Amazon’s massive investments in logistics worry analysts

Security guards stand at the reception desk of the Amazon India office in Bengaluru, India, August 14, 2015. REUTERS/Abhishek N. Chinnappa

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.

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 fulfilment 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.

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.

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Reuters

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In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

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