What It Would Take Amazon to Become UPS or FedEx
February 10 2018 - 7:29AM
Dow Jones News
By Laura Stevens, Jennifer Smith and Paul Ziobro
Amazon.com Inc. may have ambitions to compete against FedEx
Corp. and the United Parcel Service Inc. with its own shipping
business. But the online retail giant is a long way from reaching
the scale of America's freight titans.
On Friday, The Wall Street Journal reported that Amazon is
preparing to launch a delivery service for businesses.
Dubbed "Shipping with Amazon," the service is expected to start
in Los Angeles, serving the company's independent merchants that
sell on its site. It is envisioned to expand to additional cities
and outside businesses, too.
Still, Amazon's ability to one day haul and deliver packages for
other retailers and consumers at a national scale would require
tens of billions of dollars in investment, analysts say. It would
also need thousands of trucks, hundreds of planes and to build
thousands of sorting centers to handle millions of packages a
day.
Amazon has only leased up to 40 planes and has roughly 300
warehouses in the U.S., including fulfillment centers, sortation
centers and delivery stations, according to supply-chain
consultancy MWPVL International Inc. The company today mostly
contracts and leases with delivery couriers rather than owning its
own assets, a limiting factor, say analysts.
Amazon is "far away from having enough capacity to handle all of
its own shipping," much less having excess capacity to sell to
shippers outside its third-party merchants "and truly start
competing" with UPS and FedEx, " Wolfe Research analyst Scott Group
wrote in a Friday note.
The shipping giants have a sizable head start over Amazon. UPS
has shuttled packages for more than a century, since just before
the introduction of Ford's Model T. FedEx began more than 40 years
ago.
FedEx has roughly 650 aircraft, 150,000 trucks, 400,000
employees and 4,800 operating facilities globally to handle about
12 million shipments a day. UPS's larger operation handles more
than 20 million packages a day with service to more than 220
countries and territories globally. Its fleet includes more than
500 owned and leased aircraft and over 1,000 package cars and other
vehicles to deliver packages.
Amazon generated an estimated 1.2 billion shipments last year
domestically, according to MWPVL International. But most of those
were delivered via the U.S. Postal Service, UPS and FedEx.
"The industry is just so big, I would be shocked if FedEx or UPS
are scared right now just because Amazon is going to create an
option," said Paul Thompson, chairman of Transportation Insight, a
Hickory, N.C.-based logistics company.
Even if Amazon does start picking up some volume, "the last-mile
business at risk for UPS and FDX [FedEx] is very low-yielding and
we believe very low margin...So losing some last-mile business may
not be a bad thing," Mr. Group added. Amazon's push into delivery
could also prompt both carriers to raise rates more aggressively
because the company still depends on both to deliver much of its
package volume.
Meanwhile, picking up a few packages could generate extra
revenue for the Amazon, says Marc Wulfraat, president of MWPVL
International. The "Shipping with Amazon" option would allow the
company to use empty trucks' return trips to haul freight in urban
areas where it already has logistics infrastructure in place.
After dropping off their deliveries for the day, Amazon drivers
could swing by merchants' warehouses and load up their vehicles
with additional parcels. Those outbound packages could then be sent
on to regional sortation centers and routed to other markets by
truck or plane.
"They throw 30 packages on the truck, he [the driver] goes back
to the delivery station where he started his journey, and now the
package is in the Amazon ecosystem," Mr. Wulfraat said.
Amazon's deeper push into the delivery space adds to competition
that includes established players, as well as regional players and
startups trying to figure out how to deliver packages to homes.
"It's a very competitive space," Postmaster General Megan
Brennan said Friday in response to a question about Amazon
potentially encroaching more on delivery. "We have to earn that
business every day."
Paul Page contributed to this article.
Write to Laura Stevens at laura.stevens@wsj.com, Jennifer Smith
at jennifer.smith@wsj.com and Paul Ziobro at
Paul.Ziobro@wsj.com
(END) Dow Jones Newswires
February 10, 2018 07:14 ET (12:14 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
Amazon.com (NASDAQ:AMZN)
Historical Stock Chart
From Mar 2024 to Apr 2024
Amazon.com (NASDAQ:AMZN)
Historical Stock Chart
From Apr 2023 to Apr 2024