5 ms·

I have been surprised that Amazon has not vertically integrated into delivery and distribution. Imagine if they had bought DHL. They would have turned what mu

I have been surprised that Amazon has not vertically integrated into delivery and distribution. Imagine if they had bought DHL. They would have turned what must today be a huge variable cost into a largely fixed one. I don't have time to write about all the interesting innovations in distribution which could result from combining warehousing and delivery. Perhaps fears of antitrust lawsuits and hardball tactics from UPS/FedEx keep Amazon from doing what I consider an obvious next step?

ChrisLTD 15y ago
I'd guess that the largest varying factor would be the cost of fuel. Amazon could just hedge on the price of oil and remove the financial uncertainty.
- ShabbyDoo 15y ago
  Amazon probably either explicitly hedges already or does so implicitly by "purchasing" a forward contract for shipping rates from UPS. The risk of varying fuel costs exists no matter who takes ownership of it.
Duff 15y ago
Shipping is a tough business. You need lots of trucks, ramp space at airports, and lose the ability to cherry pick what states you operate in. Consider that despite billions in investments, both DHL before they went away and FedEx Ground today are still not as good as UPS.
- rdl 15y ago
  FedEx Ground started as a different company (Roadway Package System) -- to this day, it has a lot of contracts, union rules, etc. which make it vastly worse than just a ground version of FedEx. The only FedEx acquisition which seems to be any good is Custom Critical (used for shipping organs, live animals, etc. on next-flight-out commercial service, to get stuff door to door as fast as possible).
  - toomuchtodo 15y ago
    Small quibble: You can also use Fedex Same Day service to get something on an airplane NOW at a much lower cost than custom critical.
rdl 15y ago
They have experimented with it, with the AmazonFresh service (fresh.amazon.com). I'm sure it's run by a contractor somehow, but I'm not sure if it's an real arms-length entity or another Amazon tax structuring thing.
dot 15y ago
but then they'd have a local presence in the states they ship to and would have to charge sales tax. they'd lose their ~10% price advantage.
- ShabbyDoo 15y ago
  Couldn't they use the same legal mechanisms (wholly-owned subsidiaries, etc.) employed today to avoid charging sales tax to customers in located in states with Amazon distribution centers?
- MBCook 15y ago
  If they could save at least 10% on shipping, they would still be in the positive on the transaction. That seems like it would be possible since the shipping part wouldn't have to be a profit center, just break even. That would be a bit too vertical for my taste. I'm not sure massive hassle of trying to staff & run their own to-the-door shipping empire would beat the UPS service I get now.
  - underwater 15y ago
    10% of shipping costs is much less than 10% of the sale price.
ippisl 15y ago
I think Amazon goal is to control the customer.You can see that in prime, the kindle fire and the zappos purchase. From the shipping side , with it's prime program they're so much better then other e-commerce competitors, that they won't gain much customer lockup by buying DHL(altought it might make them money), and they'll pay a big price. On the other hand , if they'll control the customer, they'll have enough market power to force DHL or some other shipper to their terms. And with today's IT system two companies can have deep integrations if they want.

ChrisLTD 15y ago

I'd guess that the largest varying factor would be the cost of fuel. Amazon could just hedge on the price of oil and remove the financial uncertainty.

ShabbyDoo 15y ago
Amazon probably either explicitly hedges already or does so implicitly by "purchasing" a forward contract for shipping rates from UPS. The risk of varying fuel costs exists no matter who takes ownership of it.

Duff 15y ago

Shipping is a tough business. You need lots of trucks, ramp space at airports, and lose the ability to cherry pick what states you operate in. Consider that despite billions in investments, both DHL before they went away and FedEx Ground today are still not as good as UPS.

rdl 15y ago
FedEx Ground started as a different company (Roadway Package System) -- to this day, it has a lot of contracts, union rules, etc. which make it vastly worse than just a ground version of FedEx. The only FedEx acquisition which seems to be any good is Custom Critical (used for shipping organs, live animals, etc. on next-flight-out commercial service, to get stuff door to door as fast as possible).
- toomuchtodo 15y ago
  Small quibble: You can also use Fedex Same Day service to get something on an airplane NOW at a much lower cost than custom critical.

rdl 15y ago

They have experimented with it, with the AmazonFresh service (fresh.amazon.com). I'm sure it's run by a contractor somehow, but I'm not sure if it's an real arms-length entity or another Amazon tax structuring thing.

dot 15y ago

but then they'd have a local presence in the states they ship to and would have to charge sales tax. they'd lose their ~10% price advantage.

ShabbyDoo 15y ago
Couldn't they use the same legal mechanisms (wholly-owned subsidiaries, etc.) employed today to avoid charging sales tax to customers in located in states with Amazon distribution centers?
MBCook 15y ago
If they could save at least 10% on shipping, they would still be in the positive on the transaction. That seems like it would be possible since the shipping part wouldn't have to be a profit center, just break even. That would be a bit too vertical for my taste. I'm not sure massive hassle of trying to staff & run their own to-the-door shipping empire would beat the UPS service I get now.
- underwater 15y ago
  10% of shipping costs is much less than 10% of the sale price.

ippisl 15y ago

I think Amazon goal is to control the customer.You can see that in prime, the kindle fire and the zappos purchase. From the shipping side , with it's prime program they're so much better then other e-commerce competitors, that they won't gain much customer lockup by buying DHL(altought it might make them money), and they'll pay a big price. On the other hand , if they'll control the customer, they'll have enough market power to force DHL or some other shipper to their terms. And with today's IT system two companies can have deep integrations if they want.