Is Amazon preparing to dump FedEx and UPS?

Discussion
Jan 15, 2016

Depending on where you live and work, you may have noticed that more items ordered from Amazon.com are being delivered by white trucks with the Amazon logo on them. It’s not news that Amazon has been gradually expanding its own delivery capacity to reduce its reliance on shipping service providers FedEx, UPS and the U.S. Postal Service. Now, it seems, Amazon management thinks not only can it do a better job delivering its own packages, but those shipped by others as well.

Amazon, which took a 25 percent stake in the French delivery company Colis Privé, is getting ready to acquire the rest of the business. While Amazon refused comment on the report, which first appeared in the French newspaper Le Figaro, a spokesperson for Colis Privé said the company would continue to develop its “commercial portfolio” and would not solely deliver packages for Amazon.

John Haber, CEO of Spend Management Experts, a supply chain consulting firm, told USA Today that taking a full stake in Colis Privé is indication of Amazon’s intent to compete in the European parcel business. He expects Amazon to do the same in the U.S., either on its own or through the acquisition of a regional carrier.

According to an article on The Motley Fool, Amazon has been looking for the means to improve on-time deliveries following the problems experience in the run-up to Christmas in 2013. Beyond that, the retailer is also looking to get a handle on cost control. In 2014, Amazon spent over $3 billion on shipping costs, and that number jumped another 30 percent over the first nine months of 2015. The same piece said the U.S. Postal Service handles about 35 percent of Amazon’s deliveries, followed by UPS (30 percent), regional shippers (18 percent) and FedEx (17 percent).

Does it make business sense for Amazon to handle all (or nearly all) of its deliveries? Do you think an expansion of Amazon’s capacity will result in the company eventually competing directly with FedEx, UPS and the USPS to deliver packages shipped by other companies?

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Braintrust
"Given the poor performance this past holiday season by the traditional package carriers, particularly FedEx, it is not surprising that Amazon is looking for alternative delivery options."
"UPS and FedEx are at best adding 6 percent capacity a year, and Amazon is growing at better than 20 percent a year, so relying exclusively on those shippers would be putting Amazon’s whole business at risk."
"My question is: Will UPS and FedEx work with Amazon after losing the gravy runs in the cities? I believe if this happens, UPS and FedEx will charge Amazon more to do the difficult rural routes, and this could lead to an interesting battle as Amazon will try to fight any increases in cost."

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16 Comments on "Is Amazon preparing to dump FedEx and UPS?"


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Zel Bianco
Guest
6 years 4 months ago

I doubt Amazon would deliver packages shipped by other companies (why would they when you can buy almost anything from Amazon?) but I think it makes sense for Amazon to take control.

Max Goldberg
Guest
6 years 4 months ago

I don’t see how having control of its shipping would have helped Amazon when bad weather struck during the holidays. Also, why would the company want to take on the fixed costs of owning and operating its delivery services? All that said, I’d never bet against Jeff Bezos trying to tackle the last mile and control his customer experience from end to end.

Richard J. George, Ph.D.
Guest
6 years 4 months ago

Given the poor performance this past holiday season by the traditional package carriers, particularly FedEx, it is not surprising that Amazon is looking for alternative delivery options. Recall at any point in time Amazon may be in test of a number of different ways to get packages to its customers (kiosks, c-stores, schools, work, etc.). Therefore the expansion of handling its own deliveries makes sense to consider. The key question is, can Amazon deliver on its claims of a customer-focused, seamless, convenient and transparent process with its own fleet at a reasonable price? If the answer is yes then I suspect it will build out its own shipping company.

I would not recommend delivering packages for other companies. Why? A couple of reasons: 1. No need to share its differential advantage with potential competitors, 2. It runs the risk of losing its focus and concentration of resources by casting its net too wide in search of non-core business.

Jason Goldberg
Guest
6 years 4 months ago
Amazon is absolutely looking to increase fulfillment capacity and reduce costs. UPS and FedEx are at best adding 6 percent capacity a year, and Amazon is growing at better than 20 percent a year, so relying exclusively on those shippers would be putting Amazon’s whole business at risk. Further shipping is one of Amazon’s largest (and fastest growing) expenses, so they are clearly looking for opportunities to take costs out. That’s why they are buying planes, investing in shipping companies, opening sortation centers, opening campus pickup locations, etc. Like many other pieces of their infrastructure, I’m sure they will also try to sell their excess capacity to improve their scale and costs (AWS, FBA, etc.). However, I DON’T think they are looking to completely replace UPS. For one thing, Amazon uses Fedex for a lot of international freight that they are unlikely to want to replicate in the near future. And it would be much harder for Amazon to offer a commercial international freight service to 3rd parties that includes import/customs services. Target may be… Read more »
Tony Orlando
Guest
6 years 4 months ago
It makes sense to deliver in the cities where they can make multiple stops in a small area and make more money. The rural areas still amount to 85 percent of the country and there deliveries cost much more. Amazon will still use other shippers to handle these, as they simply cannot make money on it. I believe Amazon will develop its own delivery service for the large cities and use the other shippers for the rural areas. My question is: Will UPS and FedEx work with Amazon after losing the gravy runs in the cities? I believe if this happens, UPS and FedEx will charge Amazon more to do the difficult rural routes, and this could lead to an interesting battle as Amazon will try to fight any increases in cost. Nobody wants to settle for scraps that can cost a lot more per-delivery and lose the good routes. I am looking forward to see how this all turns out. Kiosks and pick up zones in rural areas in my opinion defeat the purpose… Read more »
W. Frank Dell II, CMC
Guest
6 years 4 months ago

For 11 months a year Amazon could make a case for some self-delivery. The ramp up for Christmas is unlikely to make economic sense for Amazon. This idea of self-delivery looks like when a very large supplier asked if they should open their own stores. The answer was no, 12 percent of a store’s volume does not equate to a solid retail concept. Without biased accounting and significant additional volume from non-Amazon sources, this will become a financial loser except in select markets. There are very few examples where someone moves out of their area of expertise and succeeds.

Joel Rubinson
Guest
6 years 4 months ago

It make a lot of sense for a few reasons. First, they have such a scale I assume they could create delivery logistics at a reduced cost vs. the free shipping they often offer. Secondly, if they deliver, their logos will be on trucks that are all over the place. The signage impact of this would be enormous! I remember working with the AT&T long distance team back in the mid-’90s and they would talk about the local phone companies where almost every conversation included, “Hey, those guys have the trucks!”

Finally, in terms of competing with FedEx and UPS, why not? Who would have thought that their cloud computing was a natural business extension? And it has made their stock value explode.

richard freund
Guest
richard freund
6 years 4 months ago

Maintaining a fleet of trucks and drivers would be very challenging for Amazon. They would really have to ramp up customer service. They might find that to be a bit pricey.

Li McClelland
Guest
Li McClelland
6 years 4 months ago

At first blush it would seem that Amazon-branded delivery would encounter the exact same problems during the hectic last two weeks before Christmas as the other delivery companies do: namely bad weather, not enough experienced drivers, not enough trucks and not enough hours in the day.

This sounds like a very expensive proposition for Amazon. Delivery capacity and performance is a problem for only a few weeks a year, not the whole year. Not so long ago there was a third delivery company (DHL) operating in America and it could not stay in business against UPS, USPS and FedEx. I doubt Amazon’s motivation is to become a shipping company to compete with the big two, or that retail competitors would want to have their sales delivered in an Amazon-branded vehicle.

Steve Montgomery
Guest
6 years 4 months ago

We always hear about the last mile when it is cable or delivery. That last mile requires a great deal of infrastructure to support it and a lot of work to make it work.

I can understand Amazon wanting to learn more by extending its reach into that segment of its customer supply chain, but don’t see them as wanting to build the infrastructure to replace the three companies they are using now. Supplement/replace where there is a high concentration of customer, yes; replace their suppliers’ entire network, no.

Daryle Hier
Guest
Daryle Hier
6 years 4 months ago

I’m not sure why Amazon would want to deliver packages other than their own. I do believe Amazon is simply trying to control the customer experience with a type of vertical integration. Considering deliveries are suspect with the other shippers — especially during holidays — if Amazon can do with shipping what it does with online retail, I say have at it.

Ed Rosenbaum
Guest
6 years 4 months ago

This could turn out to be the most watched thing when we come to the next holiday season. It seems each year Amazon becomes more intent on getting in the shipping business in order to attempt to solve the shipping issues encountered during the time leading up to Christmas Day. We have three companies with deep pockets all wanting the business. We have two companies wanting to keep Amazon out as a competitor. Let the fun begin.

Kenneth Leung
Guest
6 years 4 months ago

If the economics work for Amazon to be in the delivery business of its own products, no reason they shouldn’t. Jeff is always into alternative business models. After all, it created a whole cloud computing business based on needing to increase computing capacity for its online retail operations. If shipping becomes a competency of Amazon, I would not count Amazon out as a vendor of package delivery business in the same model of its cloud computing business. One thing about Amazon: it does not pigeon hole itself to be a retailer, it is a provider of goods and services.

Joan Treistman
Guest
6 years 4 months ago

Amazon continues to look at how to increase revenue and how to increase efficiency, something their customers depend on. So it does make sense for Amazon to consider alternative delivery systems including building their own. Experiments with drones illustrates their creativity and innovative drive.

The comments about cooperation with FedEx, UPS and USPS represent part of what Amazon has to take into account as it considers the financial and logistical options. I guess I’m naive enough to think Amazon will come up with a well-informed delivery strategy that works for them…to increase revenue and efficiency.

Shep Hyken
Guest
6 years 4 months ago

Amazon has thought this out, I’m sure. They know the costs, the savings, etc. What they seem to want is control. I don’t think they will dump FedEx, UPS and USPS completely, but their logistics are changing. They have more distribution centers. They don’t require the same services as in the past. That said, Amazon shouldn’t abandon their vendors completely, because they will need them for back-up. There will be times when they will be overly busy. There will be weather related issues. Any number of issues that would cause them to need the help of others.

Gordon Arnold
Guest
6 years 4 months ago
If Amazon wishes to remain relevant in the big picture of retail, the quasi fulfillment approach to e-commerce will need to be expanded in ways that are enticing to existing and new users. It is my experience in use and observation that there are several consumer deal breakers staring e-commerce in the face. Total price and product availability are the way e-commerce has and will continue to lure a majority of their consumers residing in densely populated areas. Product pricing is largely controlled by costs of goods sold (COGS) and landed costs is largely the most volatile portion of COGS. Very large brick & mortar discount retail has owned an edge over e-commerce in this most volatile aspect, that is, until less than truckload ship to store to reduce out-of-stock conditions lifted sell price needs. The growing average size of e-commerce packages and the number of quick reaction shipments is causing logistic bottlenecks that are losing the edge over the much less serious out-of-stock dilemma faced by B&M stores. Amazon and perhaps a few others… Read more »
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Braintrust
"Given the poor performance this past holiday season by the traditional package carriers, particularly FedEx, it is not surprising that Amazon is looking for alternative delivery options."
"UPS and FedEx are at best adding 6 percent capacity a year, and Amazon is growing at better than 20 percent a year, so relying exclusively on those shippers would be putting Amazon’s whole business at risk."
"My question is: Will UPS and FedEx work with Amazon after losing the gravy runs in the cities? I believe if this happens, UPS and FedEx will charge Amazon more to do the difficult rural routes, and this could lead to an interesting battle as Amazon will try to fight any increases in cost."

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