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Amazon’s shipping costs were up 36% year-over-year (YoY) in Q2 2019 to exceed $8 billion. This follows three straight quarters where YoY growth in shipping costs didn’t exceed 23%. 
The high shipping costs contributed to the end of the e-commerce giant’s four straight quarters of records profits, according to The Wall Street Journal. Amazon’s net income of $2.6 billion was the lowest since the second quarter of last year.
Amazon’s rising shipping costs aren’t a surprise given that the company has made faster delivery options for consumers, especially Prime members, a core part of its growth strategy.
In order to accomplish this goal, Amazon knows it will have to make substantial investments to build out its logistics network and capabilities. In April, Amazon said it would be investing $800 million in Q2 2019 to give Prime members access to one-day free shipping, down from what has traditionally been a two-day offering.
But last week,per the WSJ, CFO Brian Olsavsky stated that Amazon had spent more than the estimated $800 million, citing higher-than-expected costs associated with transitioning warehouses and moving inventory in close proximity to consumers. "We expect we’ll be working through that for a number of quarters, but when the dust settles, we will regain our cost efficiency over time," said Olsavsky.
Although Amazon is sacrificing profits in the short term, in the long term, its logistics buildout will enable it to cut costs while driving more revenue. As Amazon puts more items on its one-day shipping list, consumers may find themselves making purchases more frequently due to added convenience — a trend that would drive up revenue.
It’s already seeing an uptick thanks in part to the shipping changes: Amazon reported net sales increased 20% in Q2 2019 to reach $63.4 billion, compared with $52.9 billion in 2018. And the quarter rebounded from 16.8% YoY growth in Q1 2019, which was the slowest growth seen in four years. What’s more, as Amazon strengthens its logistics infrastructure and capabilities, it will come to rely less heavily on partners, enabling them to control their costs better.
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Source: Business Insider – aaouad@businessinsider.com (Ayoub Aouad)