Key part is "for non-Amazon packages". I didn't even know this was a thing. They are having a hard time keeping up just with in-house demand, so this is likely the right move.
Let's say Big Delivery Company pays Joe and Bill to deliver 200 packages each, splitting a region of the city between them. They drive and deliver for 10 hours each, probably covering 50-100km each on the road- drive to the next stop, drop package off, repeat.
But now let's say BDC adds 200 pickups of packages as well in the same region, and also adds Kate as a driver, splitting the region 3 ways. Now, each driver still has 200 stops (some drop offs, some pickups), but the average distance between stops decreases since it's the same area overall region with more stops to make. That means each driver is driving less, taking less time, becoming more efficient.
As density of stops increases, variable cost decreases. Those pick ups are also additional business- tomorrow, density will be higher somewhere else. Given that, BDC could be doing those deliveries at cost, and still come out making money because of all the efficiency gains elsewhere.
And yes, this does make presumptions that pick ups are as easy as drop offs, etc, etc. Lots of those to go around. But the principle is the same: density is money, and any company doing deliveries wants more density.
How does that work? So it is like Instacart but with Amazon picking it up and delivering it? I don't see how could that scale.
Edit: Incase this isn't clear, I have placed an order for 6 items in 6 different shops. If all these items were in Amazon Warehouse, they would have packaged together and shipped from One Destination. Just reading from the sentence it seems Amazon Shipping will have to go to 6 different places to pick up the package. It is the case that One to Many scale, many to many / one is difficult.
Similarly to UPS and FedEx, one would assume.
If Amazon delivery drivers are moving around a city anyway then it isn't necessarily much additional work to pick up packages along the way as well as dropping them off. They presumably collaborate rather than having one driver do everything - so 6 different drivers pick up the items, bring them back to a central location, and from there it's just another standard Amazon delivery with 6 items in it.
Great if you don't have access to a printer.
I recall (perhaps incorrectly) that Royal Mail once offered a service where you could buy an "online stamp", then you would write a long string of letters and numbers above the address on the envelope to send it. It was distinct from freepost.
"I collect 10 character long strings."
It could be going out full, returning full.
I also assume it would be getting a volume of pickups from the businesses, not just one.