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- Amazon is developing a third-party logistics provider to compete with UPS and FedEx, a growing body of analysts and former Amazon execs say.
- UBS transportation analysts underlined those concerns in a research note on Monday.
- "Amazon’s investments in transportation are clearly a source of long term risk for UPS and FDX," they wrote.
Analysts have been increasingly warning that Amazon is going to move into the turf of UPS and FedEx as the nation’s leading delivery and logistics provider.
Last week, a former Amazon transportation executive gave credence to those warnings at a UBS last-mile panel. The event, part of UBS’s "Deep Divin’ Into Amazon’s Future" day, featured that ex-Amazonian as well as a former USPS sales executive.
In an note sent to investors on Monday, UBS transportation analysts wrote that the "Deep Divin’" discussion "provided further visibility" into Amazon’s shift towards relying on its in-house delivery network as well as USPS as its main transportation providers.
Wolfe Research; Andy Kiersz/Business Insider
Moreover, UBS analyst Thomas Wadewitz noted, "(i)t appears likely Amazon will move to a broader package delivery offering in the US over time which remains a meaningful long term risk for UPS and FDX."
And, Wadewitz added, there are "limited" ways in which the nation’s logistics providers can fight back. They could raise price during peak or on low density shipments.
"However, the efficacy of pushing these levers may be limited as higher delivery cost from the three network players provides greater incentive for Amazon to invest even more aggressively in its own package delivery capability," Wadewitz wrote.
Since last year, Amazon has been piloting a third-party logistics service called Amazon Shipping for merchants who sell on its site. The service nixes weekend fees, fuel surcharges, and other fees that FedEx and UPS place on its goods. (Some of these fees, however, like fuel charges, would be complicated to completely nix as they’re dependent on factors that neither Amazon nor UPS and FedEx can control.)
Larger factors also indicate Amazon’s interest in building up a logistics arm. Amazon declared itself a transportation company in its most recent SEC filing. And Morgan Stanley analyst Ravi Shanker said it’s clear that Amazon is looking to break into third-party logistics by looking at its quickly expanding network.
"In the last three years, Amazon has built a global end-to-end logistics network that comprises of their own internal last-mile network, their own trucks, their own trains, their own planes, their own truck brokerage, and their own air and ocean freight forwarding," Shanker told Business Insider.
"Even Amazon, as big as they are and growing as fast as they are, will not be able to fill up this network on day one," he added. "So similar to what they did with AWS, we think it’s very logical for them to improve the utilization of their network and lower their own costs by opening up to third parties."
Perhaps there’s no need for UPS or FedEx to worry now — or ever?
As for UPS and FedEx, UBS analysts wrote that the delivery giants have plenty of time to stand their ground (emphasis ours):
Amazon’s investments in transportation are clearly a source of long term risk for UPS and FDX but we believe that there is a meaningful period of time when competition from an Amazon package delivery offering is unlikely to be broad enough to have a direct impact on UPS and FDX and changes in Amazon’s use of these two suppliers is likely to be gradual. While this backdrop is not helpful for valuation of the two package players, we believe that EPS performance can still be a driver of potential upside (or downside). We maintain our positive view on UPS.
Some analysts, like Bernstein’s David Vernon, doubt that customers would want to use Amazon Air — a major venture of Amazon’s growing logistics network. He wrote that airport to airport, Amazon Air is cheaper than UPS or FedEx because of Amazon Air pilots’ lower salaries. Yet FedEx and UPS are still more cost effective door to door.
"It is reasonable to conclude that this service is neither a replacement for a FedEx of UPS network nor is it a viable commercial alternative for third party shippers," Vernon wrote in an analyst note in December.
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