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UPS, FedEx Downplay Amazon Delivery Fears

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Delivery giants UPS and FedEx have downplayed concerns that a new delivery service for businesses by Amazon will eat their lunch.

Shares Fell 4.3%

Shares in UPS fell 2.6% and FedEx’s by 1.7% following a report earlier in February in the Wall Street Journal that Amazon will create “Shipping with Amazon,” or SWA, which will see the online retailer picking up packages from businesses and sending them to consumers.

The stocks dipped on the back of investor fears that Amazon’s new delivery service moved the company into direct competition with its current delivery partners UPS and FedEx.

But a UPS spokesperson downplayed those concerns, saying that “there is tremendous opportunity in the business-to-customer market and more growth coming to the sector and UPS, irrespective of how other companies shift strategies”.

FedEx in a statement noted that the company has more than 40 years of experience, roughly 650 aircraft, 150,000 trucks, 400,000 employees and 4,800 operating facilities globally to handle about 12 million shipments a day.

In December FedEx executives said that while Amazon was a longstanding customer, no one customer represented more than 3% of its revenue or volume.

Amazon to Undercut Rivals on Price

SWA would enable Amazon to undercut the two delivery giants on price because Amazon already delivers some of its own items — it could fill unused space in existing trucks. Amazon currently delivers its own orders to at least 37 cities in the US.

But analysts cautioned that Amazon does not yet have the capacity or infrastructure to handle extra shipments on a large scale, and has not indicated whether it is willing to invest enough capital to do so.

Citi analyst Christian Wetherbee said in a research note: “The trigger we’ve consistently looked for from the company [Amazon] as a warning signal has been asset commitment. To date, the company hasn’t made a meaningful push into the true transportation asset ownership we believe is necessary to be a competitor.”

UPS and FedEx have dominated the market for decades and have built massive delivery networks across the US. UPS has said it planned to spend as much as $7 billion on upgrades to its delivery network this year alone.

SWA is Amazon’s latest push into deliveries after it has in recent years expanded into ocean freight, established a network of its own drivers and leased up to 40 planes to establish an air cargo hub.

Amazon has been building its own delivery network since 2013, according to the WSJ report, as more shoppers took to online retail and parcel volume grew too rapidly for existing carriers to handle.

Amazon already runs a logistics service called “FBA Onsite”, a reference to its “Fulfilment by Amazon” program which third-party sellers have to go through to qualify for Prime shipping.

Note: The opinions expressed in this article are the author's own and do not necessarily reflect the view of Alvexo on the matter.