Amazon is facing challenges in its in-house logistics buildup (AMZN)

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It’s no secret that US-based e-commerce giant Amazon has been quickly building up its logistics division to not only deliver the goods on its marketplace, but to set itself up as a potential third-party logistics partner for other retailers.

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The buildup has resulted in Amazon delivering a much higher portion of its own packages — it now ships almost 48% of its own packages, up significantly from 15% just two years ago, according to Rakuten Intelligence, cited by Axios.

The firm has even made significant investments to challenge other players in the logistics space, including crowdsourced delivery firms such as Uber Eats — in May, Amazon led a $575 million Series G funding round in Deliveroo, a London-based food delivery startup.

However, Amazon’s logistics ramp up is not without its challenges.

Late deliveries have increased as Amazon’s in-house logistics network has delivered more of its own packages. In 2017, from January to late June, an average of 4.6% of items were delivered late, compared with an average of 16.6% in 2019, according to Rakuten Intelligence data cited by Business Insider. If Amazon is unable to reverse this trend, it risks significant damages to its brand reputation, especially as it continues to push the envelope by giving consumers even faster delivery options. In April, Amazon revealed that it was pouring $800 million into being able to guarantee one-day shipping for Prime subscribers.
Amazon’s investment in Deliveroo may be investigated by a competition regulator in Britain. The Competition and Markets Authority (CMA), Britain’s antitrust regulator, is pausing Amazon’s investment in the food delivery startup as it considers launching a full-scale investigation, according to Reuters. The regulator suspects that Amazon and Deliveroo "have ceased to be distinct" and were putting in place or considering arrangements which would result in them "ceasing to be distinct." Given that Amazon is one of the biggest companies in the world and has its tentacles in a wide range of industries, any move it makes will likely continue to be scrutinized by officials who regulate competition in their respective regions.

Here’s what these recent stumbles mean for Amazon’s logistics ambitions: While it’s logical for Amazon to strengthen its in-house logistics capabilities to reduce shipping costs, the company might have to take a slower, more strategic approach.

Amazon could save billions annually by shipping more of its goods, helping to reduce the almost $28 billion it spent on shipping in 2018. However, Rakuten’s Alex Pellas stated to Business Insider that "Amazon rushes into things and cleans it up as they go," and that "they prioritize speed over getting it perfect every time."

This could see the company falter more often than it succeeds, which could not only erode consumer trust, but also lead retailers to not want to use the e-commerce firm as their shipping partner. If this becomes the case, Amazon will see its shipping costs continue to be high and have trouble recouping on the massive investments it’s placing into building its logistics operations.

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