Amazon’s shipping costs outpace sales growth during Covid-19

MarketLine   28 January 2021 (Last Updated January 28th, 2021 12:03)

The Covid-19 pandemic has seen online sales soar at an unprecedented level, along with shipping costs.

Amazon’s shipping costs outpace sales growth during Covid-19
Credit: Hadrian / Shutterstock.

The Covid-19 pandemic has seen online sales soar at an unprecedented level, along with shipping costs.

The Covid-19 pandemic has seen online sales soar at an unprecedented level across the world as people are forced to shop online due to national lockdown and social distancing measures.

The extent of the increase in online shopping is demonstrated by Amazon’s third-quarter revenues, which stood at $96.15bn and its net income increased to $6.3bn in the third quarter, compared with net income of $2.1bn in third quarter 2019.

At present, Amazon only has a limited number of box sizes, meaning that often, products are sent in a box that is much larger than necessary. This adds to shipping costs and e-retailers are starting to evaluate how they can be smarter in their use of packaging (or what types they use).

Packaging companies must be prepared to work with the e-retailers to devise innovative solutions or risk losing business. The importance of reducing shipping costs cannot be overstated.

E-commerce retailers see shipping cost rise

While Amazon’s revenues have benefitted greatly from the surge in e-commerce, shipping costs have however also increased. Amazon’s shipping costs increased 57% YoY in Q3 to reach $15bn. Shipping costs are actually growing faster than online sales (up 38% YoY) in the same period, eating into the profit the company is able to make from its retail operations.

These results were expected as the company made higher investments to meet rapid growth in customer demands during the pandemic however, even prior to the pandemic, the YoY growth in shipping costs from Q2 2019 to Q1 2020 was 36%, 46%, 43%, and 49% respectively.

During the same time period, the YoY online stores growth was 16%, 22%, 15%, and 25% respectively. Hence, Amazon’s shipping costs have risen at 20 percentage points more than the online store sales.

This is a huge cost and one that Amazon (and many other retailers) must seek to reduce. Packaging has a key role to play in this quest.

Amazon’s subscription and advertising segment has helped aid growth

Despite rapid growth in shipping cost, Amazon has seen its operating margins improve in its domestic market and international region due to its rapidly growing, higher-margin subscription and advertising segments.

The subscription and advertising segments have been growing at close to 30% and 40% respectively YoY for the past few quarters. The company will need to continue investing in its subscription and advertising segments in a bid to generate growth.