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  • Before Prime launched in 2005 one-day shipping was an exorbitant luxury.

  • Now it's the standard shipping speed for Amazon's 100 million Prime

  • members. Earlier this year Amazon doubled the speed of Prime shipping from

  • two days to one.

  • And the faster speed is now available on more than 10 million products.

  • Prime one-day is basically going to A) keep up with the brick and mortar

  • guys and B) enhance Prime.

  • Amazon has changed the game completely.

  • So what they excel at is getting an object from a creator to a consumer as

  • flawlessly as they can and as quickly as they can.

  • So Amazon is changing people's expectations and they're perpetually

  • improving those expectations.

  • But behind every Amazon box there are lots of people hustling and a lot of

  • money spent to get it to you in just one day.

  • Here's what happens when you buy a Prime eligible item on Amazon.com.

  • Amazon spends tens of billions on shipping every year.

  • In just the last quarter of 2018, Amazon's shipping costs jumped

  • 23%, reaching a record $9 billion.

  • So why is it worth it?

  • Well customers come to expect consistent fast delivery of anything on earth

  • from Amazon.

  • And our job is to continue to make that happen.

  • And Amazon set aside $800 million just in the second quarter of 2019 to

  • start making one-day shipping the norm.

  • Most of that investment is going towards the infrastructure and

  • transportation costs associated with speeding up delivery to the millions

  • of Prime customers who are about to begin to experience one-day as the new

  • normal.

  • The difference with e-commerce is the costs never end.

  • The pick, pack and ship happens every time a unit is sent out.

  • To better control this process and its large cost, Amazon is cutting down

  • its reliance on UPS and the U.S.

  • Postal Service and is investing heavily in its own logistics network.

  • It now handles the shipping for 26% of online orders.

  • Amazon now has at least 50 airplanes, 300 semi-trucks, 20,000 delivery

  • vans and it operates ocean freight services between the U.S.

  • and China.

  • Amazon is looking to do it all.

  • That shouldn't be much of a surprise.

  • The only thing that matters to Amazon is making sure the customer is happy

  • and is paying for Prime every year or every month.

  • What that means is sometimes you can rely on partners but you want to make

  • sure that you have it in your pocket if that's not the case.

  • Other big retailers are also spending a lot to keep up with the fast

  • shipping expectations Amazon has created.

  • Walmart is rolling out free next-day shipping with orders of 35 dollars or

  • more starting today.

  • And target offers free two-day shipping on orders over 35 dollars.

  • And during Amazon's big Prime Day sales event July 15th and 16th, eBay

  • plans to hold a crash sale offering 80% off big ticket items.

  • Amazon's 25 years old.

  • The reality is that's a really short time to be around to have become the

  • number one player.

  • So can anyone compete? Sure

  • people can compete.

  • Can they sustainably compete is the harder question.

  • I don't think we've seen it yet.

  • The journey a package takes to your door starts before you even place the

  • order. Most items on Amazon are sold directly to you by a third party.

  • In Jeff Bezos' letter to shareholders in April 2019, he said third-party

  • sales have grown from 3% of total merchandise sales in 1999 to 58% in

  • 2018. Amazon charges those sellers a fee to list items on Amazon.com

  • starting around 15% of the item's selling price.

  • Amazon also sells things directly.

  • In some cases Amazon buys inventory from a third party and then sells it

  • to consumers.

  • Other items are Amazon's own brands such as Amazon Basics, Amazon

  • Essentials, fashion lines like Lark & Ro and Alexa devices like the Echo.

  • All items sold directly by Amazon are already sitting in an Amazon

  • warehouse waiting to be ordered and shipped.

  • Most third-party items fulfilled by Amazon are also already waiting at an

  • Amazon warehouse, while others are sent directly from the seller or to an

  • Amazon warehouse once you hit that place order button.

  • Amazon does not disclose the details of its inventory strategy.

  • Figuring out where a product sits before you buy it is a phenomenal

  • mystery. It's something that every reseller would love to know.

  • And figuring out the code that is Amazon has been part of that hard

  • process.

  • After an item is ordered and ready at one of Amazon's 175 fulfillment

  • centers around the globe, it's picked, packaged and shipped by some of its

  • 250,000 warehouse workers often with help from one of its 100,000 robots.

  • It's essentially an amusement park for a box.

  • There's conveyor belts that go around, there are slides.

  • It looks like a lot of fun.

  • But the question is: how much is automated versus how much his manual

  • labor? And that suite, blending that, figuring out how to have the least

  • human touch points while ensuring the best quality control is that

  • perpetual conversation.

  • We visited a fulfillment center outside Seattle where 2,000 workers prepare

  • packages on a couple million square feet of floor space.

  • Workers here showed us the process of getting an item from the shelves to

  • a box.

  • We scan the item and make sure that that item is what matches what's in our

  • hand that's on the screen and then we stow it into a bin.

  • And then there's cameras here that take pictures of where our hands go

  • of where we place the item.

  • I am a picker so I pick product that will end up going down to the packing

  • department and then they pack it out and send it to our customers.

  • I need to put it into a box.

  • It actually tells me what type of box it is.

  • Tape. Put the item in there.

  • Scan it through. Drop it down the line.

  • Amazon says it's 100,000 robots inside the fulfillment centers help make

  • this whole process more efficient.

  • In 2012 Amazon bought robotics company Kiva for $775 million and started

  • using robots in its fulfillment centers a couple years later.

  • Now there's driving robots that move inventory around, robotic arms that

  • lift boxes and pallets and even a new robot that can package items in

  • custom-sized boxes.

  • If it wasn't for them then I'd have to walk and I'd much rather be up here

  • in my own little world picking then walking up and down.

  • So I love the robots.

  • As technology continues to change how fulfillment centers function, Amazon

  • just announced it will spend $700 million to retrain a third of its U.S.

  • workforce by 2025 to move them to more advanced jobs.

  • After an order leaves the fulfillment center it has to get across the

  • country or world to another warehouse in your region.

  • Some boxes are sent via one of the shipping giants, but Amazon is cutting

  • costs by sending packages in at least 300 of its own semi-trucks and now

  • dozens of its own planes.

  • We've been building out an air network for a number of years now.

  • That coupled with our partners networks, we're in a place we have a lot of

  • incremental capacity to be able to advance packages for customers much

  • faster than we were two or three years ago.

  • Amazon broke ground on a new 1.5

  • billion dollar air hub in Northern Kentucky in May.

  • It has capacity for 100 planes.

  • One of the great things about customers all over the world: they are

  • divinely discontent.

  • You give them the best service you can.

  • They love it.

  • But they always want a little bit more.

  • We're going to move Prime from two-day to one-day and this hub is a big

  • part of that.

  • After an item arrives near your city it waits in another warehouse like

  • this one for a delivery person to pick it up and take it that last mile to

  • your door.

  • We've been building for over 20 years to support this network that's

  • eventually just constantly getting faster and we knew would begin to

  • migrate to a one-day service.

  • The big difference for us is all about how we get product from our

  • fulfillment center to that last-mile location.

  • Last-mile is the most expensive part of the delivery process.

  • Until an item arrives at a warehouse near your home, it can be shipped in

  • bulk. But then each package needs to be hand delivered to a different

  • address, which takes a lot of people and a lot of time.

  • Amazon pays to outsource much of last-mile delivery to carriers like UPS

  • and USPS, which charge a fee, and those fees just went up.

  • In January the post office increased its last-mile shipping rate by nine

  • to 12% depending on package size.

  • The more Amazon can keep last-mile delivery in-house, the more it can

  • control these costs.

  • To do that Amazon uses small business partners, some delivering out of

  • 20,000 Amazon vans.

  • And in 2015 it launched Amazon Flex.

  • I've been driving for Amazon Flex roughly since 2016 on and off, I'd say at

  • least two solid years.

  • Amazon Flex is available in about 50 U.S.

  • cities. Anyone over 21 with a driver's license, auto insurance and at

  • least a mid-size sedan can sign up.

  • After clearing a basic background check, drivers in areas with open spots

  • can start picking up and delivering packages.

  • Drivers use the Flex app to sign up for a block, which ranges from three

  • to six hours.

  • Then they head to a warehouse where they find out how many boxes they've

  • been assigned to deliver in that timeframe.

  • Amazon advertises that drivers make $18 to $25 an hour and they're

  • responsible for their own vehicle costs like gas, tolls and maintenance.

  • Amazon wouldn't disclose how many drivers have signed up or what

  • percentage of its last-mile deliveries are made by Flex drivers compared

  • to its shipping partners.

  • But it did tell us their last mile delivery programs are expanding.

  • We've built out these small businesses, the delivery service providers, and

  • we have Flex which is our on-demand crowdsourced delivery piece.

  • So we need all of that to meet the various types of delivery we do in each

  • of our geographies and I think you're going to see expansion on all fronts

  • there.

  • Amazon has one unusual approach to increase its number of small business

  • partners helping with last-mile.

  • Amazon says it will contribute as much as 10,000 thousand dollars if

  • full-time employees want to leave the company and start their own package

  • delivery services.

  • Early response is great.

  • It allows us to complement the capacity that we have with our great

  • carrier partners.

  • It's great for some of our employees who don't want to do the same thing

  • that they've been doing in the warehouse for five or 10 years. They

  • want to learn some new skills and over 16,000 employees have already

  • taking us up on this.

  • Amazon is also looking at several high-tech solutions to streamline last

  • mile delivery.

  • In June, Amazon announced its new autonomous delivery drone will be

  • operating within months and it has a one year FAA permit to test them.

  • We're building fully electric drones that can fly up to 15 miles and

  • deliver packages under five pounds to customers in under 30 minutes.

  • Amazon also has patents out for a giant flying warehouse and drones that

  • can react to flailing hands and screaming voices.

  • And it's even testing a sidewalk robot called Scout to bring packages

  • right to your door.

  • All these steps are an incredible challenge to pull off. In

  • recent years, Amazon has faced an onslaught of negative press about

  • working conditions at every step of the process.

  • We spoke to several workers about their concerns.

  • The working conditions at Amazon are dangerous and that's systemic.

  • I've worked in five different buildings in three different states from

  • coast to coast and it's the same everywhere.

  • It might not be outright exploitation but it is almost like a disposable

  • workforce.

  • It's been so pervasive that many of the pilots, in fact most of the pilots

  • at our airlines are actively seeking employment elsewhere.

  • Last year Amazon raised the minimum wage to fifteen dollars for all its

  • 350,000 U.S.

  • employees, more than double the federal minimum wage of $7.25.

  • In his annual letter to shareholders, owner Jeff Bezos challenged other

  • top retail companies to match this.

  • And Amazon offers generous benefits.

  • I needed my medical insurance.

  • That's what's essentially kept me at Amazon.

  • But some workers, most who asked to remain anonymous, told us Amazon

  • expects them to keep up a fast, often unreasonable pace.

  • They say that they care about their employees and quality.

  • But no, it's really just about numbers.

  • You have to make not only a certain rate but you can't accrue more than 30

  • minutes of time-off-task per day otherwise you get written up.

  • Usually most buildings are at least a million square feet.

  • You could be walking three to five minutes each way to go to bathroom.

  • So if you went to the bathroom twice you could easily use up that 30

  • minutes. So a lot of people don't go to the bathroom.

  • CNBC was connected to Fuller through the Retail, Wholesale and Department

  • Store Union.

  • Although he's not a union member.

  • We asked Amazon about the working conditions in fulfillment centers.

  • We have world class facilities, we have restrooms all over this place.

  • We have break rooms. We

  • have TVs.

  • Anybody who is watching, don't take my word for it.

  • Please come take a tour and see for yourself.

  • I'll put us up against anybody any day.

  • Do you feel like the pace that workers are asked to work out is reasonable?

  • Well our, the way we look at productivity rates, just like anyone, we have

  • expectations. In every job, my job has expectations, your job has the

  • expectations. The way we set the rates and the processes are based on

  • actual performance and the overwhelming majority of employees are able to

  • meet those expectations.