Amazon expects ‘several billion’ in extra costs from increased wages, supply-chain issues, and rising shipping costs

A black Amazon sign with an orange smile logo on a wall
An Amazon building. Pascal Rossignol/Reuters
  • Amazon’s sales are growing, but profitability is shrinking due to labor and logistics costs.
  • AWS saw continued strong expansion, but physical store sales growth appeared to stall.
  • The company also added 133,000 workers during the quarter, bringing the workforce to nearly 1.5 million.

Amazon’s sales continue to grow, but profitability continues to be hampered by labor and logistics challenges, the company said on Thursday.

“In the fourth quarter, we expect to incur several billion dollars of additional costs in our consumer business as we manage through labor supply shortages, increased wage costs, global supply-chain issues, and increased freight and shipping costs,” CEO Andy Jassy said in Amazon’s third quarter earnings statement.

Third quarter sales increased to $US110.8 ($AU147) billion compared with $US96.1 ($AU127) billion for the same period last year, but net income shrank by nearly half due to increased costs related to COVID-19.

“We’ve nearly doubled the size of our fulfillment network since the pandemic began,” Jassy said.

The numbers were within the range of the Amazon’s July projections, but the company forecasted even slower sales growth in the fourth quarter. Amazon shares dropped by 5% in after-hours trading.

AWS continued its strong growth with a 39% gain over last year, but growth of the physical stores segment appeared to stall out after seeing a slight bump in the prior quarter. Internal documents suggest the company is lagging behind its lofty ambitions for the grocery retail space.

Amazon also extended a breakneck hiring pace, adding 133,000 workers in the third quarter and bringing its global workforce just shy of 1.5 million employees. In addition to its planned addition of 180,000 full- and part-time workers, Amazon is also hiring 150,000 seasonal workers to staff up for the busy holiday season.

“It’ll be expensive for us in the short term, but it’s the right prioritization for our customers and partners,” Jassy said.