Ever placed an order on Amazon only to be confronted with a pile of cardboard boxes, bubble wrap, and plastic packaging? That pile contributed to the nearly $1 billion in fulfilment costs that the e-commerce giant’s India arm spent in the year ended March 2020 for 400 million shipments, The Ken has learnt. That’s almost half of the total expenses total expenses Moneycontrol Amazon India's e-commerce unit loss widens to Rs 5,849.2 crore in FY20, revenue up 43% Read more that year for Amazon India’s e-commerce unit—$2.3 billion.
Fulfilment costs include all the expenses a company incurs in the course of shipping the product to the end customer, from warehousing and transportation to packaging and labour. On average, Amazon India spends Rs 130 ($1.74) on each such shipment to its customers in India, according to a source from the company, a breakdown that has been made publicly available for the first time.
This source and others The Ken spoke to requested anonymity as they weren’t authorised to speak to the media. Comparable numbers for Flipkart were unavailable.
The steep expenses are both an India problem and an Amazon problem. India’s fragmented infrastructure doesn’t give Amazon any leeway to standardise its packaging. The company needs to account for pothole-filled roads, varying weather conditions, and non-standard truck sizes. Where Amazon would know exactly how many packages of a certain size can be shipped in a, say, Class 3 Light Duty truck in the US, that’s not the case in India.
Shipping or packaging supplies meant to safeguard online orders formed nearly 7% of the total fulfilment costs last year, translating to nearly $70 million, the Amazon source says.
Meanwhile, the very nature of the business makes this a difficult job for the company. Unlike Nykaa (cosmetics) or Myntra (clothing), which focus on selling homogenous products, the challenge is much bigger for Amazon, which sells everything from electronic gadgets to engagement rings. And in a nascent e-commerce market like India, it isn’t uncommon for the tech giant to receive frequent single orders from new and early users.
Take chocolate bars, for instance. In a traditional FMCG FMCG FMCG Fast-moving consumer goods (FMCG), also known as consumer packaged goods, are products that are sold quickly and at a relatively low cost, such as packaged foods, beverages, and toiletries model, they would move from a manufacturer’s factory to a distributor to a retailer in bulk. A customer wanting a single bar of chocolate can pick it off a store shelf; all they need to do is peel off the wrapper.