Packages from Amazon Prime have been delivered by UPS, FedEx and the Postal Service. But that might be changing. [Associated Press Archive]
FedEx, UPS Shares Fall
Amazon has already shown that it can rattle the retail, grocery and health insurance industries, and now it is doing the same in the delivery business.
The online retailer is reportedly planning a new service to pick up packages from businesses and deliver them to consumers.
The service, called “Shipping With Amazon,” is expected to start in Los Angeles in the coming weeks and roll out more broadly as soon as this year, according to The Wall Street Journal, which cited anonymous sources.
Amazon, which has been edging into the delivery business for some time, would not confirm the report — but didn’t deny it either.
“We’re always innovating and experimenting on behalf of customers and the businesses that sell and grow on Amazon to create faster lower-cost delivery choices,” spokeswoman Kristen Kish said.
Shares of delivery giants UPS and FedEx slipped Friday, but so did Amazon’s stock as analysts expressed caution about the difficulty of building a competitive delivery network.
Amazon’s interest in the delivery business has been percolating ever since many Amazon packages were delivered late around Christmas in 2013. Amazon has helped fuel the boom in online shopping, but all those millions of packages are straining the networks of UPS and FedEx. Amazon also uses the U.S. Postal Service and smaller delivery companies.
Amazon has leased 40 airplanes, begun arranging ocean freight shipments from China to the U.S. and built up a corp of delivery drivers.
Executives at UPS and FedEx have downplayed the Amazon threat before, saying that it would take a massive investment over a long time to build an air and ground network to rival theirs.
There is little doubt, however, that Seattle-based Amazon has the means to build a bigger network. It had $178 billion in sales and $3 billion in profit last year and is sitting on more than $20 billion in cash.
An Amazon entry would “send shivers down the spines of the traditional delivery companies,” said Neil Saunders, managing director of GlobalData Retail.
Saunders said the delivery companies are likely to lose business from Amazon — slowly at first, then more quickly as Amazon builds out its own operation. And if Amazon starts delivering to businesses, it may undercut the incumbents on rates, he said.
Analysts estimate that UPS gets up to 6 percent of revenue from Amazon deliveries compared to about 3 percent for FedEx. Several took a wait-and-see approach to the Amazon threat.
Amazon shares fell $10.90 to close at $1,339.60; United Parcel Service Inc. dropped $2.89, or 2.6 percent, to $106.39; and FedEx Corp. fell $3.95, or 1.7 percent, to $235.32.