Amazon is gearing up to compete directly with UPS and FedEx, according to a new Wall Street Journal report. The “Shipping with Amazon” program will be an end-to-end shipping solution, with pickups from businesses and shipments made to consumers, according to the report.
The timeframe for rollout is soon: Amazon is said to be readying the service for its first launch in LA in the coming weeks, starting with companies that sell stuff on its website. After its initial launch, Amazon looks to expand it out to other cities, possibly as soon as this year.
It makes sense that Amazon would extend its service to third-party merchants working on its e-commerce platform, but the especially intriguing part of the report is that Amazon would eventually like to offer shipping services to basically any other business, too — with the goal of undercutting both UPS and FedEx.
Donald Broughton of Broughton Capital tells FreightWaves that Amazon is less than 3% of UPS and an even smaller percentage of FedEx’s revenue. The complete loss of Amazon as a customer would not interrupt the ability of FedEx and UPS to continue as prosperous companies even without Amazon. “Amazon’s ability to directly compete with them is dependent upon its ability to acquire the assets at a competitive rate (the trailer and plane leasing deals suggest that they know how to overpay, but don’t know how to acquire the assets at a competitive rate),” he says.
Amazon’s ability to employ drivers at a competitive cost is another dimension to consider. Always the largest cost and largest challenge of any transportation company. “All the technology and website magic in the world can’t change this part of the equation at this point in time,” says Broughton.
Morgan Stanley’s Ravi Shankar reports to FreightWaves that a difference-maker really hinges on Amazon’s ability to create route density. “This is the largest challenge,” he writes. “The larger the time and distance between each delivery, the larger the costs (both fixed and variable) are per package delivered. FedEx and UPS have network densities that are 30 to 40 times those of Amazon’s. Since many retailers will refuse to use Amazon’s delivery network, and more than 40% of FedEx and UPS’s volume is non-retail, there is no way for Amazon to ever close this gap. Those that suggest otherwise, just don’t understand the basic economics of transportation.
“We do not believe that Amazon has (or wants to build) a network of the scale of an incumbent parcel carrier and there would likely be shippers for whom an Amazon network may not be a viable carrier. However, we expect Amazon would potentially build out its network in dense urban areas (where a vast majority of the population lives) and with Amazon’s relationship with the USPS, we would not be surprised if Amazon Logistics would be more relevant than the market is giving it credit for.”
In the supply chain, the “last mile” is considered to be the most expensive, inefficient and pollution generating segment. This is due to the following factors including:
High incidence of failed deliveries due to “not at home” recipients. This results in extra costs, distance traveled and emissions. While some goods can be left at the front door of the consumer or consignee, others require specialized handling, security or treatment, such as those requiring refrigeration. These goods fall into the attended delivery category and result in the largest number of delivery attempts, a major cause of skyrocketing costs for last mile logistics service providers.
Consumer deliveries increase the incidence of “empty running.” Multi-drop loads almost by necessity result in an empty leg as they return to the depot.
Difficulty lies in executing a profitable, efficient routing plan to low density neighborhoods. In some regions, the level of consumer density is low, leading to additional costs.
The news of Amazon’s latest announcement, right on the heels of their uberization of groceries through Whole Foods, should not be surprising to anyone following Amazon’s day-to-day moves. The retail giant has its own fleet of cargo jets, warehouses, last-mile contract couriers, and can even act as an ocean shipping agent, just like both FedEx and UPS.
Neither UPS nor FedEx seem to be especially taken aback by this, based on their non-comment comments in the WSJ report. For now, at least, Amazon will still definitely have to rely on its shipping partners to make things work.
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