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October 29, 2019 11:00 AM, EDT

Amazon’s Transportation Costs Surge in Q3; Financial Results Mixed

Amazon truck in Seattle An Amazon trailer sits in Seattle. The company's Q3 profits didn't meet Wall Street's expectations, but revenue was higher than expected. (Stephen Brashear/AP Images for Amazon)

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Amazon.com’s shipping costs skyrocketed 46% year-over-year in the third quarter to a record $9.6 billion, an increase of more than $500 million over what the online retail giant spent during the same period in 2018.

The higher costs were part of Amazon’s third-quarter earnings announced Oct. 24. The Seattle-based company also said it’s ramping up its free, one-day delivery to its Amazon Prime customers.

Amazon missed on profit but beat Wall Street’s expectations for revenue.

Net income totaled $2.13 billion, or $4.31 a share, down 26% from 2018’s $2.88 billion, or $5.91, in 2018. Analysts expected the share price to be $4.62. Revenue was $70 billion for the quarter, up 24% from $56.6 billion generated a year ago.

CEO Jeff Bezos acknowledged the promise of one-day shipping and the higher transportation costs are problematic, but he believes it’s a smart business decision.

Jeff Bezos

Bezos

“Customers love the transition of Prime from two days to one day — they’ve already ordered billions of items with free one-day delivery this year. It’s a big investment, and it’s the right long-term decision for customers.

“And although it’s counterintuitive, the fastest delivery speeds generate the least carbon emissions because these products ship from fulfillment centers very close to the customer. It simply becomes impractical to use air or long ground routes.”

With the holiday shopping season about to ramp up, Amazon said it expects fourth-quarter shipping costs to increase, by as much as $1.5 billion over last year as it fulfills its one-day shipping promise to Prime members.

Amazon also is putting out the “Help Wanted” sign. Chief Financial Officer Brian Olsavsky said on a conference call with reporters and financial analysts the company hired about 100,000 new employees during the third quarter, and most of them are working in transportation and logistics roles to improve package deliveries.

Amazon officials said much of the money being spent on the transportation network involves moving more products closer to customers. The company also is spending heavily as it builds its delivery-partner network, using individuals who are independent contractors to manage a group of drivers that works directly for the contractor, but not directly for Amazon.

Meanwhile, Amazon announced Oct. 29 it is dropping its nearly $15 monthly service charge to Prime members to use its grocery-delivery service. Customers will be able to order groceries through Amazon’s Whole Foods or Amazon Fresh with free, two-hour delivery or pay for express delivery with its one-hour service.

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