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What people miss here is Amazon's is taking advantage of the fact that the cost to deliver packages varies greatly. Where it's cheap/ easy to deliver packages,

What people miss here is Amazon's is taking advantage of the fact that the cost to deliver packages varies greatly. Where it's cheap/ easy to deliver packages, Amazon delivers their own. Where it's expensive to deliver, they outsource to UPS/ USPS/ FedEx. Delivering a package in rural areas where houses are a quarter mile apart is a lot more expensive than when a carrier can load up a handcart and deliver 10 addresses. Traditional carriers break even or even take a small loss on a percentage of deliveries because it's important to their business model to have consistent prices and deliver everywhere. Amazon isn't restricted that way, they can cherry pick which places they deliver based on how profitable it is to get the package to the doorstep. Essentially Amazon is draining away all the deliveries which made UPS/ USPS/ FedEx profitable. How sustainable this model is long term is somewhat questionable.

tmaly 6y ago
I think it would be great if they could source production of all their Amazon label products to local companies. This would be nice to help the local communities a little.
- johnwheeler 6y ago
  local businesses are not going to accept chinese wages, and customers aren't going to pay for US or EU labor.
  - tmaly 6y ago
    I think we are moving away from manual labor at this point. There is going to be automation if factories come back to America.
bgorman 6y ago
The US should stop subsidizing rural communities. It is bad for the environment and people that want to live out there should have to pay the real costs of serving them. One possibility is to reduce the days mail is delivered to rural communities to cut costs.
- bpodgursky 6y ago
  Ah yes, we should just force them into the dense city centers. That'll improve housing affordability for all those urban families.
  - conjecTech 6y ago
    It's not as simple as thinking in terms of those first order effects. Mailing subsidies reduce the cost of non-local alternatives for goods. It can often make it impossible for small businesses to exist in less urban environments and can lead to downward spirals where rural communities are self-exterminating because processes like this consistently siphon money out of the local economy. Imagine if shipping of all consumer goods were made free. Amazon would be INCREDIBLY more dominant. And in fact, this is a large reason they started with books. The USPS has a special program built for a world 100 years ago called Media Mail which allows you to ship books for next to nothing. It made it impossible to run a bookstore profitably. Removing shipping subsidies to rural communities may very well create more of them and will definitely make them more resilient.
- asdfasgasdgasdg 6y ago
  This isn't "the US" subsidizing rural communities, though. This is private enterprises effectively doing the same, for the sake of providing a flat rate shipping service. Although I too think that rural living is bad for the environment, this is not a particular case of the government subsidizing it.
  - leetcrew 6y ago
    if UPS/FedEx want to offer flat rate shipping to both densely and sparsely populated areas, it's on them to make it economic. if amazon wants to take advantage of their business model, I don't see anything unfair about it. USPS is a government agency though. if they ship stuff to rural areas below cost, that is the US government subsidizing rural communities. with mail still being the lowest-common-denominator means of communication, there is a public good argument for burning money to deliver mail/packages affordably to people in these areas. I do agree they should feel at least some of the cost though, and I also feel there is something distasteful about amazon exploiting this cost structure.
zellyn 6y ago
I'm sure the holiday and other demand spikes are also extremely expensive. By handling the steady-state deliveries, Amazon is again draining away all the profitable, predictable deliveries, and outsourcing the expensive spikes. It's … brilliant?
- ogre_codes 6y ago
  > It's … brilliant? Assuming it's a steady state then it's certainly good for Amazon. Particularly since their competition doesn't have the scale to reduce costs similarly.
- notatoad 6y ago
  like so much the big tech companies seem to do, it's brilliant but unsustainable. it's brilliant right up until the point where it kills the partner that they're abusing and there's nobody left to handle their spikes.
  - petra 6y ago
    Let's say Amazon kills Fedex, UPS and USPS. That's great! Now Amazon has monopoly/duopoly on logistics.
  - generj 6y ago
    Or right up until FedEx and UPS agree on burner phones Dec 1 that they aren’t taking more than a pittance of the holiday spike traffic, leaving Amazon in the lurch.
jgalt212 6y ago
> Traditional carriers break even or even take a small loss on a percentage of deliveries because it's important to their business model to have consistent prices and deliver everywhere. Maybe that's the case for the average walk-in, but at scale all of these terms are subject to negotiation.
- siculars 6y ago
  This. Op seems to suggest pricing is fixed when shipping for Amazon. Without any knowledge I would be surprised if it was. In fact 3rd party shippers can charge whatever they want to deliver Amazon packages because until Amazon can deliver all their packages they need shipping partners.
  - luckylion 6y ago
    If I recall correctly, DHL (Germany's largest delivery company, part of the former state post system) charges Amazon ~2 euros, while the end user price is between 5 and 6 euros. It's common wisdom that most of the cost for delivery is in the last mile. Amazon has great leverage, because DHL certainly isn't making money on their deliveries - the intake scales with Amazon's large quantities, but the individual delivery does not. It's a race to the bottom between the delivery companies, fueled mostly by sub-sub-contractors with very low wages, long hours and bad conditions. DHL has seen giant growth, but profits are falling apart.
    - nerfhammer 6y ago
      it's the other way around, Deutsche Post bought DHL, which had been a private US company.
      - luckylion 6y ago
        Thanks, I wasn't aware of that. The outcome is the same, as they just rebranded the Deutsche Post operations to run as DHL in Germany, and the original Post employees are working at DHL with (pretty much) the same contracts (which DHL cites as a disadvantage, because the former state employees draw significantly higher salaries; they're beeing replace with sub-contractors where possible).
Reedx 6y ago
Well, UPS/etc can also cherry pick or negotiate terms if it doesn't make sense. They don't have to take those (or any) deliveries from Amazon.
- travbrack 6y ago
  Amazon has the leverage
  - aaomidi 6y ago
    That doesn't really make sense to me.
  - soganess 6y ago
    Do they? If what is being said is actually true, then amazon doesn't have any leverage at all. (again if what is being argued is true) These last mile providers might be taking a small hit to deliver amazon packages, so why deliver them at all? If you answer is: "if they don't deliver these they won't get amazon's business." It would appear they are not getting any of amazon's profitable business (2/3 of delivers), so who cares about getting amazon's crap business?
    - charwalker 6y ago
      It's more that Amazon packages can comprise such a a large % of deliveries/orders that the UPS/etc may need to keep that business, even at near 0 profit, to keep their infrastructure above water. That contract possibly covers a ton of last mile region they want to cover anyway to stay competitive but couldn't keep going due to lack of volume vs cost without Amazon. It's a bit of a catch-22, they can reform their route and coverage to similarly profitable state with less coverage, potentially dooming them in the long run, or they can take the near 0 profit contract from Amazon and stay competitive while having almost no cards at the negotiation table. Amazon knows their business is huge and needed by these groups and is not afraid to point that out.
      - deleted 6y ago
        [deleted]
untog 6y ago
This also applies to UPS and Fedex, actually. In rural areas they just hand the packages off to USPS. It's also why the recent debate about how profitable or otherwise USPS is misses the point: it isn't designed to be a profitable business, it's designed to deliver mail to everyone in the country.
nybble41 6y ago
> Delivering a package in rural areas where houses are a quarter mile apart is a lot more expensive than when a carrier can load up a handcart and deliver 10 addresses. And yet Amazon does their own deliveries in my parents' rural area where the houses are indeed about a quarter mile apart and several miles from the nearest town. Perhaps the business model isn't quite so one-sided as you thought? USPS has issues with managing their pricing, true, but UPS and FedEx are under no obligation to deliver packages below cost.
- supergeek133 6y ago
  It may be because there are enough consistent deliveries in the area to employ someone dedicated to delivery there.
  - nybble41 6y ago
    Yes, naturally. That doesn't change the fact that Amazon does handle their own deliveries in rural areas, not just cities. FedEx and UPS operate under the same constraints.
    - ahelwer 6y ago
      The parent offered rural areas as an example of where it might not be profitable to deliver. Not a be-all-end-all analysis carving up profitable and non-profitable areas.
      - ogre_codes 6y ago
        Was meant as a simple example. I live in a rural area and get Amazon delivery too (though much of the volume I get is USPS). It could easily be self-selecting, Amazon puts out their own deliveries essentially the same way as Uber. They set rates for drivers and if they can't get drivers at the rates they set, they send the packages off to USPS. The result is more-or-less the same. Much as Uber drivers don't service unprofitable areas, Amazon's contractors don't either.
    - 6y ago
petra 6y ago
>> How sustainable this model is long term is somewhat questionable. I wouldn't worry much. What's the worst that could happen ? Amazon would need to invest ~$50B in their network ? They already did so since 2014. They'll manage.
- deleted 6y ago
  [deleted]
jedberg 6y ago
Amazon's data is pretty precise I'm guessing. I live in a suburban area right next to a major city. We get a lot of stuff from Amazon, and in a single day I have seen the UPS guy, FedEx gal, our regular USPS postman, and the packages only USPS guy, all bringing Amazon boxes in one day.
pbalau 6y ago
> Essentially Amazon is draining away all the deliveries which made UPS/ USPS/ FedEx profitable. Without Amazon, there is no business for UPS/USPS/FedEx to deliver Amazon packages... Heck, the deliveries that Amazon choses not to do themselvs, is extra business for UPS, USPS and FedEx. Also, there is a great deal of shipping that has nothing to do with Amazon.
moltar 6y ago
But carriers have dynamic prices for shippers that are returned via an API. If they didn’t want the business they can just raise the prices for a specific shipper, e.g. Amazon.

tmaly 6y ago

I think it would be great if they could source production of all their Amazon label products to local companies. This would be nice to help the local communities a little.

johnwheeler 6y ago
local businesses are not going to accept chinese wages, and customers aren't going to pay for US or EU labor.
- tmaly 6y ago
  I think we are moving away from manual labor at this point. There is going to be automation if factories come back to America.

bgorman 6y ago

The US should stop subsidizing rural communities. It is bad for the environment and people that want to live out there should have to pay the real costs of serving them. One possibility is to reduce the days mail is delivered to rural communities to cut costs.

bpodgursky 6y ago
Ah yes, we should just force them into the dense city centers. That'll improve housing affordability for all those urban families.
- conjecTech 6y ago
  It's not as simple as thinking in terms of those first order effects. Mailing subsidies reduce the cost of non-local alternatives for goods. It can often make it impossible for small businesses to exist in less urban environments and can lead to downward spirals where rural communities are self-exterminating because processes like this consistently siphon money out of the local economy. Imagine if shipping of all consumer goods were made free. Amazon would be INCREDIBLY more dominant. And in fact, this is a large reason they started with books. The USPS has a special program built for a world 100 years ago called Media Mail which allows you to ship books for next to nothing. It made it impossible to run a bookstore profitably. Removing shipping subsidies to rural communities may very well create more of them and will definitely make them more resilient.
asdfasgasdgasdg 6y ago
This isn't "the US" subsidizing rural communities, though. This is private enterprises effectively doing the same, for the sake of providing a flat rate shipping service. Although I too think that rural living is bad for the environment, this is not a particular case of the government subsidizing it.
- leetcrew 6y ago
  if UPS/FedEx want to offer flat rate shipping to both densely and sparsely populated areas, it's on them to make it economic. if amazon wants to take advantage of their business model, I don't see anything unfair about it. USPS is a government agency though. if they ship stuff to rural areas below cost, that is the US government subsidizing rural communities. with mail still being the lowest-common-denominator means of communication, there is a public good argument for burning money to deliver mail/packages affordably to people in these areas. I do agree they should feel at least some of the cost though, and I also feel there is something distasteful about amazon exploiting this cost structure.

zellyn 6y ago

I'm sure the holiday and other demand spikes are also extremely expensive. By handling the steady-state deliveries, Amazon is again draining away all the profitable, predictable deliveries, and outsourcing the expensive spikes. It's … brilliant?

ogre_codes 6y ago
> It's … brilliant? Assuming it's a steady state then it's certainly good for Amazon. Particularly since their competition doesn't have the scale to reduce costs similarly.
notatoad 6y ago
like so much the big tech companies seem to do, it's brilliant but unsustainable. it's brilliant right up until the point where it kills the partner that they're abusing and there's nobody left to handle their spikes.
- petra 6y ago
  Let's say Amazon kills Fedex, UPS and USPS. That's great! Now Amazon has monopoly/duopoly on logistics.
- generj 6y ago
  Or right up until FedEx and UPS agree on burner phones Dec 1 that they aren’t taking more than a pittance of the holiday spike traffic, leaving Amazon in the lurch.

jgalt212 6y ago

> Traditional carriers break even or even take a small loss on a percentage of deliveries because it's important to their business model to have consistent prices and deliver everywhere. Maybe that's the case for the average walk-in, but at scale all of these terms are subject to negotiation.

siculars 6y ago
This. Op seems to suggest pricing is fixed when shipping for Amazon. Without any knowledge I would be surprised if it was. In fact 3rd party shippers can charge whatever they want to deliver Amazon packages because until Amazon can deliver all their packages they need shipping partners.
- luckylion 6y ago
  If I recall correctly, DHL (Germany's largest delivery company, part of the former state post system) charges Amazon ~2 euros, while the end user price is between 5 and 6 euros. It's common wisdom that most of the cost for delivery is in the last mile. Amazon has great leverage, because DHL certainly isn't making money on their deliveries - the intake scales with Amazon's large quantities, but the individual delivery does not. It's a race to the bottom between the delivery companies, fueled mostly by sub-sub-contractors with very low wages, long hours and bad conditions. DHL has seen giant growth, but profits are falling apart.
  - nerfhammer 6y ago
    it's the other way around, Deutsche Post bought DHL, which had been a private US company.
    - luckylion 6y ago
      Thanks, I wasn't aware of that. The outcome is the same, as they just rebranded the Deutsche Post operations to run as DHL in Germany, and the original Post employees are working at DHL with (pretty much) the same contracts (which DHL cites as a disadvantage, because the former state employees draw significantly higher salaries; they're beeing replace with sub-contractors where possible).

Reedx 6y ago

Well, UPS/etc can also cherry pick or negotiate terms if it doesn't make sense. They don't have to take those (or any) deliveries from Amazon.

travbrack 6y ago
Amazon has the leverage
- aaomidi 6y ago
  That doesn't really make sense to me.
- soganess 6y ago
  Do they? If what is being said is actually true, then amazon doesn't have any leverage at all. (again if what is being argued is true) These last mile providers might be taking a small hit to deliver amazon packages, so why deliver them at all? If you answer is: "if they don't deliver these they won't get amazon's business." It would appear they are not getting any of amazon's profitable business (2/3 of delivers), so who cares about getting amazon's crap business?
  - charwalker 6y ago
    It's more that Amazon packages can comprise such a a large % of deliveries/orders that the UPS/etc may need to keep that business, even at near 0 profit, to keep their infrastructure above water. That contract possibly covers a ton of last mile region they want to cover anyway to stay competitive but couldn't keep going due to lack of volume vs cost without Amazon. It's a bit of a catch-22, they can reform their route and coverage to similarly profitable state with less coverage, potentially dooming them in the long run, or they can take the near 0 profit contract from Amazon and stay competitive while having almost no cards at the negotiation table. Amazon knows their business is huge and needed by these groups and is not afraid to point that out.
    - deleted 6y ago
      [deleted]

untog 6y ago

This also applies to UPS and Fedex, actually. In rural areas they just hand the packages off to USPS. It's also why the recent debate about how profitable or otherwise USPS is misses the point: it isn't designed to be a profitable business, it's designed to deliver mail to everyone in the country.

nybble41 6y ago

> Delivering a package in rural areas where houses are a quarter mile apart is a lot more expensive than when a carrier can load up a handcart and deliver 10 addresses. And yet Amazon does their own deliveries in my parents' rural area where the houses are indeed about a quarter mile apart and several miles from the nearest town. Perhaps the business model isn't quite so one-sided as you thought? USPS has issues with managing their pricing, true, but UPS and FedEx are under no obligation to deliver packages below cost.

supergeek133 6y ago
It may be because there are enough consistent deliveries in the area to employ someone dedicated to delivery there.
- nybble41 6y ago
  Yes, naturally. That doesn't change the fact that Amazon does handle their own deliveries in rural areas, not just cities. FedEx and UPS operate under the same constraints.
  - ahelwer 6y ago
    The parent offered rural areas as an example of where it might not be profitable to deliver. Not a be-all-end-all analysis carving up profitable and non-profitable areas.
    - ogre_codes 6y ago
      Was meant as a simple example. I live in a rural area and get Amazon delivery too (though much of the volume I get is USPS). It could easily be self-selecting, Amazon puts out their own deliveries essentially the same way as Uber. They set rates for drivers and if they can't get drivers at the rates they set, they send the packages off to USPS. The result is more-or-less the same. Much as Uber drivers don't service unprofitable areas, Amazon's contractors don't either.
  - 6y ago

petra 6y ago

>> How sustainable this model is long term is somewhat questionable. I wouldn't worry much. What's the worst that could happen ? Amazon would need to invest ~$50B in their network ? They already did so since 2014. They'll manage.

deleted 6y ago
[deleted]

jedberg 6y ago

Amazon's data is pretty precise I'm guessing. I live in a suburban area right next to a major city. We get a lot of stuff from Amazon, and in a single day I have seen the UPS guy, FedEx gal, our regular USPS postman, and the packages only USPS guy, all bringing Amazon boxes in one day.

pbalau 6y ago

> Essentially Amazon is draining away all the deliveries which made UPS/ USPS/ FedEx profitable. Without Amazon, there is no business for UPS/USPS/FedEx to deliver Amazon packages... Heck, the deliveries that Amazon choses not to do themselvs, is extra business for UPS, USPS and FedEx. Also, there is a great deal of shipping that has nothing to do with Amazon.

moltar 6y ago

But carriers have dynamic prices for shippers that are returned via an API. If they didn’t want the business they can just raise the prices for a specific shipper, e.g. Amazon.