Consultant Insight: Amazon reports strong Q4 as it looks to speed up last-mile delivery in 2022

E-commerce giant Amazon benefitted from the ongoing e-commerce boom with net sales growth during the fourth quarter of 2021, but many of the same issues impacting global supply chains and logistics weighed on the company’s income during the quarter. [caption id="attachment_69752" align="alignright" width="298"] Cathy Roberson, Cargo Facts Consulting senior consultant and Air Cargo World columnist[/caption] Amazon reported total net sales up 9% year over year to $137.4 billion and total operating income down by 49% YoY to $3.5 billion, compared with $6.9 billion in Q4 2020. “As expected over the holidays, we saw higher costs driven by labor supply shortages and inflationary pressures, and these issues persisted into the first quarter due to omicron,” Andy Jassy, Amazon CEO, said in a statement. Amazon Web Services (AWS) led the increase in net sales with 40% YoY growth, while net sales from third-party seller services increased 12% during the quarter. These services include commissions, related fulfillment and shipping fees, and other third-party seller services. However, a surprise slip in net sales occurred in Amazon’s online store group, which was down 1% from an extraordinary Q4 in 2020. Another surprise were net sales from Amazon’s physical stores, which increased 17% from the same period. While there was no mention of Amazon’s physical stores during the company’s latest earnings call, the healthy net sales growth could be attributed to the higher percentage of vaccinated consumers and their willingness to shop at stores. The growth could also be due to Amazon’s investments in linking its physical stores, which are also used for pickup purposes, online fulfillment and showcasing new products, with its online stores as part of its multichannel strategy. Staffing remained an issue during Q4, and as the omicron variant spread toward the end of the quarter, the issue spilled over into Q1 of this year. “Loss of productivity and network disruptions were driven primarily by labor capacity constraints due to challenges in staffing up our facilities for peak,” Amazon CFO Brian Olsavsky told analysts. “This is driven by the very tight labor market in the second half of 2021 and, more recently, by the emergence of the omicron variant. We expect these cost challenges to persist into Q1, albeit adjusted for lower seasonal volumes relative to the fourth quarter.” Other costs included shipping, which was up 10% compared with Q4 2020. Some of this increase was due to higher pricing from third-party carriers supporting Amazon’s fulfillment network, Olsavsky said. Amazon will resume expanding and improving its one-day deliveries back to pre-pandemic levels as part of its 2022 plans. In 2019, the company announced it would speed up its last-mile delivery Prime promise from free two-day service to one-day service. However, the COVID-19 pandemic put a dent in that promise as Amazon, along with other carriers, struggled with supply chain issues. As Amazon refocuses on one-day deliveries, the company also announced it would increase its Prime membership fee from $119 a year to $139 due to higher costs related to wages and transportation and continued expansion of benefits under the membership as one-day deliveries. As part of its strategy to speed up deliveries, Amazon is positioning fulfillment facilities closer to customers. “We want to have the capacity to have a healthy retail and FBA [Fulfillment by Amazon] business because that fuels Prime in one-day delivery, two-day delivery and same-day delivery,” Olsavsky said. “But we see the [investments in] fulfillment centers piece likely moderating this year… We still see additional levels of investment in [transportation] in 2022 … [and] we’re going to plow a lot of our effort into increasing our transportation speeds and beating our pre-pandemic levels.”

Consultant Insight: Amazon reports strong Q4 as it looks to speed up last-mile delivery in 2022

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