Worried
analysts question Amazon's logistics plans
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[January 29, 2016]
By Mari Saito
SAN FRANCISCO (Reuters) - In the wake of
Amazon.com Inc's disappointing financial results that sent shares
plunging Thursday, analysts blamed rising costs to deliver goods, which
increased to $4.5 billion in the quarter, up 24.4 percent from the same
quarter last year.
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And they sharply questioned the company's plans to continue to make
heavy investments in logistics, even at the expense of profits.
They wondered why it was planning to buy more assets like trucks,
and reportedly to lease jets, and worried it planned to spend the
money to take on shippers like United Parcel Service Inc.
"The so-called (earnings) miss was half fulfillment and half
marketing," said Michael Pachter, a managing director of equity
research at Wedbush Securities.
The growing popularity of Prime, which promises free, two-day
deliveries for millions of online orders, was one of the factors
driving up shipping costs at the online retailer.
Rising shipping costs are of particular concern to Amazon, which is
the world's largest online retailer.
To handle increased orders and speed up delivery, Amazon has opened
more warehouses and is building its own delivery system.
But Amazon executives asserted on Thursday that they do not intend
to compete against carriers like United Parcel Service and FedEx
Corp.
Analysts have speculated that the online retailer might one day
become a logistics player itself, offering storage and delivery of
items for other industries. Some have expressed worries about the
costs involved in that endeavor.
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UPS and FedEx handle the bulk of Amazon's deliveries but Amazon has
tried to take more control over its supply chain after a mixture of
bad weather and a last-minute surge in e-commerce orders delayed
deliveries during the crucial holiday season in 2013.
"Those carriers are just not able to handle all of the capacity that
we need at peak," Amazon Chief Financial Officer Brian Olsavsky
said. "We've had to add more of our own logistics to supplement our
partners, not to replace them."
But he stopped short of ruling out the possibility of offering
shipping to third parties, and did not address an analyst's question
about building its logistics arm into a separate business.
(Reporting by Mari Saito; Editing by Steven Trousdale and Stephen
Coates)
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