Amazon Sets Delivery Speed Records—And Sees Higher Margins

Glenn Taylor

Wed, May 1, 2024, 9:18 AM 4 min read

But the company’s cost-cutting initiatives, which have been touted by CEO Andy Jassy over the past year, sent the company to a record operating margin of 10.7 percent of sales in the period. This is up from 7.8 percent in the fourth quarter and surpasses the previous record of 8.2 percent in the 2021 first quarter.

On Monday, ahead of the earnings report, Amazon unveiled that it once again set new records for Prime delivery speeds in the first three months of 2024, with the company saying over 2 billion items have arrived the same or next day.

In March, nearly 60 percent of Prime member orders arrived the same or next day across the top 60 largest U.S. metro areas. Amazon says it delivered three out of four items the same or next day in London, Tokyo and Toronto.

“I think a lot of people have made the assumption over the last few years that faster speeds are going to mean higher cost, and that is not the case if you build the infrastructure with the right building blocks the way we have over the last couple of years,” Jassy said. “And our same-day facilities are our least expensive facilities in the network. We still have a fraction of the number of those that we will have in the U.S. that we’ll have in other parts of the world, which will, again, both change our cost structure while increasing speed.”

As of February, Amazon lowered its “cost to serve”—which is the cost to get a product from Amazon to a customer—by more than 45 cents per unit in the U.S. compared to a year ago. And despite shipping 12 percent more units than last year, shipping costs for the fourth quarter only increased 10 percent to $21.8 billion. Total fulfillment costs increased 5 percent to $636 million.

Just weeks after Jassy reiterated that the company was not done reducing expenses, the Jeff Bezos successor highlighted Amazon’s ability to consolidate more units into fewer boxes during the fulfillment process.

“As we further optimize our network, we’ve seen an increase in the number of units delivered per box, an important driver for reducing our cost,” said Jassy. “When we’re able to consolidate more units into a box, it results in fewer boxes and deliveries, a better customer experience, reduces our cost to serve and lowers our carbon impact.”

Jassy said that a lot of the logistics regionalization initiatives that have driven the cost costs were inspired by its European operations “because of the nature of how close those countries are to one another.”

For the first time in an earnings call, Jassy publicly touched the opportunities presented by the Supply Chain by Amazon service that was introduced last fall. The service is built so sellers can distribute products in bulk from Amazon’s warehouses to fulfillment channels and retail stores not affiliated with the tech titan.

“As our business has grown, it turns out to be pretty hard work to actually import items from overseas, get them through customs and through the border and then ship them from that point to various facilities,” Jassy said. “And then it turns out that you don’t want to store those facilities in fulfillment centers because that space is really scarce. You’d like to have them in upstream storage facilities that are very inexpensive. And then you’d like to have a way to be able to know when your scarcer supply in the fulfillment centers needs replenishment and be able to do it automatically from those upstream storage facilities.”

Jassy said he does not expect Supply Chain by Amazon to be a major capital expense driver for the company.

The CEO also spoke on the state of the consumer, emphasizing Amazon’s low pricing in an “uncertain economic environment.”

“As our results show, customers are shopping, but remain cautious, trading down on price when they can and seeking out deals.”

The e-commerce giant cracked the $10 billion profit mark yet again despite a $2 billion hit from its investment in electric vehicle (EV) manufacturer Rivian Automotive.

Amazon’s only blemish in the period was a second quarter guidance that didn’t quite meet Wall Street’s expectations. Net sales are expected to be between $144 billion and $149 billion, which would represent a 7 percent to 11 percent growth rate—shy of the $150.2 billion anticipated by analysts polled by FactSet. Operating income is expected to be between $10 billion and $14 billion, compared with $7.7 billion in second quarter 2023.

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Amazon Sets Delivery Speed Records—And Sees Higher Margins

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