Amazon’s 3-year Transformation into a Logistical Empire
UPS and FedEx have been at the helm of the small package industry for many years.
In Q4 2017, Amazon announced plans to build out their own delivery network.
The idea was simple: Pulling operations in-house would allow Amazon to reduce shipping expenses and improve the customer experience through faster shipping options.
Based on commentary from both UPS & FedEx at the time, neither carrier seemed worried about the potential of Amazon being a threat.
When you’ve had a kevlar vest for 46 years (FedEx), and 110 years (UPS), it’s hard to imagine viable opposition from a company that started as an online book seller.
Throughout 2018, Amazon accounted for as much as 10% of UPS Revenue, and 3% of FedEx Revenue, making it one of UPS & FedEx’s largest customers, but also creating waves as a rapidly growing competitor.
In September 2018, Amazon purchased nearly 20,000 sprinter vans in an effort to reduce reliance on UPS, FedEx, and USPS.
By July 2019, Amazon was delivering nearly half of its own e-commerce volume.
Recent statistics show Amazon ships 2.5 billion packages per year in the US using their own fleet, compared to FedEx (3.4 billion), and UPS (4.7 billion).
Analysts say Amazon’s deliveries could double in the next 24 months, potentially over-taking both UPS & FedEx in terms of package volume.
Here’s where it gets interesting.
June 2019: FedEx ended its Air contract with Amazon.
August 2019: FedEx did not renew its Ground contract with Amazon. In other words, FedEx would no longer make Air/Express or Ground deliveries on behalf of Amazon.
FedEx pointed to the high-cost, low profitability, to service Amazon, and also mentioned cutting ties would allow for them to focus on more profitable business through other large online retailers.
At the time, Amazon volume was said to have accounted for 1.3% of FedEx revenues. Following back-to-back lackluster earnings reports from FedEx, there is speculation that removing Amazon’s business had more financial impact to FedEx than originally thought.
December 2019: Amazon announced that they would not allow 3rd party sellers to use FedEx, citing reliability concerns.
To accommodate the immense package influx of the Holiday shipping season, Amazon had to find other solutions to deliver their millions of packages that would have been delivered via FedEx. This included shifting volumes to UPS/USPS and continuing to handle deliveries in-house.
It appears Amazon has completely weeded FedEx out of its deliver network. One can only assume they will continue to chip away at UPS’ stake as well, until they have complete control of their own deliveries.
It will be interesting to see if and when Amazon takes all volume in-house, and still has capacity. Will they be content with expanding in-house on a large scale, or will they look for business on the outside, and compete with FedEx and UPS on their turf?
Only time will time will tell what will happen in the small package industry, but it appears that, at least for the foreseeable future, Amazon is here to stay.