Marketplace Briefing: How Shopify is revamping its logistics ‘side quest’ with partnerships and software at the core

This shift represents the crux of Shopify’s logistics reset: Instead of trying to rival Amazon with its own fulfillment network, Shopify has chosen to make shipping and fulfillment an integrated, plug-and-play layer of its platform. Merchants can manage labels, insurance, duties and returns within the Shopify admin, while tapping Shopify’s expanded 3PL partnerships, which now connect merchants with more partners, including Amazon Multi-Channel Fulfillment, DHL Fulfillment Network, Mayple and more. 

“We have changed our strategy dramatically over the last few years, and when it comes to shipping, we are all about empowering merchants to have more choice built right into the Shopify platform,” Vibhor Chhabra, director of product for shipping at Shopify, told Modern Retail. 

The updates include partnerships with major carriers across North America, Europe and Asia, new automation for processing up to 250 orders at once, duties and taxes collected at checkout, and label protection with built-in insurance. 

Chhabra said the idea is to reduce friction for sellers who may not realize how many moving parts are involved until they scale. As he put it, “These are all things that you get if you ship by Shopify.”

Shopify’s earlier attempt to build a vertically integrated logistics business was costly. It all started in 2019 when Shopify announced it would spend $1 billion over five years to build out a network of fulfillment centers. In October 2019, Shopify acquired the warehouse robotics company 6 River Systems in a deal valued at around $450 million. (That company was later sold to Ocado in 2023 for an undisclosed amount.) The costs added up in 2022 when Shopify purchased fulfillment startup Deliverr for $2.1 billion. 

Shopify’s logistics operations created hundreds of millions of dollars in operating losses. In 2022, the company reported an operating loss of over $822 million, and Deliverr was a significant contributor to lower profit margins.

Shopify’s nearly four-year push into fulfillment came to a sudden halt in 2023 when the Canadian e-commerce company offloaded its logistics assets to Flexport, receiving an equity stake in the global logistics company in return. As a result, Flexport emerged as Shopify’s official logistics partner.

At the time, Shopify CEO Tobi ​​Lütke admitted the whole endeavor had become a “side quest” that ultimately distracted from Shopify’s core software products. Shopify’s latest shipping updates are a reflection of that hard-learned lesson: Shopify no longer aspires to own warehouses or trucks, but to build the connective tissue that links merchants to the partners that do.

Rick Watson, the founder and CEO of RMW Commerce Consulting, called the pivot a necessary recalibration, as logistics was never the right fit for an e-commerce technology provider like Shopify. “It’s probably what they should have done originally. I think they had a little hubris, to be honest, with their original approach,” he said. “Ultimately, logistics is extremely capital-intensive and complicated.”

Part of the challenge is that Shopify was trying to follow a playbook written by Amazon, which has invested $100 billion over two decades building out its fulfillment and delivery network, according to the company. This was accelerated by a pandemic-era push when consumers who were stuck at home boosted e-commerce sales, which “necessitated doubling the size of our fulfillment network,” Amazon CEO Andy Jassy said on an earnings statement in 2022. Amazon’s total square footage for its fulfillment and data center facilities grew from 272 million square feet at the end of 2019 to 525 million square feet by the end of 2021.

For Shopify, whose strengths lie in building scalable software rather than managing fleets and warehouses, attempting to replicate Amazon’s logistics empire was both prohibitively expensive and far outside its core expertise.

Shopify’s logistics roadmap

Looking ahead, Shopify plans to keep expanding its partner roster. “We now have 24 partners on the Shopify Shipping partner platform. This number is going to grow,” Chhabra said. “Anywhere Shopify is present, we are going to look to have the right shipping partners in those markets, both domestic shipping and cross-border shipping.”

These days, like most tech giants, Shopify is pitching itself as an AI company. As such, Shopify is leaning on AI to simplify compliance hurdles amid the rapidly changing trade landscape. Earlier this year, for example, Shopify launched tariffguide.ai, a tool that automatically calculates duties and tariffs based on product details and country of origin. 

Chhabra said such features free merchants to focus on their core business. “What we want to do is solve some of these hard, structural problems for the merchant using artificial intelligence where it works best,” he said. 

Shopify’s logistics experiment has been bumpy, but its reset appears to be resonating. The company reported nearly $88 billion in gross merchandise volume in the second quarter, up 31% year-over-year — its eighth consecutive quarter of 20% or more growth. Shopify’s growing GMV is also a positive indicator that the company is onboarding more enterprise clients, which has been a core growth driver for Shopify for the last few years. 

The latest shipping updates weren’t designed with larger merchants exclusively in mind, but they do address the growing complexity of scaling businesses, Chhabra said. As he put it, “Without saying exactly what we are working on, we are working on three or four different products in that space right now, where as merchants’ workflows become more complex, we are going to help them solve for those complex workflows within Shopify.”

What I’m reading

• Amazon’s U.S. Prime sign-ups fell short of last year’s total and internal targets despite expanding Prime Day to four days, per Reuters.
• Amazon is ending its Prime Invitee program — effective Oct. 1 — so members can no longer share free shipping with non-household users, according to CNBC.
• Amazon is facing backlash after some delivery partners were quoted exorbitant van repair costs of $20,000 or more, Bloomberg reported.

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