Amazon moves closer to FedEx and UPS’s turf

Source: Amazon
Feb 12, 2018
Tom Ryan plans to launch in “coming weeks” a new delivery service that will compete directly with FedEx and UPS, according to The Wall Street Journal.

Named Shipping with Amazon (SWA), the service will launch in Los Angeles and initially be restricted to companies selling on Amazon’s own marketplace. But SWA is expected to expand “to more cities as soon as this year” and eventually serve businesses not affiliated with the site.

Some reports have compared the slow rollout and focus on its own third-party sellers as similar to the introduction of its successful AWS cloud business.

At least at the start, the service will involve Amazon trucks picking up goods from merchants’ warehouses and bringing them to Amazon fulfillment centers. The “last mile” will be handled by the U.S. Postal Service and other carriers. Longer term, a larger delivery system could take packages to customers’ homes. Amazon already delivers to homes in 37 U.S. cities.

On Friday, shares of UPS and FedEx both fell on the news on the potential threat. Amazon’s past investments in ocean freight, cargo planes and trailers have continued to drive debates over whether management’s long-term goal is to gain more control over the delivery process or to outright bypass the carriers.

Streamlining the delivery process is expected to cut as much as a day off delivery. Having more control over its shipments over long distances could also save Amazon about $3 per package or $1.1 billion annually, according to the WSJ report.

“If Amazon controls their customer’s supply chain they could potentially charge less for the items on their platform, which could create a price war with Walmart and possibly Target,” John Haber, CEO of Spend Management Experts, a supply chain consulting firm, told USA Today.

Analysts believe it would take years for Amazon to build a full-scale delivery system, but the moves continue to test what leverage major carriers may still have on Amazon.

DISCUSSION QUESTIONS: Does the launch and strategy around Shipping with Amazon (SWA) make sense for Amazon at this point? Do you see it as more likely that Amazon is looking to complement or replace the major carriers with its ongoing logistics investments?

"They continue to build on their flywheel to reduce any single point of failure."
"The move makes complete sense for Amazon, but we’ll have to watch UPS and FedEx and see what happens to them."
"Boy, I feel a bit like negative Nancy, but I don’t think people are aware of the problems Amazon is having."

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22 Comments on "Amazon moves closer to FedEx and UPS’s turf"

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Neil Saunders

This trial makes sense as there are many urban locations where Amazon’s order volume is so great it justifies taking fulfillment in-house. In such areas, cutting out the middle-man is likely to save money and give Amazon more flexibility over schedules and delivery options. However, this benefit will only accrue over time and as part of a broader strategy to integrate the delivery of food and non-food.

As much as it makes sense to do this in urban areas, it is unlikely that Amazon will make a move on trying to service the American hinterland. Order densities and volumes, along with long travel times between deliveries, in many parts of the country do not justify such an investment.

Max Goldberg

Amazon is so big, and relies so heavily on delivery, that the move to Shipping with Amazon makes sense. Initially this move will complement services offered by the major carriers, but in the long run will supplant them. Amazon has shown itself to be a master of logistics. SWA is the next logical step in the company’s progression.

Cathy Hotka

If Amazon takes over the easier shipping to dense areas, it leaves the more expensive shipping to less dense areas to traditional carriers. This can only weaken them over time and cause them to raise rates. The move makes complete sense for Amazon, but we’ll have to watch UPS and FedEx and see what happens to them.

Chris Petersen, PhD.

It’s not about free shipping or even cost savings for Amazon. He who controls the last mile wins the race. With Amazon’s double digit annual growth, they already stretch third-party shippers during peak periods like holiday. Amazon needs fast, reliable shipping to your door 24/7/365.

While this move has some impact on FedEx and UPS, it should absolutely strike fear in the hearts of all retailers. SWA is a carbon copy move of what Amazon did with the cloud and AWS. AWS profitability enables Amazon to “break even” doing things in retail other retailers can’t afford. What few retailers understand is the collective power of the total Amazon ecosystem. Using Star Trek as a metaphor, SWA creates the “Borg” that is almost invincible.

Byron Kerr

I completely agree here. They continue to build on their flywheel to reduce any single point of failure. I expect a lot more consolidation in the retail industry as companies try to find what their “flywheel” is and realize consolidating puts them in a stronger position to compete than as separate entities. Target bought Shipt, Walmart is exploring local delivery.

Bob Amster

Amazon has the scale to attempt to undertake this shift in logistics. I believe in outsourcing those functions which are not one’s core competency. In Amazon’s case, we have not yet defined what is within or outside of Amazon’s core competency.

Brandon Rael

In Amazon’s continued quest to streamline shipping and fulfillment last-mile strategies, the Shipping With Amazon (SWA) trial appears to be a solid one. Shipping and fulfillment costs have increased significantly in recent years, and this move by Amazon will help streamline and control these costs in targeted major cities. We should expect that this investment will pay dividends down the road, as the economies of scale kick in.

SWA is another step to vertically integrating the Amazon supply chain, which will ultimately include the last-mile strategies. It will be interesting to see how this, along with the Prime Now delivery introductions, plays out.

Phil Masiello

At its core, Amazon is a logistics and technology company. So this makes total sense for Amazon’s commitment to total customer satisfaction. The ability to own the supply chain from point of manufacture (in some cases) to point of use is a powerful competitive advantage.

Walmart is realizing the costs of shipping are a difficult barrier and are attempting to raise prices to offset these costs. But is that the right thing for the consumer? Or is the best thing to offer the best variety, at the lowest cost delivered fast?

This strategy will enhance Amazon’s already strong bond with its customers and make it nearly unbreakable.

Camille P. Schuster, PhD.

I agree with the statement that Amazon is a logistics and technology company. If this initiative will save cost and time in the supply chain, Amazon can keep prices low while increasing efficiency. This helps lower the company’s costs and increases customer satisfaction which keeps Amazon at the forefront of online shopping. That is not what Walmart’s approach will do. Amazon’s approach will take a long time and significant investment, but it is good for both consumers and the company.

Michael La Kier

This seems like a curious strategy, but something to try. Getting into shipping is a capital-intensive initiative and perhaps not as scalable as their other lines of business.The threshold of the return here will be something to watch.

Doug Garnett

Given the radical increase in demand for shipping services since the founding of FedEx and UPS, it seems pretty clear that there’s plenty of room (and need) in the market for an additional shipping supplier.

However, a major step like this will increase what we’ve begun to hear from Scott Galloway (picked up by others): Calls to split Amazon. The more monolithic it becomes, the more valid those calls will appear.

Galloway has valid concerns for the nation’s economic strength and he is suggests that the big four online all need to be split — Apple, Facebook, Google and Amazon. He’s not picking on Amazon alone but a move like this makes me wonder if he isn’t right.

Richard J. George, Ph.D.

This move reinforces Amazon’s position as the ultimate barrier-free logistics company. Its warehouses have no constraints on the number of SKUs that its customers desire. Now the beginning and final miles will be controlled by if not delivered via Amazon vehicles of all types.
Amazon will continue to test and fund alternative delivery options. I do not see them totally abandoning all of their current carriers. Instead, it is putting those carriers on notice — a very effective negotiating tactic.

Ed Rosenbaum

Raise your hand if this surprises you. This is something that could have been forecasted at least a year ago. I would like to see them use this as more of a complimentary service; but can’t see Amazon doing anything half way. This will have a large impact on FedEx and UPS. They will not just sit back and watch as this develops. It will be interesting to watch as this battle unfolds.

Ryan Mathews

Given its growing volume I’m not sure Amazon has much of an option other than to actively explore delivery options of its own. Amazon’s pattern seems to be to partner first, learn from the partner, and then replace the partner. That said, I would say there’s no reason to believe things will change this time around.

Brittain Ladd
Ship With Amazon is the first step for Amazon to become one of the largest third-party logistics providers in the world, with the potential of gaining 10 percent to 15 percent market share of the nearly $500 billion global contract logistics market. What does this mean? Just as Amazon markets AWS on the open market, Amazon will soon market Amazon Logistics Services on the open market to ANY company seeking logistics services. DHL, UPS, Ryder Logistics, Maersk, FedEx and so on will all have to compete against Amazon sooner rather than later. Amazon should be favored to win. How did this happen? Easy. FedEx convinced themselves that having 650 aircraft, 150,000 trucks, 400,000 employees and 4,800 operating facilities globally to handle about 12 million shipments a day gave them a barrier to entry and an insurmountable competitive advantage. UPS convinced themselves that since they manage more than 20 million packages a day globally, and because they have 500 owned and leased aircraft and 100,000 vans and delivery trucks that they had a barrier to entry… Read more »
Kiri Masters

When asked if he intends to take out UPS with their own logistics capabilities, Bezos said years ago that he plans on supplementing UPS “heavily.” We’re seeing heavy supplementation coming to fruition now.

Amazon wants a bigger piece of the shipping pie, or at least to not have to rely so much on the incumbent carriers. A positive effect of this will be more competition, more choice and lower prices on shipping. As we have seen with this development, Amazon will reach scale faster by expanding this service to more potential customers, not just limiting its fulfillment capabilities to merchants and Amazon customers.

Further in the future, I see Amazon potentially replacing the incumbent carriers, and selling excess capacity to other companies. Think AWS, but for shipping. Given its strength in automating manual processes, shipping could become a major competitive strength and profit center for Amazon.

Paula Rosenblum

Boy, I feel a bit like negative Nancy, but I don’t think people are aware of the problems Amazon is having. It has more “Prime” third-party sellers than ever. Their “Prime” deliveries take up to eight days to arrive. I have my own experience as do others with this problem.

But here’s the core issue for me. Shipping air, on your planes or anyone else’s, is still crazy expensive. As they say on TV, “Don’t try this at home, kids.” I am not sure Amazon can effectively compete with established carriers. I think they have a packaging problem, and a problem with offloading part of their core business (Prime) to third parties. Personally, I think the company is slipping a bit, but that’s probably why it’s starting to make money. This is not going to help that cause.

Doug Garnett

Thanks for the straight talk, Paula. It’s sad when seeing clearly is labeled by others as “negativity.” But in this age when companies promise science fiction like bounty they’ll never deliver, we desperately need straight talk.

There are a lot of small indicators of problems at Amazon that I’m hearing. Lots of shifting established, long time sellers to 3P so that Amazon doesn’t have to front the core costs. Have even heard Amazon demanding that they adhere 100% to Prime policy, but without money to pay for it.

Would love to really know what’s going on inside that HQ….

Nikki Barua

Amazon’s knowledge of its customers to deliver an unparalleled experience will be strengthened with more control over the supply chain logistics. This move opens up more opportunities to innovate, not just find cost efficiencies. This type of scale makes it harder for others to compete — so collaboration with Amazon becomes a necessity, unless you can out-innovate them!

Lee Peterson

I’ve been waiting for this. What’s the one part of the product journey Amazon doesn’t completely control? Right. I also think they’ll do a better job at that final yard. I have no basis for saying that other than their history of disruption (stellar), but I wouldn’t bet against them.

James Tenser

Like some others in this forum, I think in this instance Amazon should be careful what it wishes for. I get that it wants to leverage its scale to shave costs and time from its delivery system with Shipping With Amazon, but complexity could be an even greater enemy.

Operating fleets of trucks and commercial aircraft (SWA) seems radically different from operating hollow mountains full of cloud servers (AWS). Big A certainly possesses the resources to acquire or even invent any expertise it wants, but the reimagination of logistics to accommodate billions of shipments of one may also require a leap of faith.

Naomi K. Shapiro

I agree with “negative Nancy” (Paula). Not everything Amazon does or tries succeeds. In this case, Amazon will have to spend A LOT of $$$$ to get this program set up and keep it running. I also feel an allegiance to the other “legacy” companies, for anything other than Amazon purchases.

"They continue to build on their flywheel to reduce any single point of failure."
"The move makes complete sense for Amazon, but we’ll have to watch UPS and FedEx and see what happens to them."
"Boy, I feel a bit like negative Nancy, but I don’t think people are aware of the problems Amazon is having."

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