Ever since the COVID-19 pandemic started, Amazon’s sales have tremendously increased. Due to delivery and transportation costs, Amazon’s shipping expenses have almost doubled in price since 2011. In this article, you will find insight into just how much these shipping costs have increased and what AWS is doing to keep Amazon’s profits in check.
The pandemic has been tough on even some of the best companies. For Amazon, however, this period has led to some cost issues with the shipping and fulfillment department. These two issues are representing a huge share of revenues that have increased.
How large are Amazon’s Shipping and Fulfillment Costs Currently?
Back in 2021, Amazon’s shipping and fulfillment costs increased to $151.8 billion. Additionally, shipping costs have rounded up to $76.7 billion, while fulfillment costs amounted to $75.1 billion.
As a result of these, Amazon’s costs now represent 32% of revenue. The expenses are increasingly escalating, and 2021’s costs are almost double the price of the 18% costs in 2011.
AWS to the Rescue
Despite the fact that the shipping and fulfillment costs are increasing, Amazon’s profits are still balanced and healthy. In 2021, Amazon gained $33 billion in profits because most of Amazon’s profits didn’t come from ecommerce in the past.
What helped with this? Actually, Amazon’s Web Services (AWS) is responsible for over 50% of Amazon’s profits. According to investors, AWS would help in the shareholder value of Amazon and as such, it should be turned into its own entity.
As of right now, AWS accounts for only 13% of Amazon’s sales, which is why having its own entity means AWS would be incremental to shareholder value.
Comparing Amazon’s Shipping Policy to other Companies
Since 2015, Amazon grew its business by 27%, increasing the value to 29 billion USD. On the other hand, the direct retail business revenue was 91.43 billion USD, while the rest of the money came from AWS, Amazon Prime subscriptions, or third-party sellers.
However, in order to get free shipping with your Amazon Prime subscription, you need to have at least $25 items to your shopping cart. Even with free shipping, your order gets delivered 5 to 8 days after your items are ready to ship.
Comparing Amazon’s free shipping policy to other companies such as this one, it allows you to place any order and get free shipping. This means you don’t need to have $25 worth of items in your shopping cart or have a Premium subscription.
Some users have noticed that other small or medium-sized online shops might operate their businesses more profitably if they do some things differently. However, for others, Amazon is considered to be the giant in this game and that’s why other companies should learn from it.
Amazon’s Rising Costs to Scale
The shipping and fulfillment costs that go up to $151.8 billion are huge. When comparing this on a per minute basis, it leads to $288K per minute in costs, with $956K revenue per minute.
Another way to put these numbers to scale is to keep in mind that this business expense is bigger than the equity value of around 90% of companies in the Standard and Poor’s 500 (S&P 500).