Amazon's Pitch to Woo Shippers: Fewer Fees Than FedEx, UPS--Update
January 23 2019 - 10:04AM
Dow Jones News
By Paul Ziobro
Amazon.com Inc., which is rolling out its own delivery network,
is trying to poach shippers from FedEx Corp. and United Parcel
Service Inc. by targeting a common complaint: fuel surcharges and
extra fees that drive up the cost of home deliveries.
Amazon recently expanded its nascent home-delivery service,
called Amazon Shipping, beyond test markets in London and Los
Angeles. The online retailer is offering to pick up shipments from
merchants' warehouses and deliver them directly to shoppers, The
Wall Street Journal has previously reported. The end-to-end service
is part of Amazon's quest to built up its own delivery network and
handle more of the millions of items sold through its site.
To woo shippers, the retailer is promising to cut out many fees
that the traditional carriers use to pad their revenues, like extra
charges to deliver packages to homes, during the peak holiday
season or on weekends, according to an email sent last week to
shippers in the New York area and reviewed by the Journal.
"If it's a guaranteed service with none of those surcharges,
they're going to undercut the residential delivery market," said
John Haber, chief executive of the supply-chain consultancy Spend
Management Experts.
An Amazon spokesperson said the company is "always working to
develop new, innovative ways to support the small and medium
businesses who sell on Amazon, including testing shipping programs
that help these businesses get packages to their customers quickly
and reliably."
Such fees can add up. The residential surcharge at FedEx is
$3.60 per parcel and $3.80 at UPS. That alone can account for more
than 40% of the average ground delivery charge, which was $8.81 at
FedEx and $8.71, according to the most recent public data.
The two carriers also impose fuel surcharges, which fluctuate
with market prices. The current weekly surcharge for a domestic
ground delivery is 6.75% at FedEx and 7% at UPS. UPS also imposed
surcharges on deliveries during the peak holiday shopping season
each of the past two years.
Mr. Haber said fees can add up to more than 30% of the shipping
cost in many cases. One merchant who reviewed Amazon's shipping
rates said they were about 10% lower than UPS and FedEx on
average.
Large carriers use the fees to cover the added costs of building
out their networks to handle the surge in e-commerce packages.
Residential delivery, for instance, can have higher costs than
delivering to businesses, where multiple items can be dropped off.
Fuel surcharges also provide transparency into one of the costs
baked into deliveries and can fluctuate.
Since Amazon's service is designed to deliver packages to homes,
not businesses, the costs of residential delivery are factored in,
eliminating the need for a surcharge. The company wants to handle
more of its own deliveries to keep up with its growth and loosen
its reliance on the U.S. Postal Service and other carriers, whose
rates continue to rise. FedEx and UPS typically raise rates an
average of about 5% annually.
Amazon's shipping pact with the Postal Service, which delivers
most of the retailer's packages to homes, also has come under
attack from President Trump for straining the agency's operations
and not generating enough profits.
In addition to leasing airplanes and trucks, Amazon is
recruiting small businesses to carry more of its deliveries during
the last leg of a package's journey to the consumer's door. It has
a program that lets entrepreneurs sign on to lease about 20 to 40
Amazon Prime-branded vans.
FedEx and UPS have in the past played down the ambitions of
Amazon, which is a significant customer to both, in the delivery
field. They have noted that it would take billions of dollars and
years of expertise to build out a full competitor with the breadth
of coverage that either carrier offers globally.
A UPS spokesman declined to comment on Amazon's moves. "UPS has
a healthy and growing small-package business," the spokesman said
"capable of transferring goods competitively from dock to doorstep
anywhere in the world."
A FedEx spokeswoman also declined to comment on Amazon's
strategy. "We are confident in our position as a global
transportation trailblazer, and optimistic about the future," the
spokeswoman said.
Amazon is promising other features that position it as more
user-friendly than traditional carriers. According to its marketing
pitch to shippers, Amazon will offer rates that are easier to
understand than the pricing systems that UPS and FedEx use and any
delivery mistakes won't impact seller ratings.
Write to Paul Ziobro at Paul.Ziobro@wsj.com
(END) Dow Jones Newswires
January 23, 2019 09:49 ET (14:49 GMT)
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