Is Amazon About to Give UPS and FedEx a Run For Their Money?
It’s no stretch to say that someday Amazon may rule the retail world… or at least the e-commerce part of it. Whether that idea becomes true or not, over the last few years the company has made similar progress in other markets, too – including major investments in infrastructure to expand their fulfillment and delivery capabilities. This has gotten the attention of FedEx, UPS, and many other logistics services providers.
The last-mile is the most expensive and least efficient portion of the delivery process, but in many ways the most important. It’s also become Amazon’s entry point in the 3rd party logistics market. With investments in a fleet of cargo jets, its own warehouses, and couriers, Amazon is positioned to be a significant player in the last-mile delivery marketplace. The company continues to build its network in densely-populated areas to be able to deliver faster. No other carrier — including FedEx, UPS, or USPS — is able to offer the coverage of same-day delivery services that Amazon provides.
Recently, Amazon announced another new shipping venture — a fulfillment and delivery service for businesses that will be available in the fall. Almost immediately, UPS and FedEx stocks went down by 5% each, as investors feared Amazon’s impact on the traditional carriers.
The new pilot program, called “Shipping with Amazon” will be an end-to-end shipping solution with pick-ups made at businesses. It will roll-out in Los Angeles for companies that sell via the Amazon website and expand into other cities soon thereafter. What’s most significant is that other businesses will be able to take advantage of Amazon’s (presumably) lower shipping costs, too. This is no longer about Amazon building a logistics network just to make its own deliveries. It’s also what the logistics industry has been waiting for them to do.
At the same time, opinions are mixed about the effect this will have on the logistics industry. Some experts claim that the powerhouse e-commerce retailer would have to invest tens of billions of dollars to be able to compete with legacy carriers like UPS and FedEx.
As a comparison, Amazon leases 40 planes while FedEx has 659, giving an indication of the scale of resources that the big carriers have for their deliveries. Amazon would need to acquire both assets and drivers at a very rapid rate in order to be able to scale to those levels. Donald Broughton of Broughton Capital states that Amazon represents less than 3% of UPS’s revenue and even less for FedEx. In response to the new program, FedEx issued a brief statement that dismissed the idea that Amazon would compete with FedEx.
Yet there are those that feel that Amazon is a force to be reckoned with no matter what and should be watched closely by other carriers. They cite the company’s investment in technology and infrastructure as reasons why this new “Shipping with Amazon” program will be successful.
Whether or not Amazon can directly compete with shipping giants UPS and FedEx, and the effect it will have on costs, is something everyone in the logistics industry is watching.