Is Amazon acting like Walmart in the eighties?
Amazon’s investments in trucks, planes, cargo boats and drones continue to drive speculation on whether the company is building a full-scale delivery platform. But an RBC Capital Markets analyst has drawn attention by likening the moves to Walmart’s shift to tighten supply chain costs three decades ago.
“At the core, we think the decisions Amazon is making today parallel those made by Walmart during the 1980s, as the company began to integrate itself more fully with its suppliers to aggressively reduce costs across all aspects of its business, especially the supply chain,” wrote John Barnes in a note last week. “This can accomplish two things: reduce costs in any way possible and ensure that customers receive goods in a timely manner year round.”
The analyst, who covers UPS and FedEx, said building freight transportation capacity will reduce costs, “create deeper customer relationships,” and keep carriers “honest” around pricing and service. He sees a medium-term risk for freight forwarders and truckload carriers since Amazon’s computer prowess may enable them take over these tasks. Parcel carriers may face a longer-term risk because “a full-blown Amazon parcel delivery operation would likely take years to complete.”
A host of articles around Amazon’s delivery ambitions arrived a week before the note after Amazon confirmed that it was leasing 20 Boeing 767 freighter aircraft to support one and two-day delivery.
Last week on its third-quarter conference, Mike Glenn, president of FedEx Services, said it would require “tens of billions of dollars in capital and years to build sufficient scale and density to replicate existing networks like FedEx.” He said Amazon remains a “valuable customer” and their capacity concerns are being constantly discussed.
On its fourth-quarter conference call in late January, Amazon insisted the logistics investments would only supplement existing carrier partners.
“Those carriers are just no longer able to handle all of our capacity that we need at peak,” said Brian Olsavsky, Amazon’s CFO. “They have been and continue to be great partners.”
- FedEx & UPS: Amazon a Near-Term Threat to Stocks, Not to Business, RBC Says – Barron’s (sub. required)
- Amazon today is like Walmart in the 1980s, and that should scare anyone in its way – Business Insider
- Air Transport Services Group Confirms Deal with Amazon to Operate Air Transport Network – Air Transport Services Group
- FedEx’s (FDX) CEO Fred Smith on Q3 2016 Results – Earnings Call Transcript – Seeking Alpha
- FedEx CEO Smith Calls Amazon Challenge Reports `Fantastical’ – Bloomberg
- Amazon.com (AMZN) Management on Q4 2015 Results – Earnings Call Transcript – Seeking Alpha
- Does Amazon need its own air cargo operation – RetailWire
DISCUSSION QUESTIONS: Does it make sense to compare Amazon’s recent logistics investments to Walmart’s supply chain initiatives in the eighties? Should UPS or FedEx be concerned that Amazon may at some point bring parcel delivery in-house?