Hacker News Reader

Comment by sbierwagen | Hacker News Reader

http://www.dcvelocity.com/articles/20170202-amazons-shipping...

"Amazon.com Inc. said late today that its fourth-quarter global shipping costs soared to $5.6 billion, as the Seattle-based e-tailing giant grappled with increases in fulfillment demand brought on by another peak-season quarter of double-digit sales growth.

At the same time, fourth-quarter global shipping revenue came in at slightly more than $3 billion, continuing Seattle-based Amazon's multi-year pattern of shipping costs exceeding revenue. For the year, Amazon spent about $16 billion on shipping services and took in about $9 billion in revenue."

View on HN

If your point is that this is somehow damning to Amazon, it is an extremely silly metric.

At least Amazon is collecting some revenue for shipping. I pay zero shipping costs to Costco, or Walmart, or Target, most Newegg items, gas stations, or grocery stores. Because it has become customary to package shipping costs into unit prices.

I know people who buy everything, like toilet paper, from Amazon. I think they are crazy, because Amazon prices are generally at least double or triple for similar items from Costco. They like paying for the convenience. To each their own.

You have misunderstood the figures. If they spend more than they make on shipping, they are losing money on shipping. If they then do more (losing) shipping business, they lose additional money. Net negative value is not made better by increasing volume.

Additionally, the fact that you don't realize that you're paying for shipping with other vendors, because it's not listed on the bill, does not mean that they aren't recognizing revenue from shipping.

If you lose $1 shipping per order but make $2 profit on the items per order then each order is worth $1 profit. Now double the order quantities, and you say "great, double the profit" not "oh no, double the shipping costs".

The profits from shipping are an accounting construct which is essentially a tax on items sold. They assume it will cost X dollars to ship an item, so they book X+margin (possibly 0 margin, depends on how they structure) at sale to shipping costs. If it costs more than X+margin to ship, they lose money shipping even if they net a profit. I said this elsewhere, but the purpose of this construct is to allow Amazon to keep track of actual vs estimated cost of shipping. The purpose of reporting it is to tell analysts whether shipping is a boost to, or a drag on, profits.

In your scenario, smart companies say "how can we improve shipping to get that dollar back".

> You have misunderstood the figures. [...] Net negative value is not made better by increasing volume.

No, you have misunderstood the figures. Amazon profits by increasing volume.

No. Those two statements, they lose money shipping and they make money on volume, can both be true at the same time. It's an accounting thing, they're booking a certain amount of shipping revenue on each item they sell (even if shipping is "free") and they have certain costs associated with shipping. In this situation, what "they lose money on shipping" means is that the fraction of income which is booked as coming from shipping is less than the costs they incur doing that shipping. They're still net positive on selling shipped goods because the margin in other aspects is high enough that it covers the loss in shipping.

Companies do it this way to determine what parts of the business are doing well, and what parts need improvement. They might choose to improve profitability in shipping by making shipping cheaper in some way, or by changing the wrap they use from individual sales (thus reducing expected profit margins).

So yes, they lose money shipping. And yes, they make money selling things which are shipped.

The claim being disputed is that Amazon isn't profitable. You severely misunderstand the figures in that context.

Companies don't "do it this way". Yes, they track costs, but they don't call themselves unprofitable when costs are negative. That's expected.

> They're still net positive on selling shipped goods

Yes. That's what people are telling you.

This seems to be comparing shipping cost to shipping revenue, not revenue as a whole.

Exactly. Amazon's total years revenue was $107B in 2015. The fact that they spend $16B on shipping while charging $9B for shipping is just the statement that they shift shipping costs into the cost of products and prime memberships. As is well known. So sbierwagen's comment does nothing to dispute msandford's claim.

Sure, and then there's Prime, which they're reveiving revenue for and providing many different services. That revenue is probably not counted as shipping, yet they have costs to send out those free Prime packages.

Reply on news.ycombinator.com