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Amazon Could Be New Competitor for UPS, FedEx

By Jack Keough

It appears that Amazon could be taking on UPS and FedEx, as well as a host of other logistics providers such as USPS to make the “last mile” delivery to its millions of customers. It could also mean that, in the not-too distant future, Amazon could offer delivery services for industrial/electrical manufacturers and distributors–not just acting as a fulfillment arm.

In a recent securities filing, Amazon for the first time identified “companies that provide fulfillment and logistics services for themselves or for third parties, whether online or offline” as competition. And it referred to itself as a “transportation service provider.”

Amazon, in recent years, has undertaken a number of steps to indicate its expansion into delivery of packages and other parcels.

In the first quarter of 2016, Amazon is expected to fully acquire French shipping company Colis Privé as part of a supplement to, or replacement of, FedEx and UPS, according to The Seattle Times. In France, the company competes with TNT, DHL and UPS. One estimate says that Amazon ships 50 million packages yearly in France.

The e-commerce giant already owns 25 percent of the French company through an investment it made in 2014. Now Amazon wants to acquire the remaining 75 percent.

According to the report, Colis Privé will continue to ship packages on behalf of all e-commerce customers after the acquisition.

There are many reasons why Amazon would want to become a delivery service. It would allow the Seattle-based company to have better control of its shipping procedures and alleviate delivery problems caused by some of its logistics providers. It also would, presumably, reduce the escalating costs of shipping products that have sharply cut into Amazon’s profitability.

And that doesn’t even count new opportunities into a new markets and tremendous revenues.

In a recent note, Colin Sebastian, a Baird Equity Research analyst, estimated the market for delivery, freight forwarding and contract logistics is at least $400 billion.

“We continue to expect Amazon to add logistics primarily to meet its own growth, but over time, and in incremental fashion, we believe it is likely that Amazon will offer this expertise to third parties to help subsidize those costs,” Mr. Sebastian wrote, according to various media reports.

Baird even suggested that Amazon’s logistics arm could be called “Amazon Transportation and Logistics” (ATL).

While it might mean lower costs than the traditional delivery services for third party companies, such as electrical distributors and/or manufacturers, some say this could cause problems because Amazon would have access to valuable customer information.

Although Amazon has not commented on the various reports, company executives say that they would not be competing with existing logistics providers but would be complementing them.

Amazon Chief Financial Officer Brian Olsavsky downplayed competition between the retailer and those shipping partners in a call with analysts to discuss quarterly results.

“In order to properly serve our customers at peak, we’ve needed to add more of our own logistics to supplement our existing partners,” he said. “That’s not meant to replace them, and those carriers are no longer able to handle all of our capacity that we need at peak. They have been, and continue to be, great partners, and we look forward to working with them in the future.”

The logistics trade publication, DC Velocity, reported a few months ago that Amazon was recruiting “a high-level executive team” to create its own transportation network in 2016, though no firm date was confirmed. The end goal is to get packages to a customer’s door within 90 minutes to two-hours.

Just recently, Amazon’s Chinese operations were granted authority by the U.S. Federal Maritime Commission (FMC) to operate as an ocean freight forwarder, according to a blog post from Flexport Inc., a San Francisco-based freight forwarder and customs broker. The move will give Amazon more control over shipping products from Chinese factories to U.S. shoppers.

“Amazon’s ocean freight services will be far more attractive to Chinese sellers than to American buyers. Chinese suppliers would love direct access to Amazon’s vast American customer base,” wrote Ryan Petersen, chief executive officer of Flexport.

This is Amazon’s first step toward entering the $350 billion ocean freight market.

There have also been a number of stories in recent weeks that Amazon is building an air delivery system codenamed “Aerosmith.” Those reports say that Amazon has leased 20 cargo aircraft and is testing in Wilmington, Ohio, at a facility formerly used by DHL Express.

That’s not all. Amazon is now reported to have taken delivery of thousands of truck trailers to support its short-haul ground operations.

And there is, of course, the well-publicized use of drones that Amazon intends on using in the next few years. The small drones would deliver packages weighing less than five pounds to customers in 30 minutes or less. Google is also experimenting with the use of drones for package deliveries.

Meanwhile, Amazon continues to expand throughout the U.S. and beyond.

According to new data from Channel Advisor, a company specializing in providing e-commerce solutions, Amazon has added 21 new logistics facilities globally over the past year, bringing Amazon’s total to 173 facilities worldwide. 104 of these facilities are in North America and the remaining facilities are in Europe and Asia.

Keough was the editor of Industrial Distribution magazine for more than 26 years. He often speaks at industry events and seminars. He can be reached at john.keough@comcast.net or keoughbiz@gmail.com.

 

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