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Supply Chain News: Amazon Warns Investors on Q2 Virus Expenses, while UPS Profits Fall from too Much Consumer Business


Amazon to Spend All Q2 Profits on Virus Expenses, while UPS Earnings Fall Despite Revenue Increase

May 4, 2020
SCDigest Editorial Staff

Amazon once again had stellar revenue growth in Q1, according to its earnings report release late Thursday after markets were closed.

Supply Chain Digest Says...


The parcel giant said its trucks are traveling 10% further per stop and making 15% more stops on their daily routes in the face of soaring home deliveries

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Sales jumped 26% in Q1, rising to a huge $75.5 billion, on the back of 29% growth in North America as locked down consumers placed lots of online orders. That pushed net income to $2.5 billion, or about 3.3% of sales.

However, the news that led media reports had to do with CEO Jeff Bezos telling investors on the call that "If you’re a shareowner in Amazon, you may want to take a seat, because we’re not thinking small."

He then said Amazon would have projected operating income of about $4 billion in Q2 – but instead said that profit will instead nearly all be spent instead on a variety of coronavirus related expenses.

That includes big investments in Covid-19 tests for workers and beefing up its delivery network to get packages to customers on time. In fact, Amazon expects to spend an amazing $1 billion on Covid-19 testing alone in the full year 2020, including building its own testing labs.

Some of the $4 billion will also fund higher wages for workers, more personal protective equipment, better cleaning protocols at facilities and "less efficient process paths" for fulfilment center that will allow for social distancing in the crowded FCs.

In other words, FC workers may be given new so-called "pick paths" from its Warehouse Management System (believed to have been internally developed) that require more travel time, the key driver of order picking costs, but will direct workers to stay safe distances away with each other.

SCDigest notes that to pull that off would require a complicated algorithm and perhaps monitoring of worker locations in real time.

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Meanwhile, UPS announced that its main US parcel delivery business saw its operating profits fall by 40% in Q1, even as home deliveries soared.

In fact, by the end of March, consumer deliveries rose to 70% of the total, versus 54% in 2019. The issue: UPS makes a lot more profit on B2B deliveries.

In its earnings report, the parcel giant said its trucks are traveling 10% further per stop and making 15% more stops on their daily routes in the face of soaring home deliveries from locked-down consumers.

Consumer packages are also on average 33% lighter than B2B, producing less revenue per delivery than those for the heavier shipments that are destined for businesses. As a result, the company's Q1 profit fell 13% even as revenue increased more than 5%.

Any reaction to the Amazon or UPS Q1 results? Let us know your thoughts at the Feedback section below.




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