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.
