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Shipping costs increase by 36.8% at Amazon 30 January 2020

Net sales climb 20.0% as profits increase 16.9%

Amazon has reported full year 2019 net sales increased 20.0% to US$280.5 billion, compared with US$232.9 billion in 2018. Excluding the US$2.6 billion unfavourable impact from year-over-year changes in foreign exchange rates throughout the year, net sales increased 22.0% compared with 2018. Operating income increased 16.9% to US$14.5 billion, compared with operating income of US$12.4 billion in 2018. Net income increased to US$11.6 billion, up 14.9% compared with net income of US$10.1 billion, in 2018

The Company’s fulfilment costs increased 18.2% to US$40.2 billion in 2019, though as a percentage of net sales they dropped to 14.3%, from 14.6% in 2018.

Fulfilment costs primarily consist of those costs incurred in operating and staffing North America and International fulfilment centres, physical stores, and customer service centres and payment processing costs. While AWS payment processing and related transaction costs are included in fulfilment, AWS costs are primarily classified as ‘Technology and content’.

Fulfilment costs as a percentage of net sales may vary due to several factors, such as payment processing and related transaction costs, levels of productivity and accuracy, changes in volume, size, and weight of units received and fulfilled, the extent to which third party sellers utilise Fulfilment by Amazon services, timing of fulfilment network and physical store expansion, and the extent Amazon utilise fulfilment services provided by third parties, among other factors. The increase in fulfilment costs in absolute dollars in 2019, compared to the prior year, was primarily due to variable costs corresponding with increased product and service sales volume and inventory levels and costs from expanding the fulfilment network, which includes physical stores.

Shipping costs, which include sortation and delivery centres and transportation costs, were US$27.7 billion and US$37.9 billion in 2018 and 2019.

The Company expect its cost of shipping to continue to increase to the extent customers accept and use its shipping offers at an increasing rate, it reduces shipping rates, it uses more expensive shipping methods, including faster delivery, and it offers additional services.

Amazon seek to mitigate costs of shipping over time in part through achieving higher sales volumes, optimising its fulfilment network, negotiating better terms with suppliers, and achieving better operating efficiencies. The Company believes that offering low prices to customers is fundamental to its future success, and one way it offers lower prices is through shipping offers.