, metro)
- WASHINGTON: Everett (Seattle metro)
- CALIFORNIA: San Diego
- ILLINOIS: Skokie (north Chicago metro)
- MICHIGAN: Hazel Park (Detroit metro)
- TEXAS: Dallas
A facility that was kept secret for competitive reasons
Todd Bishop, the editor of the GeekWire tech news site, has analyzed Amazon’s development process for a new delivery station that’s far from a major city. It’s going up in Glenn County, California, a farming area with a total population of about 28,000, according to 2019 Census Bureau estimates.
Amazon’s facility will be located in an industrial park just outside the small town of Orland, about 100 miles (161 km) north of Sacramento. The development site is convenient to Interstate 5 for trucking. (See Figure 2.)
Figure 2. A future Amazon delivery station is being developed in Glenn County, California, population 28,000, north of Sacramento. Photo by Chris Kaufman
In anticipation of the 75,000 sq. ft. (6,968 m²) facility’s new jobs, Bishop found, the county’s board of supervisors in September 2020 reduced the industrial park’s payments in a closed session, followed by an open vote on the general subject. Amazon’s identity was kept secret from the public under a nondisclosure agreement the retailer had signed with the site’s owner and that the supervisors honored.
It’s not uncommon for developers to withhold a client’s name in order to prevent competitors from learning about new opportunities. The question is whether the expansion of Amazon’s private deliveries into more and more areas such as these will harm USPS, a crucial public service, which stands to lose large volumes of parcel deliveries.
“Despite former President Trump’s insistence that Amazon was costing the Postal Service money, there’s clear evidence in the USPS financial records that Amazon is a huge financial benefit,” Bishop said in a telephone interview.
“I do believe the trend long-term of Amazon building out its last-mile delivery capabilities could have a financial impact on the US Postal Service’s ability to grow its package-delivery services.”How far will Amazon go to dominate the market on fast delivery?
The impact on USPS could come in at least two different ways:
- Amazon could cut the fees it pays the postal service in areas where the retailer has built delivery stations, and
- Amazon could offer its delivery services to other companies, which would in turn pay for fewer postal services themselves.
Amazon is clearly in a dominant position. Its US market share of online retail is estimated to be 50 percent in 2021, according to a Statista survey. But that by itself is not a legal concern.
It isn’t illegal in the US for a corporation to achieve a monopoly share of a market. For instance, a company could build a commanding position by offering lower prices, better service, patented products, or other reasons.
Where corporations fall afoul of the Sherman Antitrust Act is using a dominant position in one market to compel success in another. For example, if third-party sellers were not allowed to offer their products on Amazon unless the companies also used Amazon’s delivery services, that could be interpreted by the US Dept. of Justice as “bundling.”
That’s a no-no, as Microsoft found out in the late 1990s. The Justice Dept. managed to convict the company of bundling its free Internet Explorer browser with Windows 98 and restricting users and PC makers from easily replacing it with competitors such as Netscape Navigator. (In 2000, a court ordered Microsoft to be broken into two separate units. But the company negotiated a settlement in 2001 that simply opened the Windows API to third parties.)
Bishop believes that Amazon may push hard to compete with USPS as well as private delivery services by inducing third parties to use its rapid-delivery services. As evidence, he points out that when Jeff Bezos stepped down as Amazon’s CEO on February 2, his successor turned out to be Andy Jassy, who has run Amazon Web Services during its entire 15-year existence.
AWS started out as a cloud-computing service used solely by Amazon’s own retail operations before we’d ever heard of “cloud computing.” Jassy pushed to make AWS available to every company worldwide. Now, AWS by itself generates more than $40 billion in annual revenue and provides 77 percent of Amazon’s total operating profit, according to a Business Insider report.
How far will Amazon go to make itself the leader in same-day deliveries for the US and many other parts of the world? That’s a question with major implications for postal systems everywhere — not just USPS.
Amazon’s competitors aren’t standing still, of course. Other retail giants, including Walmart and Target, are building up their own same-day delivery offerings. Walmart actually has some advantages — its 4,750-plus stores in the US far outnumber all of Amazon’s facilities combined.
But the US Postal Service is not a retailer and cannot subsidize its delivery business by selling groceries, laptops, and every other manner of consumer goods. The trend toward same-day delivery puts the agency at a severe disadvantage.
Perhaps no one will care whether their post office becomes more and more cash-strapped. But some people may want to ensure that the goal of universal postal service to every part of the country is guaranteed and preserved for future generations.
The decisions made in the months ahead by Amazon and its competitors — and the government agencies that regulate them — will determine the outcome. It’s best for this to take place with the public well informed about what’s at stake.
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The PUBLIC DEFENDER column is Brian Livingston’s campaign to give you consumer protection from tech. If it’s irritating you, and it has an “on” switch, he’ll take the case! Brian is a successful dot-com entrepreneur, author or co-author of 11 Windows Secrets books, and author of the new book Muscular Portfolios. Get his free monthly newsletter.