Before Prime launched in 2005 one-day shipping was an exorbitant luxury.
Now it's the standard shipping speed for Amazon's 100 million Prime
members. Earlier this year Amazon doubled the speed of Prime shipping from
two days to one.
And the faster speed is now available on more than 10 million products.
Prime one-day is basically going to A) keep up with the brick and mortar
guys and B) enhance Prime.
Amazon has changed the game completely.
So what they excel at is getting an object from a creator to a consumer as
flawlessly as they can and as quickly as they can.
So Amazon is changing people's expectations and they're perpetually
improving those expectations.
But behind every Amazon box there are lots of people hustling and a lot of
money spent to get it to you in just one day.
Here's what happens when you buy a Prime eligible item on Amazon.com.
Amazon spends tens of billions on shipping every year.
In just the last quarter of 2018, Amazon's shipping costs jumped
23%, reaching a record $9 billion.
So why is it worth it?
Well customers come to expect consistent fast delivery of anything on earth
from Amazon.
And our job is to continue to make that happen.
And Amazon set aside $800 million just in the second quarter of 2019 to
start making one-day shipping the norm.
Most of that investment is going towards the infrastructure and
transportation costs associated with speeding up delivery to the millions
of Prime customers who are about to begin to experience one-day as the new
normal.
The difference with e-commerce is the costs never end.
The pick, pack and ship happens every time a unit is sent out.
To better control this process and its large cost, Amazon is cutting down
its reliance on UPS and the U.S.
Postal Service and is investing heavily in its own logistics network.
It now handles the shipping for 26% of online orders.
Amazon now has at least 50 airplanes, 300 semi-trucks, 20,000 delivery
vans and it operates ocean freight services between the U.S.
and China.
Amazon is looking to do it all.
That shouldn't be much of a surprise.
The only thing that matters to Amazon is making sure the customer is happy
and is paying for Prime every year or every month.
What that means is sometimes you can rely on partners but you want to make
sure that you have it in your pocket if that's not the case.
Other big retailers are also spending a lot to keep up with the fast
shipping expectations Amazon has created.
Walmart is rolling out free next-day shipping with orders of 35 dollars or
more starting today.
And target offers free two-day shipping on orders over 35 dollars.
And during Amazon's big Prime Day sales event July 15th and 16th, eBay
plans to hold a crash sale offering 80% off big ticket items.
Amazon's 25 years old.
The reality is that's a really short time to be around to have become the
number one player.
So can anyone compete? Sure
people can compete.
Can they sustainably compete is the harder question.
I don't think we've seen it yet.
The journey a package takes to your door starts before you even place the
order. Most items on Amazon are sold directly to you by a third party.
In Jeff Bezos' letter to shareholders in April 2019, he said third-party
sales have grown 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 around 15% of the item's selling price.
Amazon also sells things directly.
In some cases Amazon buys inventory from a third party and then sells it
to consumers.
Other items are Amazon's own brands such as Amazon Basics, Amazon
Essentials, fashion lines like Lark & Ro and Alexa devices like the Echo.
All items sold directly by Amazon are already sitting in an Amazon
warehouse waiting to be ordered and shipped.
Most third-party items fulfilled by Amazon are also already waiting at an
Amazon warehouse, while others are sent directly from the seller or to an
Amazon warehouse once you hit that place order button.
Amazon does not disclose the details of its inventory strategy.
Figuring out where a product sits before you buy it is a phenomenal
mystery. It's something that every reseller would love to know.
And figuring out the code that is Amazon has been part of that hard
process.
After an item is ordered and ready at one of Amazon's 175 fulfillment
centers around the globe, it's picked, packaged and shipped by some of its
250,000 warehouse workers often with help from one of its 100,000 robots.
It's essentially an amusement park for a box.
There's conveyor belts that go around, there are slides.
It looks like a lot of fun.
But the question is: how much is automated versus how much his manual
labor? And that suite, blending that, figuring out how to have the least
human touch points while ensuring the best quality control is that
perpetual conversation.
We visited a fulfillment center outside Seattle where 2,000 workers prepare
packages on a couple million square feet of floor space.
Workers here showed us the process of getting an item from the shelves to
a box.
We scan the item and make sure that that item is what matches what's in our
hand that's on the screen and then we stow it into a bin.
And then there's cameras here that take pictures of where our hands go
of where we place the item.
I am a picker so I pick product that will end up going down to the packing
department and then they pack it out and send it to our customers.
I need to put it into a box.
It actually tells me what type of box it is.
Tape. Put the item in there.
Scan it through. Drop it down the line.
Amazon says it's 100,000 robots inside the fulfillment centers help make
this whole process more efficient.
In 2012 Amazon bought robotics company Kiva for $775 million and started
using robots in its fulfillment centers a couple years later.
Now there's driving robots that move inventory around, robotic arms that
lift boxes and pallets and even a new robot that can package items in
custom-sized boxes.
If it wasn't for them then I'd have to walk and I'd much rather be up here
in my own little world picking then walking up and down.
So I love the robots.
As technology continues to change how fulfillment centers function, Amazon
just announced it will spend $700 million to retrain a third of its U.S.
workforce by 2025 to move them to more advanced jobs.
After an order leaves the fulfillment center it has to get across the
country or world to another warehouse in your region.
Some boxes are sent via one of the shipping giants, but Amazon is cutting
costs by sending packages in at least 300 of its own semi-trucks and now
dozens of its own planes.
We've been building out an air network for a number of years now.
That coupled with our partners networks, we're in a place we have a lot of
incremental capacity to be able to advance packages for customers much
faster than we were two or three years ago.
Amazon broke ground on a new 1.5
billion dollar air hub in Northern Kentucky in May.
It has capacity for 100 planes.
One of the great things about customers all over the world: they are
divinely discontent.
You give them the best service you can.
They love it.
But they always want a little bit more.
We're going to move Prime from two-day to one-day and this hub is a big
part of that.
After an item arrives near your city it waits in another warehouse like
this one for a delivery person to pick it up and take it that last mile to
your door.
We've been building for over 20 years to support this network that's
eventually just constantly getting faster and we knew would begin to
migrate to a one-day service.
The big difference for us is all about how we get product from our
fulfillment center to that last-mile location.
Last-mile is the most expensive part of the delivery process.
Until an item arrives at a warehouse near your home, it can be shipped in
bulk. But then each package needs to be hand delivered to a different
address, which takes a lot of people and a lot of time.
Amazon pays to outsource much of last-mile delivery to carriers like UPS
and USPS, which charge a fee, and those fees just went up.
In January the post office increased its last-mile shipping rate by nine
to 12% depending on package size.
The more Amazon can keep last-mile delivery in-house, the more it can
control these costs.
To do that Amazon uses small business partners, some delivering out of
20,000 Amazon vans.
And in 2015 it launched Amazon Flex.
I've been driving for Amazon Flex roughly since 2016 on and off, I'd say at
least two solid years.
Amazon Flex is available in about 50 U.S.
cities. Anyone over 21 with a driver's license, auto insurance and at
least a mid-size sedan can sign up.
After clearing a basic background check, drivers in areas with open spots
can start picking up and delivering packages.
Drivers use the Flex app to sign up for a block, which ranges from three
to six hours.
Then they head to a warehouse where they find out how many boxes they've
been assigned to deliver in that timeframe.
Amazon advertises that drivers make $18 to $25 an hour and they're
responsible for their own vehicle costs like gas, tolls and maintenance.
Amazon wouldn't 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 their last mile delivery programs are expanding.
We've built out these small businesses, the delivery service providers, and
we have Flex which is our on-demand crowdsourced delivery piece.
So we need all of that to meet the various types of delivery we do in each
of our geographies and I think you're going to see expansion on all fronts
there.
Amazon has one unusual approach to increase its number of small business
partners helping with last-mile.
Amazon says it will contribute as much as 10,000 thousand dollars if
full-time employees want to leave the company and start their own package
delivery services.
Early response is great.
It allows us to complement the capacity that we have with our great
carrier partners.
It's great for some of our employees who don't want to do the same thing
that they've been doing in the warehouse for five or 10 years. They
want to learn some new skills and over 16,000 employees have already
taking us up on this.
Amazon is also looking at several high-tech solutions to streamline last
mile delivery.
In June, Amazon announced its new autonomous delivery drone will be
operating within months and it has a one year FAA permit to test them.
We're building fully electric drones that can fly up to 15 miles and
deliver packages under five pounds to customers in under 30 minutes.
Amazon also has patents out for a giant flying warehouse and drones that
can react to flailing hands and screaming voices.
And it's even testing a sidewalk robot called Scout to bring packages
right to your door.
All these steps are an incredible challenge to pull off. In
recent years, Amazon has faced an onslaught 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's systemic.
I've worked in five different buildings in three different states from
coast to coast and it's the same everywhere.
It might not be outright exploitation but it is almost like a disposable
workforce.
It's been so pervasive that many of the pilots, in fact most of the pilots
at our airlines are actively seeking employment elsewhere.
Last year Amazon raised the minimum wage to fifteen dollars for all 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
top retail companies to match this.
And Amazon offers generous benefits.
I needed my medical insurance.
That's what's essentially kept me at Amazon.
But some workers, most who asked to remain anonymous, told us Amazon
expects them to keep up a fast, often unreasonable pace.
They say that they care about their employees and quality.
But no, it's really just about numbers.
You have to make not only a certain rate but you can't accrue more than 30
minutes of time-off-task per day otherwise you get written up.
Usually most buildings are at least a million square feet.
You could be walking three to five minutes each way to go to bathroom.
So if you went to the bathroom twice you could easily use up that 30
minutes. So a lot of people don't go to the bathroom.
CNBC was connected to Fuller through the Retail, Wholesale and Department
Store Union.
Although he's not a union member.
We asked Amazon about the working conditions in fulfillment centers.
We have world class facilities, we have restrooms all over this place.
We have break rooms. We
have TVs.
Anybody who is watching, don't take my word for it.
Please come take a tour and see for yourself.
I'll put us up against anybody any day.
Do you feel like the pace that workers are asked to work out is reasonable?
Well our, the way we look at productivity rates, just like anyone, we have
expectations. In every job, my job has expectations, your job has the
expectations. The way we set the rates and the processes are based on
actual performance and the overwhelming majority of employees are able to
meet those expectations.
Warehouse workers told us their productivity is closely tracked based on
how often they scan a package.
Workers told us they can get written up if they don't meet certain metrics.
Amazon also has patents for a GPS-enabled wristband that could track
workers' movements and breaks.
I think too often people look at that technology and sort of debate, is
this Big Brother tracking an employee or something to that effect?
And you know really almost all the time you look at these wearables or
other types of things like that, they're usually some form of safety
device.
Workers can lose their jobs if they don't work fast enough.
At one warehouse in Baltimore, The Verge reported that Amazon terminated
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
terminations have decreased over the last two years at our Baltimore
facility as well as across North America."
Amazon workers are under attack. What do we do? Stand up, fight back.
There have been several protests in the last few years around the world
where Amazon workers have demanded better working conditions.
In orientation they talked about safety.
That was the number one thing.
Safety. And you get there and that's forgotten.
In the UK, ambulances were called to Amazon warehouses 600 times from 2015
to 2018.
In April, the National Council for Occupational Safety and Health
identified Amazon as one of a "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 in safety
improvements at fulfillment centers and its employees got a million hours
of safety training.
As Amazon increases the shipping speed, can they also increase conditions
to be more fair, equitable and sustainable as far as safety goes?
Well I'm incredibly proud of the safety record of our sites and the focus
of our leadership team on safety.
Any incident is one too many and anytime something happens, our teams come
together and figure out what happened and get to the root cause and try to
eliminate anything from occurring again in the future.
Amazon Air is another area where growth in the program has led to
challenges. Amazon-branded planes are flown by contract pilots from Atlas
Air, ABX and Southern Air.
These airlines negotiate contracts with the pilots.
And five of these pilots told us working conditions have deteriorated
since their airlines started flying for Amazon.
As a result of Amazon being such a large company, they have the ability to
put a very strong pressure on our companies and have them drive down our
pay and working conditions as pilots.
Dan Wells heads up 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 pay
near the new Amazon air hub.
We have a hard time maintaining enough qualified pilots.
There's a tremendous amount of turnover at these carriers which in net
reduces experience and creates a lot of stress on things, 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 aboard.
The cause of the crash is under investigation with initial National
Transportation Safety Board findings showing the pilots may have lost
control of the plane.
In interviews with Business Insider weeks before, several Amazon Air
pilots said they thought an accident was inevitable.
They cited low wages that made it difficult to attract experienced pilots,
training they considered shoddy, fatigue and poor morale.
Pilots that are working for Amazon's contractors are overwrought with
schedules and scheduling changes and constant training.
All of those things have added to greatly increasing the risk in the cargo
system that we fly in.
In a statement Amazon said, "All of our airline delivery providers must
comply with the Amazon Supplier Code of Conduct and Federal Aviation
Administration regulations.
We take seriously any allegation that a delivery provider is not meeting
those requirements and expectations and review accordingly."
Workers bringing packages that last mile to your door also told us safety
is a concern.
One reason: Amazon doesn't provide Flex drivers with any branded clothing
to identify them.
I'm pulling up to this house and I get to the front door and you know this
guy just comes running out like, "Hey what are you doing?"
and he's talking so fast and I was thinking you know I'm in Connecticut.
You know I'm a Puerto Rican guy in a white guy's yard and like, 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 where he says a customer let his German Shepherd
charge at him, Jonathan paid 45 dollars out of his own pocket for a custom
sweater on Etsy.
I think Amazon the least they could do is give us something that would make
it a little bit safer and make us more visible when we're out there
delivering.
I've gotten a lot of mean glares from people because they're like, "Who is
this guy? He's just 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, I do it because at least I look less suspicious.
In a statement Amazon said, "They are welcome to wear the safety vests that
we have available for them in the delivery stations while they're on their
route which can help customers identify Flex participants.".
And some drivers told us the way the Flex app works encourages distracted
driving because it requires drivers to manually tap refresh to secure
their next assignment.
If you want to get blocks then you have to be tapping on that refresh
button in the app pretty much constantly.
But how do you do that while you're delivering?
So it encourages people to do it while they're driving.
In a statement Amazon says, "Safety is our top priority and we are proud of
our safe driving record.
We regularly communicate a variety of safety topics including loading and
driving practices with drivers.
Amazon Flex participants can also 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 drones and Scout sidewalk robots, and
its fulfillment centers are becoming more automated, too.
Our focus on automation has really been begin in automation in the places
that can be most beneficial to the workforce.
Remove the most tedious task, remove the heaviest lifting task, whether
that be lifting large containers or bringing the inventory to the
associate so they don't have to walk through Earth's most massive
selection in order to find the thing they're looking for.
But for now Amazon still relies on people to bring us our packages in just
one day. And with expectations for rapid delivery only growing, Amazon
will need to continue innovating to make shipping even faster.
We will see shipping speeds increase every day.
The announcement that Amazon is going to one-day is ironic because in
certain regions we have it in an hour already.
That's not going to stop.
And what's absolutely critical is any company that sticks their head in
the sand even if it's Amazon.
We'll see the competition pass them by.
That's the one guarantee we have in retail.