Online giant Amazon reported an 86.1% y-o-y growth in operating profit for the full year 2024 on overall net sales growth of 11.0% to $637,959m. This was helped by a 60.5% y-o-y growth in Q4 operating income to $68,505m on net sales up 10.5% to $187,792m.
Where AWS missed forecasts in a large part due to the very competitive AI environment, in part because Amazon’s online shops are some of the like-for-like cheapest in most markets, this did well. Chief Financial Brian Olsavsky said, in Q4, “We saw strong productivity in our transport network from improved inventory placements, higher units per package and reduced travel distances.”
Focusing on Amazon’s logistics and fulfilment networks, in 2024 the company has:
– Rolled out a redesigned US inbound network
– Increased delivery speeds
– Reduced transport costs
– Improved fulfilment efficiency with AI and warehouse robots
Redesigned US inbound network
CEO Andy Jassy explained, “While still in early stages, our inbound efforts have improves our placement of inventory so that even more items are closer to end customers.” Ahead of the Cyber Week and Cyber Weekend in November and early December, Jassy continued, “We’d improved the percentage of order units available in the ideal building by over 40% y-o-y.” This feeds the evident customer demand for higher delivery speeds.
Customers want higher delivery speeds
Though this may have contributed to 7.2% y-o-y increased fulfilment costs in Q4 (with online sales just 7.1% higher) it appears that Amazon’s customers prefer their goods delivered the quicker the better.
Particularly in the US, Amazon’s online deliveries improved considerably in part because it had grown the number of same-day delivery sites by more than 60%, which now serves more than 140 metro areas.
Jassy said that the company has been analysing consumer behaviour with regard delivery speeds, saying “We have not yet seen diminishing returns and being able to continue to improve the speed of delivery.” According to the CEO, improved speed as an option increases wallet share of existing customers and attracts new customers at the same time. Despite the option to consolidate deliveries, customers tend to choose to have items delivered as they become available even if ordered at the same time.
Transport costs down
Though fulfilment costs went up, the online giant’s transport costs fell in the year. Jassy said, “Our per unit transport costs continued to decline as we build out and optimise our last mile network.”
This continued squeeze of transport costs may well have led to UPS reducing its Amazon delivery volumes by 50% going forward, as the US consolidator seeks to improve profit per parcel carried. Jassy appeared to confirm this, saying, “I think UPS has decided that serving Amazon is lower margin for them,” adding that even so, “We’re able to handle it with our own logistics capability and we’ll see how it continues to evolve.”
Warehouse robots the future?
As we stated earlier, fulfilment costs were up slightly more on a percentile basis than online sales growth. Even so, Amazon is working hard at moving previously human tasks over to robots. Jassy said, “We actually don’t think there are that many things that we can’t improve the experience with robotics.”
At its Shreveport experimental robotics facility the company has reported that new warehouse technologies have achieved:
– Fulfilment speed improvements
– Productivity improvements
– Cost to serve improvements
Jassy added, “It’s really early days but we have plans to expand that and roll that out to a number of facilities in the network, some of which will be our new facilities and others of which we’ll retrofit existing facilities to be able to use the same robotic innovations.”
Where much of the focus on Amazon from investors has been on its AWS product that hasn’t been competing as expected in AI, Amazon remains an online retailer for much of its revenues. Though this has only just turned to regular and strong profitability in recent years, this side of the business is currently performing strongly. From the online shopping experience to transport and fulfilment systems, Amazon leads the way in this industry in so many ways – and remains the one to watch in innovation in this space.
Author: Richard Shrubb
Source: Ti Insight
Supply chain strategists can use GSCi – Ti’s online data platform – to identify opportunities for growth, support strategic decisions, help them stay abreast of industry trends and development, as well as understand future impacts on the industry.
Visit GSCI subscription to sign up today or contact Michael Clover for a free demonstration: [email protected] | +44 (0) 1666 519907
For your logistics and transportation management needs
Providing high frequency logistics and supply chain data and analysis for all those invested in the industry.