Amazon Smile: first-mile, last-mile, and everything in-between?

After a slow start, 2016 is shaping up to be a solid year for most companies involved in airfreight logistics.  Yields are finally starting to recover, and strong peak season demand for air freight persists. For e-commerce giant Amazon, however, previous years provide virtually no baseline for comparison. With an enormous, and growing annual shipping bill which totaled US$11.5 billion in 2015, 2016 was the year during which Amazon outlined ambitious plans to exercise greater control over the shipping process, and use its own in-house tools to drive efficiencies. Perhaps Amazon’s receipt of a license from the Federal Maritime Commission to operate as a non-vessel operating common carrier (NVOCC), or the launch of its own-operated “Prime Air” airline standout as the most important Amazon developments to watch going into 2017. Adjunct to the Prime Air program, Amazon quietly achieved another last-mile delivery milestone this month when it made its first commercial delivery with an unmanned drone.

On 7 December, the Prime Air delivery took place in Cambridgeshire, near Amazon’s UK drone-testing plant, where the company has been working with the government to test longer-distance deliveries. Jeff Bezos, Amazon’s CEO broke the news on twitter, announcing that his company delivered a parcel containing electronics and popcorn to a customer’s home, from a nearby Amazon fulfillment center. Unlike normal fulfillment centers, the Cambridgeshire facility boasts an adjunct semi-automated loading and launching drone platform. The delivery itself lasted 13 minutes, during which the drone traveled about two miles. In the coming weeks, Amazon plans to expand the Cambridgeshire county drone test operations.

With an astronomically high shipping bill, it is no surprise Amazon is investing in logistics. In 2015, the Seattle-based company spent US$11.5 billion to deliver packages to its customers. Shipping revenues meanwhile, totaled only $6.5 billion, leaving a shipping deficit of $5 billion. Amazon for its part, can handle the large shipping deficit due to its alternative cost structure. Unlike bricks and mortar retailers with physical retail stores and salespeople, Amazon instead shouldered the bill for the couriers and integrators it tasked with delivering packages to its customers, from Amazon distribution centers.

As the pieces of Amazon’s future logistics blueprint begin to fall into place, what remains on the horizon? Last week Business Insider shed some light on an application Amazon is currently developing to match shipments to available trucking capacity – what would essentially be “Uber for trucking.” Rather than going through a third-party broker to match a load with trucking capacity, truckers will be able to use Amazon’s app to find their own shipments, and accept or deny based on real-time pricing and delivery requirements. This “middle-mile” focused application targets the mode of transportation which comprises the greatest share of Amazon’s freight expenditures: trucking. According to some estimates, less than 20% of Amazon’s freight spending goes to non-trucking modes.

As Amazon continues to venture into new areas of the supply-chain it is increasingly looking like a comprehensive logistics company. Although many of these services handle only Amazon freight, the opportunities to sell such services to third-parties are abundant, and likely only a matter of time.