Amazon.com Inc’s (AMZN: NASDAQ) plan to increase the number of one-day shipping on its platform could prove detrimental to the company, Barron’s said on Sunday.
Writing for Barron’s, Allen Root argued that the one-day deliveries put too much financial pressure on the e-commerce giant, with no equivalent opportunities to increase revenue.
Barron’s noted that while Amazon is spending $1.5 billion in the fourth quarter to increase the number of one-day deliveries, the service is essentially rendered for free as it is offered as part of the Amazon Prime membership, which comes with a flat yearly fee.
A shipping executive told Barron’s that they could order a Nutella Jar from Amazon with one day delivery for $6. The same Nutella jar would cost up to $100 for one day delivery if shipped with FedEx Corporation (FDX: NYSE), Barron’s said.
It is no wonder then that FedEx terminated its “express” contract with Amazon in June to focus on the “broader e-commerce market.
“A lot of free, small packages promised in one day can raise logistics costs and pressured profit margins,” Root wrote for Barron’s.
Worsening Working Conditions
Barron’s also said that the plight of Amazon executives, who already bear poor pay and harsh working conditions, is likely to be worsened as pressure over delivering products early increases.
Quick turnaround means more vehicles on the road, meaning that any advantage e-commerce may have offered in terms of reducing pollution would be offset.
Citing an MIT report, Barron’s noted that environmental gains made from large-scale shipping over each individual driving to the mall and back are likely to be offset with the further growth of the e-commerce industry.
If Amazon has thought out the finances, does it need to care about the working conditions and environmental effects? Yes, says Barron’s — because its investors would, in turn, affecting the company’s valuation.
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