Here’s How Amazon Will Compensate for Rising Transportation Costs

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Amazon’s (NASDAQ:AMZN) new Prime price hike evidences its current struggle with ever-increasing transportation costs, but according to DC Velocity, the e-commerce giant now has another strategy up its sleeve to revamp its shipping efforts and avoid higher charges. The publication reported last week that Amazon is overhauling its delivery network so it can gain more control over its fulfillment infrastructure. A supply chain consultant, James Tompkins of Tompkins International, said earlier this month that Amazon is in the midst of dividing the nation into three segments based on population size, and from there, it will assign different fleets to serve each sector of its customers. The three segments will include the top 40 markets, which account for half about half the U.S population; the next 60 largest population areas that account for about 17 percent; and the remaining areas, which comprise about one-third.

According to DC Velocity, Amazon’s new distribution revamp will result in a number of new partnerships, as well as a few break-ups. Today, U.S. Postal Service (NYSE:UPS) handles much of Amazon’s current deliveries, but moving forward, Tompkins said it won’t play a big role in the network realignment — nor will FedEx Corp (NYSE:FDX). Rather, the top 40 markets will be served by a private fleet currently in construction by Amazon to supports its online grocery business, Amazon Fresh. A handful of regional parcel delivery carriers will serve the next 60, and the remainder will be served mostly by the UPS.

It is still unclear how soon Amazon plans to realize its new plans, but Tompkins said last week, via DC Velocity, “They are moving very quickly.” He explained that orders will soon be routed through the Seattle-based company’s 55 fulfillment centers, and as always, deliveries will be made the same day, the next day, or in two days at most. That’s why providers like FedEx and UPS are no longer as appealing to Amazon — they’re too slow for its business. Instead of relying on them for deliveries, the company will make sure that its inventory is sufficiently stocked at all of its fulfillment centers, and then it will rely largely on private fleets to execute the distributions.

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