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Forget the Last Mile, Now Wants to Own the First Mile, Too

By Rich Duprey - Updated Apr 10, 2019 at 9:53AM

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The e-commerce giant is developing an end-to-end logistics network ensuring a package never needs to leave its ecosystem. (AMZN -2.35%) changed the retail landscape with its obsessive focus on delivering products from its distribution centers to the customer's doorstep as quickly and efficiently as possible. Amazon Prime's two-day delivery guarantee became the most visible element in the battle for the last mile of the supply chain.

Yet it is what Amazon is doing to get products from the manufacturer to its distribution centers -- the so-called first mile of its e-commerce ecosystem -- that could completely tip the scales against Walmart, Target, or any other retailer ever hoping to catch up to it, let alone surpass it.

Two container ships at sea

In its efforts for world domination of package delivery, Amazon has taken to the sea. image source: Getty Images.

An unimaginable end-to-end system

First, there was ground transportation. Delivery to the customer has long been center stage in this fight and has typically relied on the services of UPS (NYSE: UPS), FedEx (NYSE: FDX), and the U.S. Postal Service to get the package to someone's door.

More recently Amazon has been building out its own package delivery service -- both with its Amazon Flex program that allows individuals to use their own cars to deliver packages, and by building a fleet of trucks to handle the responsibility. Last year, Amazon ordered 20,000 Mercedes-Benz Sprinter vans to lease to third-party delivery companies to handle the increased demand for goods.

The next component of the system was the development of air cargo capacity, both in terms of building a fleet of airplanes to carry the goods and then in creating an airport hub that would allow the planes to efficiently move packages around the country. It could also become a serious competitive threat to UPS and FedEx should Amazon choose to start accepting third-party packages to haul.

Amazon Air currently has a fleet of 50 planes that it leases, and the hub it has at Cincinnati/Northern Kentucky International Airport can handle twice that many. The current contracts it has with Atlas Air Worldwide and Air Transport Services Group would allow Amazon to take possession of as many as 42 more planes, bringing the total aircraft to 92.

Since 2016, the company has been furtively building the third leg of its master plan for complete control of a package, allowing it to further dominate the market: an ocean shipping service to carry goods from China to the U.S.

Check out the latest Amazon earnings call transcript.

Two if by sea

Last month, USA Today reported that Amazon Logistics' Beijing Century Joyo Courier Service has delivered over 5,300 shipping containers from overseas in the past year. It said that customers can use Amazon's service to ship goods across the Pacific to arrive at a U.S. port, or they can sign up for full end-to-end package delivery and have their goods brought to Amazon's distribution centers, and ultimately right to the customer.

Keeping the package entirely within Amazon's ecosystem gives it a huge competitive edge. "There is no Walmart ocean freight," Michael Zakkour, an executive vice president with Tompkins International, a consultant for the supply chain industry, told USA Today. Moreover, Amazon would gain crucial insights into the wholesale costs of its suppliers, giving it leverage as it would also be one of their competitors.

An ocean freighter service also increases Amazon's efficiency, reduces its costs, and gives it a way to monetize the consumer transaction from beginning to end.

Last-mile delivery will still feature sharp elbows as retailers try to gain an advantage -- or at least keep pace with their rivals. But in the first mile of the transaction, when the package leaves the manufacturer's door, may have no peer.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon and FedEx. The Motley Fool has a disclosure policy.

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