The tension between the logistics operations of Amazon and the rest of the business has re-emerged in the Seattle company’s latest results.
Profits for the whole company are buoyant, with net income for the third quarter up from US$79m in 2015 to $252m in 2016. Sales too have increased with total net sales in Q3 hitting $32,714m compared to $25,358m in the same period last year.
However, the performance across what is a complex business was variable. The Amazon AWS business, which offers server capacity for ‘cloud based’ software, delivered impressive results, with sales up more than 50% and operating income almost doubling to $861m from last years $428m.
In contrast the core business in North America and the ‘International’ business had more muted growth. North America saw sales up by 20% to $18,874m whilst operating income was $255m, up 37%. The ‘International’ division saw revenue up by over $2bn to $10,609m but the segment saw losses double to $541m.
As ever with Amazon the level of clarity over the performance of the different parts of the retailing business is limited as it has not broken out the profit numbers for media and physical retailing parts of the business. However, it was physical retailing that drove sales growth with a 29% increase in North America and a 36% rise internationally.
In terms of logistics, the salient fact was the significant increases in costs. Crucially the trend towards higher shipping costs has not gone-away, with (gross) shipping costs at $3,897m for Q3 increasing by 43%, more or less in line with the increase of shipping revenue at 44% to $2,154m. This has resulted in the overall cost of shipping rising from $941m in Q2 2015 to $1,743m in Q3 2015. This is apparently driven by the increase in the speed of delivery as part of the programmes such as Amazon Prime.
‘Fulfilment’ costs, increased by a third year-on-year for the quarter to $4,335m for the whole company. This appears to be driven in part by capital investment in new warehousing to serve both by higher volumes and the need to support faster delivery. For example, the company said that it had already opened 18 new facilities over the year and was planning to open 24 in total over a twelve month period, mostly in the US.
This huge expenditure on logistics is a result of Amazon’s marketing strategy. In turn, however it is also shaping its corporate strategy as the company is forced to expand its presence in both warehousing and transport, just to retain revenues within the company.
Source: Transport Intelligence, October 31, 2016
Author: Thomas Cullen
If you liked this brief you might also be interested in joining our Ti Talks Global Logistics & Trade with ASR on Thursday 3rd November at 3pm BST.
The talk will feature ASR strategist Zahra Ward-Murphy and Ti CEO Prof John Manners-Bell. The key points of the Talk will be:
· An update on the latest logistics data and implications for global trade, including a focus on Asia.
· A look into Chinese e-commerce and the major trends in the Chinese parcel sector, where companies have recently started to go public.
· How Amazon is currently disrupting the parcel and wider logistics market and how it might do so further in the future.
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