Tuesday, September 6, 2011

Amazon Preparing For Postal Service Shutdown

On September 2, 2011, The Daily reported that Amazon is now preparing to test a locker based system for parcel delivery in the Seattle, Washington.   The lockers, to be placed in 7-11 gives Amazon an alternative means of delivering shipments that avoid home delivery and the issue of repeated delivery attempts.  If Amazon puts one in every 7-11, it will have 8,200 parcel pick-up locations nationwide.

Seattle is one of the markets that Amazon currently offers local express delivery. Items eligible for local express delivery can be ordered as late as 1 pm for delivery that day.   The parcel lockers allow Amazon to cut the delivery time on its shipments by reducing the number of locations where parcels need to be delivered. This should allow Amazon to expand its same day delivery service and possibly reduce shipment times for other shipments.
7-11 Seattle, WA
Geekwire published pictures from a 7-11 in the Capitol Hill section of Seattle.

The picture shows a set of lockers taking up a small portion of the 7-11's floor space.   7-11 most likely is leasing the space to Amazon.  The lease will likely cover all utilities and may include a requirements regarding how the area around the parcel locker is to be maintained  Putting the parcel locker in a 7-11 helps reduce security concerns that would exist if the lockers were put outside which is common in other applications.

The close-up photographs show lockers of different sizes that could fit everything from a book to a small appliance.
Amazon Parcel Locker
According to The Daily, a source with knowledge of the project, the idea is simple: these nondescript boxes will be in 7-Eleven stores across the country and act as a sort of P.O. box for Amazon purchases. Once a customer makes a buy on Amazon’s website he can select a 7-Eleven close to work, or on the way home and have the package dropped off there.
Once the package is actually delivered, the customer receives an email notification along with a bar code to his smartphone and heads to the 7-Eleven. There he’ll stand in front of the locker system, which looks like the offspring between an ATM machine and a safety deposit box. The machine will scan the bar code on his handset to receive a PIN number. He’ll punch that PIN number and retrieve the package.
DHL Packstation

This is similar to how DHL describes the use of its Packstation: 1) register for the service; 2) choose a packstation; and 3) pick-up a parcel when notified by e-mail or text message.  DHL now has 2,500 Packstations in urban, suburban and rural areas.   Packstations have been installed in many small rural towns in Germany, with some of these towns as small as 7.000.
The difference between the Packstation and Amazon's kiosk is that Packstations are designed for shipping parcels as well.  The credit card reader in the Packstation is missing as well as the slot for printed shipping labels.  Also as most Packstations are located outside, they also include a canopy to allow use in inclement weather.

The front-on picture of the Amazon kiosk provides a better image of what are likely a touch-screen interface and the lockers of various sizes designed for small parcels.
Amazon Parcel Locker
According to the Daily's source, Amazon is testing the system now and could begin roll-out by next summer.
The look of the Parcel locker clearly shows that it is a direct threat to the parcel business of the Postal Service.   The size of the lockers fit smaller parcels.  This  includes parcels that United Parcel Service and FedEx deliver using the Postal Service's Parcel Select or Standard Parcel products, as well as shipments that fit into any of the Postal Service's Priority Mail flat rate boxes.

While Amazon is installing these parcel kiosks, the lack of branding raises some interesting questions about Amazon's long-term strategy for this significant capital investment.
  • Are the kiosks only going to be available to only Amazon and Amazon marketplace sellers or will they be open to all shippers of parcels?
  • If they are open to all shippers, what brand will Amazon chose to give it universal appeal?
  • Could Amazon license the Postal Service brand to give it universal appeal? 
  • Who will have access to the lockers to put parcels in? 
    • Will Amazon have a single local carrier handle this or will the parcel lockers be open to UPS, FedEx, Postal Service and other parcel carriers? 
    • If they are open to all carriers, will Amazon charge a fee for their use, turning parcel pick-up into a profit center?
  • Will Amazon open these parcels in all states or will its fight over sales taxes determine where it puts them?
  • If the sales tax issue creates problem would Amazon operate these parcel lockers through a subsidiary with which it has an arms-length relationship?
Post Danmark (Denmark)
Outside of the United States, investments in parcel lockers have been made by the national post because the national post is the largest parcel carrier delivering parcels, and in particular small parcels to residences.   The United States Postal Service has known about the Packstation, which is made by Keba, AG  and parcel locker solutions from other vendors for at least the last two years that they have been mentioned on this blog.  [Should the Postal Service Close all Post Offices?]  However, it had neither the available capital nor the willingness to make hard choices about its retail strategy to choose what will likely be the small parcel delivery method of the future.

Investments of this type take a fairly long time to consider and an even longer time to implement.  Amazon's decision to make this investment clearly indicates that it needed a different way to deliver to smaller and in particular smaller high-value parcels than what FedEx, United Parcel Service or the Postal Service now offer or appear to be likely to offer in the future.

Most importantly, the Postal Service's financial problems, legal and regulatory constraints, and Congressional meddling made it impossible for the Postal Service to provide the service that Amazon receives from the national post in every country where the national post has been corporatized or privatized.  Furthermore, the seriousness of the Postal Service's financial condition has resulted in proposals that could add an additional day for drop-shipped parcels or eliminate delivery on Saturdays, options that make Amazon less competitive with stores like Walmart and Best-Buy that offer in-store pickup in an hour or less.

The risk that the Postal Service may not be able to meet Amazon's delivery needs in the future coupled with the high price of alternatives from FedEx and United Parcel Service that forced Amazon's hand.  Given that the investment in a network of parcel lockers will be in hundreds of millions if not billions of dollars range, the size of the risk that the Postal Service could close or offer lower quality parcel delivery services clearly was material to revenue growth and profit prospects of Amazon.   This made the investment both prudent for Amazon and a great concern for Postal Service, postal stakeholders, and lawmakers trying to rewrite the law to ensure a future for the Postal Service and the customers it serves.


Anonymous said...

I don't have a smart phone. I guess I won't be ordering from Amazon any more since I won't be able to pick up my packages at the 7-11 without it................

Anonymous said...

have you seen some of the people who use 7-11 late at night? how about security? will their employees be bonded or finger printed and backrounds checked?I prefer the dedicated and proffesional letter carriers of the usps