Amazon’s net shipping costs soared to nearly $1.75 billion in the third quarter, the second-highest quarterly total in the company’s history and the highest ever outside of the peak holiday season, according to data compiled by GeekWire from the e-commerce giant’s historical earnings reports.

Net shipping costs are the difference between the amount Amazon pays for shipping and the amount customers pay the company in shipping fees and Prime memberships.

Shipping revenue received from customers covered a little more than 55 percent of the company’s overall shipping costs in the quarter, in line with other recent quarters, but those overall costs soared 43 percent to nearly $3.9 billion.

Amazon’s rising shipping costs are driven by factors including the growth of the Amazon Prime membership program, with its core benefit of free two-day shipping; the expansion of the Fulfillment By Amazon (FBA) program, requiring more warehouse capacity; and Amazon’s push for rapid delivery across its business with AmazonFreshPrime Now, and new same- and next-day shipping options.

“There’s a lot of things that we’re doing to shorten the time to delivery,” said Amazon CFO Brian Olsavsky in a conference call with reporters after the company’s quarterly earnings report this week.

“We acknowledge that’s expensive, but it’s certainly a great part of our value proposition, and customers love it, so we take it as a given and then we work very hard to bring down our costs through greater efficiency.”

Brian Olsavsky

“There’s a lot of things that we’re doing to shorten the time to delivery”Brian Olsavsky, Amazon CFO

The rising shipping expenses come as analysts and investors take a new look at Amazon’s cost structure, after the company’s third-quarter earnings significantly missed Wall Street’s expectations this week.

The trend also demonstrates why Amazon is increasingly looking to take logistics and shipping into its own hands, with new fleets of Amazon cargo planes and tractor trailers serving as the most visible signs of the initiative.

Over time, those initiatives will reduce the company’s shipping costs by giving the company its own alternative to supplement UPS, FedEx and other third-party logistics shipping companies.

“When we add the planes or take in-house things like sort centers and others, it’s done at generally a cost savings to external options,” Olsavsky said.

“At the very worst (it’s) break-even in cases where we want to control our own destiny.”

Earlier this year, the company also took steps to control costs by raising the minimum order to $49 for non-Prime members to be eligible free shipping on items other than books, up from the previous minimum of $35.

Source: GeekWire

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