Amazon’s per-unit shipping and packaging costs fell to their lowest level in more than 8 years, but now the company is on a major hiring spree to meet rising demand (AMZN)

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Amazon’s cost for packing and shipping each product on its site dropped to the lowest level in over 8 years last quarter, reflecting the company’s growing efficiency in its logistics network. 

According to a Morgan Stanley report published on Monday, Amazon spent $1.64 per each fulfilled unit in the second quarter (excluding one-time expenses for COVID-related initiatives and certain debt as well as other costs like Whole Foods deliveries; it cost $2.36 per unit when including all those costs). That’s the lowest per-unit fulfillment cost since at least the first quarter of 2012, or in over 34 quarters, based on Morgan Stanley estimates. 

Amazon’s shrinking fulfillment cost per unit, or the money it spent on storing, packing, and shipping each product sold, also shows how the lockdown-driven demand far outpaced the level of investment in its logistics network last quarter. Amazon’s investment in its warehouse and delivery network likely couldn’t keep up with the unprecedented demand increase as more people shopped online during the COVID-19 pandemic.

“Amazon’s reported 2Q $2.36 fulfillment cost per fulfilled unit (est. $1.64 excluding 1-time Covid costs) gave us a glimpse into how efficient its network can run with very high utilization and without large investment spend,” Morgan Stanley analysts wrote in the note.

It’s unlikely that Amazon’s per-unit fulfillment cost will remain at such low levels. Amazon said on Monday that it’s hiring 100,000 new employees across its logistics network, in addition to the 33,000 new jobs it announced last week. That’s on top of the 175,000 new warehouse and delivery hires it announced in the second quarter. Amazon also said in July that it would expand its physical footprint, including warehouse and office space, by about 50% in 2020.

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As a result, Morgan Stanley said it’s raising Amazon’s fulfillment cost estimates by 4% for the next two years, which will reduce Amazon’s operating profit estimates by 5% during the same period. 

SEE ALSO: These charts show how Amazon’s ad business could surge even higher thanks to its pandemic-fueled rise in grocery and household sales

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Source:: Business Insider

      

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