Profit collapsed: Freight costs and staff shortages weigh on Amazon

Status: 10/29/2021 10:55 a.m.

Massive delivery problems cause Amazon’s profit from online mail order to collapse. The US company may soon be making hardly any money with it. The cloud business is doing all the better.

The world’s largest online retailer Amazon is burdened by staff shortages and high costs for group logistics. Above all, the labor factor restricted the company’s capacities in the three months to the end of September, said Amazon CFO Brian Olsavsky. “Fluctuating staffing levels” at its locations lead to increased costs.

The result: Amazon earned significantly less in the third quarter just ended. The profit fell compared to the previous year’s figure, which was spurred on by the Internet shopping boom in the Corona crisis, by almost 50 percent to 3.2 billion dollars. At the same time, the group warned of further high costs in view of delivery problems.

Just a black zero in the Christmas quarter?

Sales rose 15 percent to $ 110.8 billion. However, growth was significantly weaker than in the same quarter of the previous year. At that time the increase was 37 percent. The outlook has also darkened: CEO Andy Jassy also warned of “billions” of additional expenses in the final quarter due to higher wages, global problems in the supply chain and increased freight costs.

That makes Amazon’s mail order business significantly less profitable at the moment. Because of increasing costs, in the worst case scenario, the operative business will end up at breakeven in the fourth quarter, the management announced. At best, there would be an operating profit of $ 3 billion.

In the outlook for the current quarter, Amazon dampened market expectations considerably and only forecast sales between 130 billion and 140 billion dollars. For the traditionally strong Christmas quarter, this is a weak forecast compared to Amazon’s conditions – analysts had expected more ambitious goals. This can also be seen in the reaction on the stock market: The stocks are clearly falling.

Highly profitable storage space offer

A look at the balance sheet shows how much Amazon is benefiting from the expansion of the cloud platform. The group subsidiary AWS offers IT services and storage space in the network to many companies and apps as an infrastructure service. The highly profitable division increased quarterly revenue 39 percent to $ 16.1 billion, its strongest growth since early 2019.

The online advertising business also flourished, with the corresponding division increasing revenue by 49 percent to $ 8.1 billion. Without the success of Amazon’s service divisions, the group would have made losses this quarter.

Group must invest

The company wants to invest in order to deliver all goods on time, especially during the Christmas business. For some time now, Amazon has been investing a lot of money in expanding its delivery and warehouse infrastructure, and in view of the increased demand in the pandemic, the group has increased the number of employees significantly. “It will be expensive for us in the short term, but it sets the right priorities for our customers and partners,” said Jassy.

According to the quarterly report, Amazon recently employed almost 1.5 million full and part-time employees worldwide – around 30 percent more than a year ago. However, in the USA, for example, there is intensified competition between companies for the available labor. For the group, higher wages mean rising labor costs. In the event of staff shortages at certain locations, the company also has to relocate goods logistics to other, better-equipped regions – which results in additional expenses for transport.

Disappointing: Amazon presents quarterly figures

Katharina Wilhelm, ARD Los Angeles, October 29, 2021 8:25 am

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