E-commerce giant Amazon is reportedly considering the launch of a shipping service, "Shipping with Amazon" or "SWA," which could challenge FedEx, UPS, DHL and other express delivery players. According to a report by the Wall Street Journal (WSJ) the new service, which entails Amazon picking up packages from businesses and shipping them to consumers, will start out in Los Angeles "in coming weeks," but slated to expand almost immediately.
The news of SWA sent shares of FedEx and UPS down last Friday, because the service expansion will apparently also be offered to other businesses with Amazon undercutting those shippers on rates, the WSJ report said.
According to Retail Dive, speculation about Amazon's delivery ambitions have swirled for years, with some analysts predicting that, beyond solving its own internal logistics problems, it could be an Amazon business unto itself.
Bypassing third-party shippers like UPS and FedEx could save Amazon US$1.1 billion annually, Citigroup analysts said in 2016. That translates to savings of US$3 or more on a typical delivery, which now costs US$7.81 on average.
Amazon's shipping and fulfillment costs until its most recent quarter grew faster than its revenue, but so far the company has focused on making moves to optimise those operations, the Retail Dive report said.
FedEx has consistently dismissed the notion that Amazon is a threat to its business, and executives have noted that, even if Amazon develops its own delivery service, outside shippers would have plenty of business, even in retail.
The race has begun
Retail Dive quoted RBC Capital Markets analyst Mark Mahoney as saying last year: "We believe it is likely Amazon will make a concerted effort to take over ever larger portions of its supply chain. However, a full-blown Amazon parcel delivery operation would likely take years to complete, so we believe [FedEx] and UPS would have time to react."
However, other experts are less optimistic. Retail Dive quoted GlobalData Retail Managing Director Neil Saunders as saying that Amazon has publicly indicated that it is open to eventually making deliveries for other businesses, which could be brutal for legacy shippers.
The danger to them is twofold, he said. First, they are likely to lose business from Amazon itself. "This will be slow at first but will accelerate as Amazon rolls out more of its own delivery services," he said.
Second, if Amazon does offer delivery to businesses, it will likely do so at reduced rates. "This leaves delivery firms with the unattractive prospect of losing share in their most lucrative and profitable markets."
The new "Shipping with Amazon" service shows that Amazon is in the process of creating a wide-ranging set of operations that serve consumers while optimising efficiencies and extending its reach, which ultimately will give Amazon more power, control, flexibility, and profit, the Retail Dive report noted.
Nol van Fenema