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INTERVIEW Chris Dawson of Tamebay on how Amazon’s logistics look set to change for marketplace Prime retailers

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Our colleagues on Tamebay recently reported on changes set to be introduced by Amazon in the New Year that have implications for both sellers using its marketplace, and for the wider carrier industry. We caught up with Chris Dawson of Tamebay to find out more.

Internet Retailing: What’s going to change for Amazon sellers, and when?

Chris Dawson, Tamebay: Earlier this year Amazon started to allow some large retailers and brands to self fulfil orders but still be eligible for Amazon Prime. Normally to be Prime eligible, goods would have to be located in Amazon’s own warehouses under their Fulfilment by Amazon (FBA) program with Amazon undertaking the pick, pack and shipping process.

Currently Amazon have a restricted list of approved couriers that those retailers in the non-FBA Prime program could use to fulfil Amazon orders. From next year Amazon are going to start insisting that retailers use Amazon’s own courier – Amazon Logistics – to fulfil Amazon Prime orders.

IR: What does this mean for customers?

CD: Customers will notice very little difference, they will order Prime eligible products on Amazon as they do today, most of which will be fulfilled by Amazon with those from non-FBA Prime products shipping direct from the retailer. The only difference from next year is that the non-FBA Prime orders will be delivered by Amazon Logistics.

What customers will see is a much larger product range available under the Prime program as Amazon sign up more retailers for the non-FBA Prime eligible program, giving them unlimited one-day deliveries included in their £79 per year subscription.

IR: How significant a change will this be for sellers?

The most significant change for retailers will be that they have a new courier to integrate, whether they use multichannel management software (such as ChannelAdvisor or Volo), or if they use label solutions (such as Metapack), Amazon Logistics aren’t currently offered as a courier option. This will mean some technical integration will be required to produce Amazon Logistics labels, plus of course the physical constraints of a warehouse may make it difficult to accommodate an additional bay for Amazon Logistics courier collections.

IR: Which sellers will be affected by the change?

CD: Currently the only sellers who will be affected are large retailers whom Amazon have invited to self fulfil Amazon Prime orders, most likely these retailers will be in the IRUK Top500. As with all such programs, we would expect it to expand to include some of the largest SME retailers in the future and in time roll down to ever smaller retailers.

Amazon will always have a finite amount of space in their FBA warehouses and retailers will always have a reluctance to place their inventory into FBA. Non-FBA Prime will give retailers the ability to add larger amounts of inventory on Amazon increasing choice and selection which is why the program is so attractive to retailers.

We have seen in recent years Amazon building out their Amazon Logistics network for deliveries, now that Amazon have started to use their courier network for collections it’s inconceivable that this won’t be expanded alongside their delivery capabilities as Amazon strive to own the customer relationship.

IR: What’s your evidence for this?

CD: We have heard that at least one retailer will have their self fulfilled Amazon Prime shipments collected by Amazon Logistics by the end of January 2016. Additionally another non-FBA Prime eligible retailer has also told us in Tamebay Comments that their existing “carrier let us down for a brief period a few months in. Amazon were extremely understanding and said that none of their ‘approved’ prime carriers (it was a very limited list) were doing a good enough job for the sellers, and that they needed to do something themselves for 2016”.

IR: Tell us about the implications for other carriers who currently get this business.

CD: Amazon now have at least 14 Amazon Logistics depots, each of which have up to 40 warehouse employees and close to 400 delivery drivers contracted from local courier firms. That’s a very significant parcel capacity taken away from national carriers and the postal service. If we take the recently expanded Amazon Logistics Bardon depot with 375 drivers at a lowball estimate of 100 parcels per driver five days a week we can easily estimate 10 million parcels per year for this depot – but Amazon deliver seven days a week and this is only the traffic from one of 14 Amazon Logistics Depots. This is still low in terms of a national carrier but Amazon Logistics have only been operating for a couple of years in the UK so there’s plenty of time for expansion.

We confidently expect to see Amazon opening more depots and expanding their reach – they have to do this to support their Amazon Prime Now programme and naturally they’ll use these depots to also deliver Amazon retail, Amazon FBA and in the future Amazon Non-FBA Prime parcels.

As Amazon expand Amazon Logistics, ever increasing volumes of traffic will disappear from national carriers and postal services and the real impact for Royal Mail is that parcels are the profitable side of their business, Royal Mail makes very little in comparison from their letter traffic. Earlier this year Royal Mail already warned that Amazon is impacting its future profitability so we know Amazon Logistics represents a significant danger to the UK carrier market.

IR: What other implications do you see for the future as a result of this move – and how do you predict marketplace delivery will evolve in future?

CD: Both Amazon and eBay are setting up their own fulfilment networks, Amazon with Amazon Logistics and eBay with their Collect and Drop Off at Argos services. Amazon are now set to collect from the largest retailers in the country where conversely eBay’s Argos Drop Off service will appeal to the smallest consumer sellers. eBay have also put in place a global shipping programme which enables retailers no matter how small to ship a parcel to their Derby fulfilment centre and eBay will then export the item to practically anywhere in the world on the seller’s behalf – International selling for retailers who only ship to the UK. However both marketplaces are building solutions which as they expand will offer competitively priced alternatives, effectively fulfilment networks only accessible for parcels sold on their platforms.

Amazon are mandating use of Amazon Logistics for Non-FBA Prime eligible products, but the reality is that once a retailer starts sending volumes through Amazon logistics, all of their Amazon shipments – to Prime customers and non-Prime customers – are likely to be sent through Amazon’s network. Amazon will also start to offer the service to smaller sellers on a phased rollout and we can predict that at some point in the future it will be the defacto shipping method for the majority of Amazon sellers who self-fulfil.

eBay have made no mention of using the Argos network of couriers for parcel collection, but it would appear to be a logical next step. Argos have recruited some 3,000 drivers located at their 750+ UK stores and once the Christmas peak is past, it’s likely that they will have spare capacity. It would be no surprise to see eBay utilise this capacity to start daily collections from retailers at some point in the future.

Twenty years ago when marketplaces first started to appear on the internet, innovation was simply that you could sell online. Then they added, what were at the time, revolutionary services such as the ability to add an image to a product listing and payment methods that didn’t include stuffing cash into an envelope and popping it in the post. Today innovation is all about the delivery and returns experience and what happens behind the buy button. Expect to see marketplaces increase their in-house delivery services and take control of the delivery of products away from national carriers.

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