Amazon snags sorting from FedEx to avert package pileups

Amazon.com Inc., seeking to avoid shipping delays that marred last year’s holiday season, is taking more control of its delivery system by opening “sorting centers” around the country.

One of those facilities is surrounded by cornfields and cabbage farms in the town of Kenosha, Wisconsin, about 40 miles south of Milwaukee. Unlike the online retailer’s 50 U.S. fulfillment centers where workers gather items to be packed in boxes, the 500,000-square-foot building -- which opened in October -- takes orders that have already been packed and labeled elsewhere. The boxes are then sent to the site to be organized by zip code and stacked six-foot-high on pallets, before getting trucked to nearby post offices for the final leg of deliveries.

The sorting center -- one of 15 that Amazon says will be operating by Christmas, up from eight last year -- is among the biggest changes to the company’s delivery system since last year’s bad weather and crush of last-minute orders prevented some customers from getting gifts in time for the holidays.

With the new facilities, Amazon Chief Executive Officer Jeff Bezos is taking charge of work previously sent to partners such as United Parcel Service Inc. and FedEx Corp., giving greater flexibility over precisely how packages are delivered and more control over costs as he seeks to recoup losses from heavy spending.

“If there’s one company that understands fulfillment, it’s Amazon,” said Kevon Hills, director of research at StellaService, which monitors customer service of e-commerce companies. “They probably learned a lot last year. Rather than be more conservative, they will try to solve the problem.”

Saving time is critical during the holiday shopping season, Amazon’s busiest and most lucrative time of year. Last year’s delivery problems forced the Seattle-based company to refund shipping charges and issue gift cards to an undisclosed number of affected customers.

Shoppers are anticipated to place even more orders online this year. UPS forecasts it will deliver 585 million packages this month, up 11 percent from December 2013. The time between Thanksgiving and Christmas -- 27 days -- is only one day longer than last year, meaning the pressure for timely delivery is on.

The new sorting centers are one of the ways Amazon can absorb extra orders without requiring customers to place their orders earlier. The facilities better enable Sunday deliveries because the company can shift packages directly to the post office, eliminating the need for middlemen. Sunday deliveries help spread the orders over a greater number of days, preventing bubbles from building in the system over weekends.

A FedEx spokesman said the company doesn’t comment on the actions of customers. A UPS representative didn’t immediately have a comment.

Amazon has said it will hire 80,000 seasonal workers this year, up from 70,000 a year ago. Thousands of the additional hires will be working in new sorting centers like the one in Kenosha. Other sorting center locations include Baltimore, Maryland; Davenport, Florida; Nashville, Tennessee; and Pittsburgh, Pennsylvania.

“We’re building sortation centers across the U.S. to enable Sunday delivery and faster shipping times for our customers,” said Amazon spokeswoman Nina Lindsey.

Just off Interstate 94 between Chicago and Milwaukee, Wisconsin, Kenosha offers Amazon quick access to big cities around the Midwest, as well as a workforce of about 1 million people within a 20-minute drive.

The city with a population of almost 100,000 on Lake Michigan’s western shore has been slowly redefining itself as a distribution hub since a Chrysler plant closed in 1989 and a Chrysler engine plant closed three years ago.

When Amazon and its landlord dangled a $300 million investment in early 2013, more than 1,000 jobs and an annual payroll of $50 million, the city responded with $25 million in grants to help secure the deal, Mayor Keith Bosman said.

“If we’re good enough for Amazon, a lot of other companies should be interested in Kenosha,” Bosman said.

Many residents are eager to get jobs with Amazon. So far, the company has only hired seasonal sort center workers for a five-day, 20-hour work week earning about $230 a week.

“This seems a little better than your typical job delivering pizzas for Domino’s or working at a grocery store.” said Allen Thomas, 22, of Racine, Wisconsin, while he stood in line last month at the Kenosha County Job Center, a government agency that helps companies like Amazon recruit workers.

By next year, the Kenosha facility will also include a 1 million-square-foot fulfillment center packed with inventory, combining two key steps of completing Amazon orders on one site. The two parts will be connected by a 575-foot-long (175.3 meters), elevated conveyor belt that will carry boxes from the fulfillment center to the sorting center, eliminating the costly and time-consuming process of loading and unloading trucks between the steps.

For tax purposes, the buildings and property are appraised at more than $200 million, which doesn’t include extensive electronics equipment throughout the facility that is exempt from taxes.

Amazon’s investments in growth are straining the company, which issued $6 billion in bonds this month and entered a $2 billion credit agreement with Bank of America Corp. in September. The spending has bit into profits, with the company posting a net loss of $437 million in the third quarter, more than 10 times wider than a year earlier.

In response, investors have sold Amazon’s stock. Shares are down 23 percent this year, compared with a 12 percent gain in the Standard & Poor’s 500 Index.

Amazon has to invest in efficiency if it expects to be profitable, said Sucharita Mulpuru, an analyst at Forrester Research in Cambridge, Massachusetts.

“They have to do anything they can to cut costs,” she said.

For Kenosha residents, that spells opportunity. Amazon has interviewed almost 2,000 people at the city’s job center in recent months, said Doug Bartz, who manages the Kenosha County Job Center.

“It’s one of the largest online retailers, so I see opportunity,” said Courtney Pierce, 33, of Kenosha, who left a customer service job four years ago to raise her three children and is now trying to return to work by applying to the Amazon sort center. “This is really unique for Kenosha.” (Bloomberg)