Please ensure Javascript is enabled for purposes of website accessibility

Amazon's Logistics Hiring Spree Could Signal Even Bigger Aspirations

By James Brumley - Jan 31, 2020 at 8:20AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The e-commerce behemoth is less interested in contracting competitors and more interested in contract employees for a reason.

It's likely that most (AMZN -2.78%) shareholders don't know it happened given that so much else is going on within and around the company. But the e-commerce giant recently chose to outright hire 1,600 workers who had been slated for layoffs by Pinnacle Logistics. Pinnacle presently handles ground logistics for Amazon at its Baltimore-Washington International Airport hub, but clearly wants out of the business. Amazon intends to seamlessly take over the operation.

With nothing more than a quick glance, it would appear to be business as usual. Amazon needs its BWI hub to function, as two fulfillment centers are just a few minutes away. In this instance, it may have simply been easier and faster to hire its own workers than to find another contractor.

As it turns out, however, Amazon has been steadily decreasing its use of contracted logistics services and increasing its use of in-house solutions. This should ultimately lower its freight costs, but could also point to the development of a for-hire shipping network.

Package sitting on doorstep of home

Image source: Getty Images.

Read between the lines

In the early days of, it relied on shipping companies like FedEx (FDX -1.14%), UPS (UPS -0.81%), and even the U.S. Postal Service to get its goods from warehouses to customers' doorsteps. As the operation has grown in size and complexity, though, its total shipping costs have come under fire from investors. The recent advent of one-day delivery -- although a powerful marketing tool -- has proven particularly expensive. Its fiscal third quarter's top line improved 26%, but shipping costs swelled to the tune of 46%.

It's not clear exactly how that additional money was spent. Amazon operates a fleet of a few dozen leased cargo jets, yet still relies on the likes of FedEx and UPS. It also often ferries goods from one warehouse to another before putting a parcel on the truck that takes it to the buyer.

Regardless, a closer look reveals Amazon is resolving more of its delivery challenges in-house.

In 2018, Amazon did launch a home-grown ground delivery network that technically relies on contractors. But the company offers what is essentially subsidized support to keep those vans moving -- the sort of assistance an employee of another shipping company might expect. In 2015, it began to lease what would eventually become a collection of 10,000 trailers (the 53-foot wheeled boxes hauled around on roads by a "big rig") of its own, letting contracted truck drivers with their own tractors haul Amazon's freight equipment. Then, last year, it unveiled its own tractors to haul these trailers. While it still puts contracted drivers behind the wheel of those vehicles, Amazon clearly exerts greater control of its operation with this approach.

In the meantime, Germany's Amazon operation has outright hired its own drivers, while Amazon's U.S. operation tinkered with the premise during 2018's busy holiday rush.

Any one of these incidents by itself means little, but taken together, there's a discernible trend developing.

Baby steps toward self-sufficiency

Amazon Logistics isn't quite ready to stand entirely on its own. But the direction Amazon seems to be headed is indeed toward the often-rumored creation of its own, complete shipping solution.

That premise was reiterated by Morgan Stanley in December, in a report that unambiguously noted "[Amazon's] commitment to increase capacity by 2024/2025 reaffirms our view that a Third-Party Logistics offering is coming." The firm's analysts believe the e-commerce outfit will have so much spare room on its trucks and planes by 2022 that roughly one-third of its capacity could be used to ferry goods that didn't originate as a sale at At this pace of progress, Morgan Stanley's research concludes Amazon "could cut UPS/FDX/USPS share of eCommerce packages in the US from 95%+ in 2014 and 82% in 2019 to 50-55% by 2022-25."

A home-grown logistics solution would also provide the exact solution Amazon wants, unlimited by any restrictions that may have been imposed by UPS or FedEx. These may include how far or how quickly a trailer could travel in one day, or when it's picked up. Amazon even banned the use of FedEx Ground services (albeit temporarily) during the 2019 holiday shopping season due to the delivery company's deteriorating on-time success rate. Customers still largely hold Amazon accountable for shipping shortcomings.

What the Morgan Stanley report didn't explicitly say but is true all the same: By footing the bill for its own delivery work, Amazon at least doesn't have to fund the profit margins FedEx and UPS shareholders require (thin as they may be) from Amazon's business revenue. Now Amazon won't have to fund Pinnacle Logistics' profit margins either.

It won't be easy for shareholders to immediately see the cost savings stemming from this paradigm shift. Leases of trucks, trailers, and planes are still an expense. But the more of its logistics network Amazon directly controls or outright owns, the cheaper and easier it becomes to operate. More scale will only help lower its per-parcel cost -- savings UPS and FedEx didn't seem to fully pass along to the e-commerce behemoth as it upped its demand for their services. They may well have given birth to a fierce competitor.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned, Inc. Stock Quote, Inc.
$113.22 (-2.78%) $-3.24
United Parcel Service, Inc. Stock Quote
United Parcel Service, Inc.
$181.81 (-0.81%) $-1.49
FedEx Corporation Stock Quote
FedEx Corporation
$240.47 (-1.14%) $-2.77

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/27/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.